To clear any contention that the new Finance Bill may cause among businesses, the Accountant General of the Federation, Alhaji Ahmed Idris, has hinted that payment for all transactions entered before the new 7.5% VAT was signed into law on Monday must comply with current statutory reality.
The foregoing means business transactions that are yet to receive payment, across all levels, will now face 7.5% tax deduction. Whereas the old agreement was budgeted for under the 5% VAT regime, it will now be otherwise. The consequence is that contractors and sellers will receive less than they initially costed for as clients factor an extra 2.5% deduction into total payment.
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Speaking on Wednesday in Abuja, the Accountant-General said payment for all prior transactions under his purview will not be made until the 7.5% VAT has been deducted.
He cited an instance, “Just yesterday (Tuesday), I saw a payment which was done last year in December and when I checked the payment, the VAT on it was five per cent and I said no, it must be 7.5 per cent because the five per cent VAT has been overtaken by events because that is the law as of today”.
The objective of the new tax regime is to improve Nigeria fiscal balance and align the nation with global best practice. Although the bill was prepared in 2019 by the office of the Minister of State for Finance, Budget and National Planning, it received the necessary presidential assent this Week. Hence all transaction and payment must comply.
Contractors preparing estimates for prospective client will do well to factor the 7.5% VAT into their costing to avoid being short-changed going forward.