Dear Business Owner,
Welcome to the year 2022. We believe that you will have a fruitful and rewarding run this year.
The new year often presents us with an opportunity to review and re-evaluate. We hope you have taken the time to reflect upon your business in the past year and to make viable plans for this year. Your plans should include the goals you will attain as a business, your strategy for attaining those goals, and of course your budget.
Speaking of budget, President Muhammadu Buhari signed the 2022 Appropriation bill on the 31st of December 2021. The budget tagged “Budget of Economic Growth and Sustainability” is designed to achieve the following:
- Diversification of the economy with robust growth of MSMEs
- Investment in critical infrastructure
- Strengthening security and ensuring good governance
- Enabling a vibrant educated and healthy populace
- Reducing poverty and minimizing regional, economic, and social disparities
In this month’s Newsletter, we will analyze the 2022 national budget, highlighting the portions we consider most vital to you and your business
Why You Should Care About the National Budget
The budget impacts the economy, and the state of the economy impacts your business. Every serious entrepreneur looking to draw up budgets for his business (which we highly recommend) and put in place pragmatic plans for business growth must not do so in isolation of the national budget.
Below are a few of the ways that the national budget might affect your business
How money is spent and invested by the ministry of finance impacts fiscal deficit
The extent of the deficit and how the deficit is being financed impacts money supply and interest rates in the economy
High-interest rates imply a higher cost of capital, lower profits, and lower stock prices
Higher taxes reduce disposable income
Reduced disposable income, in turn, reduces the ability to pay for goods and services
A decrease in demand for goods may translate to a decrease in your profit margin as a business
Now that we have convinced you to care, let’s dive right into analyzing the budget
The deficit of N6.39tn is expected to be financed by new borrowings, privatization proceeds and drawdown on loans secured for specific projects.
- Benchmark Oil price – US$62 per barrel
- Oil production volume – 1.88 million barrels per day
- Inflation rate – 13%
- Average exchange rate – N410.15 / US$1
- GDP growth rate – 4.2%
Below are some of the ways the government plans to raise money for funding the budget
- Enhancing tax and excise revenues.
- Reviewing the effectiveness of policies for tax waivers and concessions
- Increasing customs revenue through technology
- Preserving the revenue derived from the oil and gas sector.
Implications for the Business Owner
- The budget has a deficit of N6.39trn to be funded largely via borrowing. To put things in perspective, this deficit is 35% higher than the total amount budgeted for in 2015. Increasing government debt has consequences on the economy that could trickle down to your business, such as an increase in taxation, interest rates etc.
- There is no provision in the budget for fuel subsidy from the 2nd half of the year. You should be prepared to pay higher amounts for PMS once this subsidy is removed. This will impact your cost of doing business directly through increased power and transportation costs, and indirectly through the expected inflationary impact of the subsidy removal. We recommend that you make adjustments to this. However, it is not a certainty that the subsidy will be removed by the government.
- The government has imposed a 6% tax on the turnover of Offshore companies providing digital services to individuals in Nigeria. This includes services such as electronic data storage, high-frequency trading, online advertising etc. In addition, the companies are obliged to charge, collect, and remit VAT. This will cause a marginal hike in your cost of consuming digital products/services. For example, your social media advertising cost will be affected by this.
- The government has also imposed an N10 per litre excise duty on all non-alcoholic, carbonated, and sweetened beverages in the country. Whether you are trading in these beverages or consuming them, you should expect a marginal increase in their prices
On the bright side, monies have been set aside in the budget for conducting the national population and housing census. The last time Nigeria had a national census was 15 years ago. Data from the census will better position the government to strategize and make decisions that affect national development
Also, there has been an expansion in the country’s revenue base. This year, 65% of projected income will come from non-oil sources. This will better stabilize the economy, cushioning it from shocks that may arise due to movements in international oil prices.
2021 FINANCE ACT: SOME NOTABLE CHANGES
Recall that we shared major highlights of the 2020 finance act with you last year. On the 31st of December 2021, the 2021 finance bill was signed into law. Below are some of the changes introduced by the new act:
- Increase in Education tax payable by Nigerian companies from 2% to 2.5%
- 10% Capital gains tax chargeable on disposal of shares worth N100m or above in any 12 consecutive months, except the proceeds of such disposal is re-invested in the shares of a Nigerian company.
- FIRS has been mandated to enforce the payment of the Nigerian Police Trust Fund levy. Rate is 0.005% of the net profit of companies operating in Nigeria
- Companies engaged in educational activities are now expected to pay Corporate Income Tax, including those whose activities are of public character
Companies operating in select sectors with a turnover of N100m and above are subject to a science and engineering levy of 0.25% of their profit before tax. The sectors include banking, mobile telecommunication, ICT, aviation, maritime, and oil and gas.
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