INTRODUCTION
On October 5, 2024, Nigeria’s Presidential Committee on Fiscal Policy and Tax Reforms, led by Taiwo Oyedele, submitted four groundbreaking tax reform bills to the National Assembly. These bills aim to address long-standing challenges in Nigeria’s tax system, including complexity, low compliance, and inefficiencies in revenue collection.
The proposed reforms seek to harmonize tax laws, reduce the tax burden on individuals and businesses, and create a more transparent and efficient tax administration system.
The four bills are:
- The Nigerian Tax Bill (NTB): Consolidates multiple tax laws into a single framework.
- The Nigeria Tax Administration Bill (NTAB): Standardizes tax administration Procedures.
- The Nigeria Revenue Service (Establishment) Bill: Replaces the Federal Inland Revenue Service (FIRS) with a unified revenue service.
- The Joint Revenue Board (Establishment) Bill: Establishes a framework for resolving tax disputes and improving coordination between tax authorities.
Key Provisions of the Tax Reform Bills
Nigerian Tax Bill (NTB)
The NTB seeks to unify Nigeria’s fragmented tax laws, including the Companies Income Tax Act (CITA), Personal Income Tax Act (PITA), and Value Added Tax (VAT) Act, into a single, simplified law. Key provisions include:
1. Personal Income Tax Reforms:
- A progressive tax rate structure is introduced:
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- 0% for incomes up to N800,000 annually.
- 15% for incomes between N800,001 and N2,200,000.
- 25% for incomes above N50,000,000.
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- Full tax exemption for members of the armed forces and low-income earners (below N800,000 annually).
2. Corporate Tax Reforms:
- Phased reduction of the company income tax rate from 30% to 25% by 2026.
- Revised definition of “small companies” to include businesses with a gross turnover of N50,000,000 or less and fixed assets not exceeding N250,000,000.
3. Value Added Tax (VAT):
- Gradual increase in VAT rates: 10% (2025), 12.5% (2026–2029), and 15% (2030 onwards).
- Introduction of 0% VAT on essential goods and services, including food, education, and healthcare.
4. Capital Gains Tax:
- Partial exemption for gains below N150,000,000 from the disposal of shares.
- Expanded definition of chargeable assets to include digital assets like cryptocurrencies and NFTs.
Nigeria Tax Administration Bill (NTAB)
The NTAB aims to streamline tax administration and improve compliance through:
- Mandatory Tax Registration: All taxpayers must register with the relevant tax authorities and obtain a Tax Identification Number (TIN). Failure to register incurs an administrative penalty of N5,000,000 for companies awarding contracts to unregistered persons.
- Tax Payment Flexibility: Taxpayers can pay taxes in installments, provided the final payment is made by the filing deadline.
- Whistleblower Rewards: The National Revenue Service (NRS) is empowered to reward whistleblowers whose information leads to effective tax collection.
Nigeria Revenue Service (Establishment) Bill
This bill replaces the FIRS with the NRS, creating a unified revenue collection agency. Key features include:
- Funding Mechanism: The NRS will be funded by a percentage of the total revenue it collects, as determined by the National Assembly.
- Legal Proceedings: Lawsuits against the NRS must be filed within three months of the alleged act or six months of ongoing damage, with a mandatory one-month pre-action notice.
Joint Revenue Board (Establishment) Bill
The bill establishes a Joint Revenue Board to resolve disputes between tax authorities and eliminate double taxation. It also creates a Tax Ombudsman to address taxpayer grievances free of charge.
Stakeholder Concerns and Criticisms
While the reforms are commendable, stakeholders have raised several concerns:
1. Trade Union Congress (TUC):
- Argues that the proposed income tax threshold of N800,000 is too low to improve living standards and recommends increasing it to N2,500,000.
2. Academic Staff Union of Universities (ASUU):
- Opposes the redirection of development levies from the Tertiary Education Trust Fund (TETFund) to the Student Education Loan Fund, warning of adverse effects on the education sector.
3. Coalition of Northern Groups:
- Criticizes the proposed VAT distribution formula, which reduces the federal government’s share from 15% to 10% and increases states’ share to 55%. They argue that this could disproportionately affect northern states, which rely heavily on VAT redistribution.
4. Executive Powers:
- Section 75(1) of the NTAB grants the President sweeping authority to grant tax exemptions, raising concerns about potential abuse and lack of transparency.
Implications for Individuals and Businesses
The proposed reforms promise significant benefits, including:
- Simplified Tax Compliance: Consolidation of tax laws and streamlined administration will reduce the compliance burden on individuals and businesses.
- Increased Disposable Income: Lower tax rates for low- and middle-income earners will boost purchasing power and stimulate economic activity.
- Enhanced Revenue Collection: Improved administration and enforcement mechanisms are expected to increase government revenue.
However, the reforms also pose challenges, such as:
- Regional Disparities: The revised VAT distribution formula may exacerbate economic inequalities between Nigeria’s northern and southern regions.
- Implementation Risks: The success of the reforms depends on effective implementation, which may be hindered by bureaucratic inefficiencies and resistance from stakeholders.
CONCLUSION
Nigeria’s tax reforms represent a significant effort to modernize the system, enhance compliance, and improve revenue generation. While these reforms promise benefits for businesses and individuals, concerns over tax burdens, regional disparities, and governance must be addressed to ensure a fair and effective implementation.
