The House of Representatives has approved new tax reform bills that introduce significant exemptions and structural changes to Nigeria’s tax system.
Once implemented, the bills will exempt wages earned by military personnel, pension funds, revenues of religious organizations, profit-oriented schools, trade unions, and cooperative societies from taxation.
Additionally, the Tertiary Education Trust Fund (TETFund) will receive 50% of the revenues generated from the newly introduced development levy.
Legislative Process and Unanimous Adoption
The passage of these bills followed extensive deliberations, including a three-day public hearing and an eight-day retreat. The House unanimously adopted the recommendations of its Special Ad-hoc Committee on Finance during Thursday’s plenary session.
With the House completing its review, the Senate is expected to deliberate on its version of the bills this week. Meanwhile, the House has scheduled the third reading and final passage for Tuesday’s plenary session.
How Speaker Tajudeen Secured Consensus
Sources within the House leadership revealed that Speaker Abbas Tajudeen played a pivotal role in securing broad support for the bills, which initially faced opposition.
To facilitate smooth passage, the Speaker:
- Temporarily suspended other legislative matters to prioritize discussions on tax reforms.
- Directed lawmakers to consult their constituencies for public input.
- Held state and zonal caucus meetings to harmonize positions before the bills reached the second reading.
- Expanded the House Committee on Finance to include regional leaders, caucus leaders, and tax experts from each state.
Through continuous engagement with lawmakers and the public, Speaker Tajudeen secured the backing of previously opposed members by the time the bills reached the public hearing stage.
Key Provisions of the Tax Reform Bills
The approved bills introduce sweeping reforms aimed at improving revenue generation, streamlining tax administration, and repealing outdated tax laws.
1. Establishment of the Tax Appeal Tribunal
- Expands the tribunal’s jurisdiction to cover all federal and state tax laws.
- Grants it the power to adjudicate tax disputes under Nigerian tax laws.
- Provides independent funding from the Consolidated Revenue Fund.
2. Creation of the Tax Ombudsman Office
- Ensures independent oversight and financial autonomy.
3. Mandatory Tax Identification Number (TIN)
- Every taxable entity, both private and corporate, must obtain a Tax ID.
- If a tax authority refuses to issue a TIN, it must provide reasons within five days.
4. Filing and Tax Return Requirements
- Companies, whether exempted or not, must file a self-assessment tax return annually.
- Companies ceasing operations must file returns within six months of closure.
5. VAT Reporting and Fiscalisation
- Every taxable person must submit monthly VAT returns by the 21st of the following month, even if no economic activity took place.
- Financial institutions must report transactions exceeding ₦50 million (for individuals) or ₦250 million (for corporations) to the tax authority.
6. Taxation of Large Transactions
- Banks, insurance firms, and stockbrokers must report high-value transactions.
- Non-compliance attracts penalties, including fines and potential license revocation.
7. Petroleum and Mining Sector Provisions
- Non-payment of petroleum or mineral royalties after a demand notice may lead to revocation of the company’s license or lease.
- At least 35% of decommissioning and abandonment funds must be deposited in a Nigerian bank.
8. Tax Penalties and Offenses
- Failure to remit collected taxes attracts a fine of up to 50% of the withheld sum and possible imprisonment.
- Non-compliance with fiscalisation rules results in penalties of ₦200,000 plus 100% of unpaid tax.
- Late payment of mineral royalties incurs a 10% penalty and interest.
National Single Window Portal for Trade
- Legalizes the establishment of a National Single Window Portal to streamline import and export processes.
- The platform will serve as a single-entry point for submitting trade documents, making payments, and enhancing revenue assurance.
Tax Exemptions and Incentives
Exemptions for Individuals and Institutions
The bills confirm tax exemptions for:
- Military personnel wages.
- Pension funds, gratuities, and retirement benefits.
- Revenues of religious bodies, trade unions, and cooperative societies.
- Real estate investment company dividends and rental income.
- Agricultural companies, venture capitalists, and start-up investments.
- Schools and educational institutions.
Income Tax Brackets and Rates
The new tax regime sets the following personal income tax rates:
- ₦0 – ₦800,000: 0%
- Next ₦2.2 million: 15%
- Next ₦9 million: 18%
- Next ₦13 million: 21%
- Next ₦25 million: 23%
- Above ₦50 million: 25%
Development Levy and Revenue Allocation
The controversial Development Levy will be imposed at 4% of assessable profits for all companies (excluding small businesses and non-residents). The revenue distribution is as follows:
- TETFund – 50%
- Nigerian Education Loan Fund – 3%
- National Information Technology Development Fund – 5%
- National Agency for Science and Engineering Infrastructure – 10%
- Social Security Fund – 10%
- Defence Infrastructure Fund – 10%
- Nigeria Police Trust Fund – 5%
- National Sports Development Fund – 3%
- National Board for Technological Incubation – 3%
- National Cybersecurity Fund – 1%
This levy is expected to replace most corporate taxes, except the Student Education Loan Fund Levy, which remains in place until 2030.
Impact on Free Trade Zones
- 100% tax exemption for businesses that export all their goods or services.
- Partial tax exemption for businesses with at least 75% export sales.
- Full taxation for companies that export less than 25% of their products.
Conclusion
The passage of these tax reform bills marks a significant milestone in Nigeria’s efforts to improve revenue generation while providing exemptions for key sectors. The reforms aim to balance economic growth with fiscal responsibility, ensuring a fairer and more efficient tax system.
With the Senate now set to review its version, the final shape of the tax reforms will depend on further legislative deliberations.
