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INTRODUCTION
The manufacturing industry is a fundamental part of any nation’s economy. The growth of this industry in Nigeria has been hindered by many factors such as the epileptic power supply, tax compliance burden, high cost of importation etc.
The government however has made conscious effort to improve fiscal policies to ensure growth and the Finance Act has made a number of changes that will impact the industry.

INTRODUCTION OF PROGRESSIVE CIT SYSTEM
Before the enactment of the Finance Act, the rate of CIT generally applicable in Nigeria was 30% of taxable profit. However, for the first 5-7 years after commencement, manufacturing companies were allowed to pay CIT at a reduced rate of 20%.
Under the new progressive CIT rate regime, Small enterprises with gross turnover lesser than ₦25 million would be exempted from CIT payment subject to prompt filing of CIT returns.
Medium sized enterprises with gross turnover between ₦25 million and ₦100 million would be assessed at a lower rate of 20%. For Large Medium sized enterprises with gross turnover between ₦25 million and ₦100 million would be assessed at a lower rate of 20%. For Large enterprises with gross turnover above ₦100 million, CIT will be applicable at 30%.
The progressive tax system will greatly improve the ease of doing business for manufacturing companies and give them a greater chance at expansion.

EXCESS DIVIDEND TAX
Section 19 of CITA provides that where the dividend distributed to shareholders exceeds taxable profit or there is no taxable profit, such dividend is deemed to be the taxable profit and the CIT rate is applied on the dividend even where the profits from which the dividend is distributed has been previously taxed, resulting in double taxation.
In essence, this has been a major area of concern to investors with the resultant adverse economic impact on investments in the sector.
The interpretation of this Section has led to several disputes between taxpayers and the tax authorities.
A good example is Oando vs. FIRS (Appeal No: FHC/L/6A/2014) where the judge ruled that the source of the dividend is not relevant under section 19 of CITA and that the section does not exempt dividend from any source from
taxation.
The Finance Act rescinds this provision by exempting dividends from retained earnings, franked investment income, pioneer profits and exempt profits from the excess dividend tax. This serves as
a major relief to shareholders as it eliminates double taxation.

Manufacturing companies are therefore encouraged to properly trace the sources of the dividends they declare so as to enjoy the exemptions.

COMMENCEMENT AND CESSATION RULE
The CITA had special rules for determining the tax base of companies commencing and ceasing business in Nigeria. These rules were called the commencement and cessation rules. Under these rules, companies faced the risk of double taxation during the first few years of operation and conversely, on cessation, a period of about 12 months escapes tax.
The Finance Act modifies this provision such that companies commencing and ceasing business will now pay taxes based on their accounting periods. The implication of this is that companies are now allowed to prepare and file taxes based on the financial statements of each accounting year.
Also, previously, companies were restricted to carry forward their first-year losses for only 4 years. The Finance Act has obliterated the restriction on the ability to carry forward prior year losses indefinitely.
Many manufacturing companies suffered the adverse effect of double taxation and the restriction on the ability to carry forward losses. Hence, the modification is a welcome development.

MINIMUM TAX PROVISION
The Act modifies the complicated procedure of computing minimum tax and definition of net asset variable. Now the minimum tax is calculated at 0.5% of the qualifying company’s gross turnover less franked investment income. This change was made with intention to shift the impact from capital based to revenue based.
Following the enactment of the act, companies with 25% imported equity capital are no longer exempted from minimum tax while small companies, companies within the first four years of commencement of business operation and agricultural companies remain exempted from minimum tax.
This change will create a level playing ground between multinational and indigenous manufacturing companies.

EXEMPTION OF EXPORT PROCEED
The CITA exempted proceeds made by Nigerian companies from exporting goods out of Nigeria provided that the proceeds are repatriated and are reinvested for the purchase of raw materials, plant, equipment and spare parts. The repatriation policy imposed unnecessary burden on manufacturing companies that sought to benefit from the incentive.
The Finance Act addresses this by requiring the companies simply to provide proof of re-investment thereby disregarding the need to repatriate the proceeds. Albeit, the exempt proceeds will be restricted to the reinvestment made.

EXEMPTION OF SMALL MANUFACTURING COMPANY DIVIDEND FROM TAX
The Act has exempted dividend received from small companies involved in manufacturing activities in the first 5 years of commencement from tax.
This will greatly encourage the appetite of investors in the industry.

THIN CAPITALISATION RULE AND INTEREST ON FOREIGN LOAN
The Finance Act introduces a new rule to our tax laws. This rule states that where a Nigerian company has foreign connected party loan, deductible interest paid should not exceed 30% of the company’s Earnings Before

Interest, Tax, Depreciation and Amortization (EBITDA). In the event where excess interest (over 30% of EBITDA) is paid, it will be disallowed in the current tax year. Although, it can be carried forward as tax deductible for a period not exceeding 5 years from the date the excess interest was first incurred.
Another amendment is the downward revision of exemption from WHT enjoyed by foreign companies for loans granted to indigenous companies. Under the CITA, foreign companies were allowed to enjoy full or partial exemption from WHT where certain conditions are met.

Furthermore, The Act also attempts to address the extensive debate over the conditions for qualifying for the exemption by defining repayment period and moratorium period.
The impact of this modification is that foreign investors may become nervous about granting loans to indigenous manufacturing companies and it may discourage long term investments.

UPWARD REVIEW OF VAT RATE
The VAT rate has been increased from 5% to 7.5%.
To soften the impact of this increase, palliative measures have been introduced for small companies.

VAT COMPLIANCE THRESHOLD
The Act exempts companies with cumulative supply of ₦25 million form registering for VAT and charging VAT.
This development will relieve small manufacturing companies of the compliance burden and afford them more time to focus on their business. It is however imperative to keep proper record as proof of qualification for the exemption.

FINE AND PENALTY
The Act provides for 10% penalty for non-remittance of VAT. The Act also states that businesses are now to register for VAT upon commencement as opposed to the former six months after commencement of the Value Added Tax Act or business. Failure to register upon commencement will attract a fine of ₦50,000 in the first month and ₦25,000 for each moth the default continues. The same fine applies to failure to file monthly return and failure to notify FIRS of change of address.
Manufacturing companies are therefore advised to remit and file returns promptly to avoid fines and penalties which may have significant impact on the company.

EXPANSION OF THE LIST OF BASIC FOOD ITEMS AND GOODS
The Finance Act has taken a step further by expanding the definition of basic food item to include a list of staple food, food additives and water including mineral water.

EXCISE DUTY ON IMPORTED GOODS
Prior to enactment of the Finance Act, excise duty was applicable on excisable goods, such as cigarettes, wines, spirit, beer, stout etc., manufactured in Nigeria. However, such goods when imported into Nigeria did not attract excise duty.
The Finance Act seeks to address this disparity by subjecting imported excisable products to excise duty.
The Act, however, exempts categories of imported goods which are not locally manufactured/available from being charged to excise duties.

CONCLUSION
The Finance Act has gone a long way to address many controversies in the tax laws and to make changes that will support small businesses in the manufacturing sector.
These changes will have tremendous impact on the manufacturing industry. The incentive will improve the ease of doing business in Nigeria and stimulate economic growth.
It is therefore imperative that manufacturing companies gain adequate knowledge of these changes and how it affects their business to enable them establish a sustainable tax plan and exploit this opportunity. This will in addition to the changes boost investors’ confidence.