The Federal Government is proposing a reduction of the minimum tax rate to be paid by companies in the next fiscal year, due to the current economic climate exacerbated by the devastating impact of the coronavirus pandemic.
In the new proposal, the Federal Government plans to reduce the minimum tax rate from 0.5% to 0.25% of the gross turnover of the company.
According to a report from Punch, this disclosure is contained in the new draft Finance Bill 2020, which is being proposed by the Fiscal Policy Reforms Committee that was set up by the Federal Ministry of Finance, Budget and National Planning, and chaired by the Special Adviser to the President on Economic Matters, Dr Adeyemi Dipeolu.
The document from the Fiscal Policy Reforms Committee partly reads, “In light of the current economic climate, it is proposed that the rate of minimum tax is reduced from 0.5 per cent to 0.25 per cent of gross turnover, for the period ending between January 1, 2020, and December 31, 2021.’’
It should be noted that the Finance Bill 2019 which was assented to by President Muhammadu Buhari, changed the basis for computing minimum tax to 0.5% of the gross turnover of the company.
Minimum tax by definition is a tax that is payable by companies having no taxable profits for the year or where the tax on profits is below the minimum tax.
However, according to PricewaterhouseCoopers, some businesses that are exempted from the minimum tax in the first 4 calendar years of business operations include agriculture business or small companies.
The committee is also proposing a modification of the definition of the gross turnover, as the definition of gross turnover in Finance Act 2019 did not explicitly clarify the scope of income to consider in determining the gross turnover of a company for minimum tax purposes.
What you should know
Nairametrics had earlier reported that the Federal Government was proposing the exemption of small businesses from the payment of Tertiary Education Tax (TET), which is being collected by the Federal Inland Revenue Service (FIRS) in the new draft Finance Bill 2020.
This was seen as part of measures and incentives introduced by the government to assist small businesses who are still battling with the devastating impact of the coronavirus pandemic outbreak.