Nigeria is seeking to harmonise its complex tax system with a new bill that is aimed at ending multiple taxation, increasing revenue generation and lowering recurring borrowings.
But the reforms have generated controversies, with many northern leaders calling for a withdrawal. Other stakeholders have equally urged President Bola Tinubu to engage in wider consultations before assenting to it.
Taiwo Oyedele, chairman of the Presidential Tax Reforms and Fiscal Policy Committee, has continued to emphasise that the tax reforms are necessary to restore confidence in the Nigerian economy, reduce poverty levels and enhance shared prosperity.
He said the tax reforms are aimed at alleviating the rising cost of living, fostering economic equity and creating a business-friendly environment to attract local and foreign investments.
Read also: Can Nigeria tax reforms bridge the nation deep financial gaps?
Here are 10 changes that will happen with the tax reforms:
States, local governments get 90% of VAT revenue
Under the new tax system, the value added tax (VAT) sharing formula will be restructured to allocate 90 percent of revenue to state and local governments, while the federal government will receive only 10 percent.
This is a shift from the current arrangement, where 85 percent goes to states and local governments while 15 percent is taken by the federal government.
Digitisation in tax collection may phase out ‘Agberos’
The tax reforms come with digitalisation in tax collection, which could potentially phase out cash transactions and eliminate informal tax collectors. This means that the notorious activities of ‘Agberos’ or touts who levy unofficial taxes on transporters may end.
FIRS may go
The reforms propose to replace the Federal Inland Revenue Service (FIRS) with the Nigeria Revenue Service (NRS). The NRS will perform a broader role of revenue administration in Nigeria and drive collaboration with subnational governments as well as ministries, departments and agencies (MDAs).
Joint Revenue Board (Establishment) Bill
This bill is set to transform the Joint Tax Board (JTB) into the Joint Revenue Board (JRB) with an expanded mandate and enhanced role for cooperation and tax harmonisation. It will also set up the office of the tax ombudsman to protect taxpayers and advocate for tax simplification.
Read also: Analysts applaud proposed tax reforms, call for PIT review
Intelligence to be integrated to economy
With the new tax reforms, intelligence will be integrated into the economy.
In an interview with BusinessDay, Oyedele said: “What you do on your phone with your payment cards, your bank accounts, with imports and exports, what you do when you travel abroad will be tracked and linked. There’s actually nothing you can do that the system cannot track, even in the villages,” he said.
Simplifying corporate taxation
The new law also proposes merging the Education Tax, IT Levy, Police Fund Levy, and NASENI Levy into a single four percent tax, with the potential to lower it to two percent in the future. Businesses will benefit from this simplified tax structure, and those operating in priority sectors will get tax relief if certain investments are met for a particular time.
Boosting exports
Goods, services, and intellectual property exports will benefit from zero-rated VAT and other incentives to enhance Nigeria’s global trade competitiveness.
Support for small businesses
Tax exemptions, including zero percent corporate income tax, VAT, and withholding tax will apply to small businesses with an annual turnover of N50 million or less.
Relief for workers and households
Minimum wage earners will be exempted from Pay As You Earn (PAYE).
Essential items such as food, education, healthcare will enjoy zero VAT, with rents, public transportation, and renewable energy exempted from tax to provide relief for low-income households that spend nearly 100 percent of their income on these basic needs.
Read also: Growing opposition threatens Tinubu tax reforms
Simplifying and rationalising taxes:
Over 50 archaic taxes are to be repealed, while the remaining levies will be harmonised into a few taxes. Corporate income tax rates will reduce from 30 percent to 25 percent over the next two years.
Also, there will be progressive personal income tax, VAT, and capital gains tax.
The reforms also introduced the Tax Ombudsman to improve the tax system by protecting vulnerable taxpayers and advocating for fairness.
