The tax reform bills proposed by President Bola Ahmed Tinubu have ignited a passionate debate across Nigeria, with both critics and supporters voicing strong opinions.
While many remain unaware of the sweeping changes these reforms intend to introduce, it’s clear that the measures are designed to modernize Nigeria’s outdated tax system, ease financial burdens on the poor and small businesses, and encourage economic growth. Here’s everything you need to know about the tax reforms, explained in straightforward terms.
What’s the fuss about?
In October 2024, President Tinubu sent four significant tax-related bills to the National Assembly: the Nigeria Tax Bill, the Nigeria Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill. These bills seek to overhaul Nigeria’s tax system, making it more efficient and fair. However, they’ve sparked controversy, particularly over the revenue-sharing formula and the perceived fairness of the changes. While the reforms have their critics, they are primarily designed to benefit everyday Nigerians, particularly low-income earners and small businesses. Below are 23 key points about these reforms that you probably didn’t know:
Key Features of Tinubu’s Tax Reforms:
1. Income Tax Relief for Low Earners
- Individuals earning N800,000 or less annually will be exempt from income tax, saving N84,000 per year.
2. Higher Threshold for Maximum Tax Rates
- Only individuals earning above N50 million annually will be subject to the 25% income tax rate, a significant increase from the previous threshold of N3.2 million.
3. Small Business Tax Exemptions
- Small businesses with turnovers below N50 million annually will no longer pay income tax, an increase from the current N25 million threshold.
4. Reduction in Corporate Tax Rates
- Corporate tax rates for medium and large companies will decrease from 30% to 25% by 2026, offering substantial savings for businesses.
5. Elimination of ‘Minimum Tax’
- Companies that fail to declare profits will no longer face the mandatory 1% gross earnings tax that was previously imposed.
6. Lower Burden on Large Firms
- A new 2% development levy will replace the current 3.75% additional taxes, with the proceeds going directly toward funding student loans starting from 2030.
7. Changes to VAT Sharing Formula
- States will now receive 55% of VAT revenue (up from 50%), while the federal government’s share will drop from 15% to 10%.
8. Progressive VAT Increase
- VAT rates will gradually increase from the current 7.5% to 15% by 2030, but basic necessities like food and medicine will remain exempt.
9. Affordable Essentials
- Basic necessities such as food, electricity, school fees, and medical services will remain VAT-free, ensuring that prices stay affordable for low-income Nigerians.
10. Incentives for Gas Investment
- The reforms offer tax breaks for gas projects to encourage investment in both associated and non-associated gas, helping to improve Nigeria’s energy supply.
11. Revolutionizing Tax Administration
The Nigeria Tax Administration Bill introduces new approaches to ensure compliance and fairness:
- Catching Tax Evaders: High spenders (those spending N25 million/month for individuals or N100 million/month for businesses) will be flagged for tax audits based on their bank records.
- Payment Flexibility: Taxes assessed in foreign currencies can now be paid in Naira at official exchange rates.
- Streamlined Tax Collection: The Nigeria Revenue Service (NRS) will assume control of tax collections, taking over responsibilities from agencies like Customs, to ensure better oversight.
- Tax Refund Guarantees: Verified tax refunds will be paid promptly, with funds deducted directly from collections to ensure quick payments.
12. Empowering Local Governments and Simplifying Taxes
- The Joint Revenue Board Establishment Bill aims to enhance tax administration at the local government level:
- Local Revenue Committees: Local governments will manage taxes, fines, and rates within their jurisdictions to boost efficiency.
- Harmonized Offenses and Penalties: Tax penalties will be standardized across the country to improve compliance.
- Dispute Resolution: A Tax Appeal Tribunal will settle disputes, including disagreements over tax residency issues.
- Taxpayer Advocacy: A Tax Ombudsman Office will be established to help citizens who feel they have been unfairly treated by tax authorities.
Why This Matters
Proponents of President Tinubu’s reforms argue that the measures are pro-poor, pro-growth, and pro-efficiency. With exemptions for low-income earners and small businesses, as well as incentives to encourage local economic activities, these reforms are seen as a way to reduce Nigeria’s reliance on oil revenues. By broadening the tax base and making the system more inclusive, the reforms aim to create a fairer tax structure that supports national development while benefiting everyday Nigerians.
What’s Next?
The tax reform bills have already passed their second readings in the Senate and are now awaiting public hearings. The bills’ passage is crucial for the Nigerian economy’s future, as they promise to address long-standing issues in the country’s tax system. While the debate continues, analysts agree that, if implemented correctly, these reforms could fundamentally transform Nigeria’s tax ecosystem, boost revenue, and help millions of Nigerians.
As the discussions unfold, many are hopeful that these changes will provide the much-needed framework for sustainable economic growth, improve the business environment, and alleviate the financial struggles of the Nigerian people.
