President Bola Ahmed Tinubu’s tax reform initiative is a significant step toward restructuring Nigeria’s fiscal landscape. These reforms, transmitted to the National Assembly through four executive bills, aim to modernize the tax system, foster economic growth, and create a more equitable distribution of the tax burden.
The tax reform package includes the following bills:
- Nigeria Tax Bill, 2024
- Nigeria Tax Administration Bill, 2024
- Nigeria Revenue Service (Establishment) Bill, 2024
- Joint Revenue Board (Establishment) Bill, 2024
The Federal Executive Council (FEC) proposed these bills, which were recently passed for a second reading in the Senate. Senate President Godswill Akpabio has tasked the Committee on Finance, led by Senator Sani Musa, to conduct further legislative review, invite stakeholder input, and report back within six weeks.
What the Bills Propose
- Tax Reliefs for Low-Income Earners and Small Businesses:
Workers earning less than ₦1 million annually will be exempt from income tax.
Small businesses with annual turnovers below ₦50 million will also be exempt from taxes.
- Corporate Tax Adjustments:
The company income tax rate will be reduced from 30% to 25% for at least two years to stimulate business expansion.
- Revised VAT Distribution:
State governments will receive 55% of VAT revenue, while the Federal Government’s share will decrease to 10%, and local governments will retain 35%.
- Increased VAT Rate:
VAT is expected to rise from 7.5% to 10% by 2025, with exemptions for essential sectors such as baby products and electricity generation.
- Focus on Modernization and Technology:
Provisions for digital taxation aim to regulate tech-based revenues, while new mechanisms address cryptocurrency market taxation.
- Other Innovations:
Tax credits for investments in infrastructure, exemptions for SMEs, and enhanced convenience for multinational operations by allowing taxes on foreign currency transactions to be settled in naira.
The public hearing on the reforms is yet to be scheduled. Stakeholders are studying the reforms to prepare comprehensive responses for the Senate’s consideration. The reforms have sparked a mix of optimism and concerns. Supporters highlight the potential for economic growth, improved compliance, and fiscal stability, while critics caution against increased burdens on consumers and businesses, particularly with the VAT hike.
Tinubu’s tax reforms aim to address inefficiencies in Nigeria’s tax-to-GDP ratio, which hovers at 8%, significantly below Africa’s average of 17%. These adjustments are designed to increase transparency, reduce administrative burdens, and foster trust in government spending.
This sweeping overhaul reflects Tinubu’s commitment to creating a fairer and more robust fiscal framework, but its success hinges on effective implementation and the equitable use of generated revenues.
