The draft Finance Bill 2020 contains a proposal for the reduction of the minimum tax rate to be paid by companies next year in light of the current economic climate, according to the Fiscal Policy Reforms Committee.
The Fiscal Policy Reforms Committee, which was established by the Ministry of Finance, Budget and National Planning, is chaired by the Special Adviser to the President on Economic Matters, Dr Adeyemi Dipeolu.
“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,” a document from the committee said.
It noted that the Finance Act 2019 changed the basis for computing minimum tax to 0.5 per cent of the gross turnover of the company.
Minimum tax is payable by companies having no taxable profits for the year or where the tax on profits is below the minimum tax.
However, companies in the first four calendar years of business, companies engaged in the agriculture business, or small companies are exempt from minimum tax, according to PricewaterhouseCoopers.
According to the committee, there is also a proposal to modify the definition for gross turnover.
“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,” it said.
It added that the revised definition would clarify any ambiguity in the categories of income that qualified as turnover for minimum tax purposes.