The fiscal policy partner and African tax leader at PricewaterhouseCoopers (PwC), Taiwo Oyedele, explains the tax implications of the Central Bank of Nigeria’s (CBN) new policy on limits on over-the- counter cash withdrawal as well as withdrawal limits for ATM and POS.
Oyedele disclosed that the new cash withdrawal limit has tax implications, especially for individuals and Micro Small and Medium Enterprises (MSMEs).
He noted that the policy will force more people to make transactions using electronic payments, that these small businesses currently operate mostly in cash that can be seen by the tax authorities.
Oyedele announced this in a series of tweets posted on his official Twitter account, where he said the policy would trigger tax liabilities including income tax.
Possible tax implications
Oyedele said, ”The new cash withdrawal limit has tax implications, especially for individuals and MSMEs. As more people will be forced to make transactions using electronic payments, small businesses that currently operate mostly in cash will be seen by the tax authorities.
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“This will trigger various tax obligations including income tax.
” If your business is registered as a company you may be liable to Company Income Tax (CIT) depending on your annual turnover (ie no CIT if your turnover is below N25 million, 20% if your turnover is between N25 to N100 million, 30% if your turnover is more than N100 million) plus Education Tax at 2.5%.
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If your business is not registered as a company then you are liable to personal income tax based on graduated income tax bands between 7% and 24%.”
Furthermore, the tax expert said all businesses are required to register for Value Added Tax (VAT) and charge 7.5% on their goods and services except those with annual turnover below N25 million.
On Pay As You Earn (PAYE), Oyedele noted that all employees who earn more than N30,000 monthly are liable for PAYE which must be deducted and paid to the tax authority by the employer every month. He said these employees may also be liable for other statutory contributions such as pension depending on the strength of your staff.
He added that the more transactions these individuals make, the more intelligence the tax authorities will get to track their income and net worth to quickly catch tax evaders.
What to do
Oyedele listed some actions to be taken by the government and regulatory authorities as well as tax payers, to ensure the smooth operation of the policy. The steps to be taken include;
- Register with the relevant tax authorities (FIRS and the State Internal Revenue Service where you operate).
- Open a separate bank account for business (or dedicate one for that purpose if you already have a business account) and don’t mix business with personal transactions.
- The government on its part must sensitize the general public, especially small business owners, and the CBN must ensure a proper handshake with the fiscal authorities. For example, conditions for excess cash withdrawals may include a Tax Identification Number.
To catch up
Remember that on December 6, 2022, the CBN in a new circular set a limit on over-the-counter cash withdrawals, Automated Teller Machine (ATM) withdrawals, and point of sale (PoS) withdrawals.
The top bank in the new policy says that deposit banks and other financial institutions must ensure that over-the-counter withdrawals of money by individuals and corporate entities are not exceeds N100, 000 and N500, 000, per week.
After the policy, all cash withdrawals above the stated limits will attract a processing fee of 5% and 10%, respectively.