Nigerians have long desired an overhaul of the tax system. They finally got their wish. But do the new tax acts inspire confidence?
Last month, the country finally got a new tax system when President Bola Ahmed Tinubu signed the Tax Reform Bills into law. The final approval comes after months of bickering over aspects of the bills by some Nigerians. The new tax law is really a four-in-one law. These are: the Nigeria Revenue Service Act (NRSA), the Nigeria Tax Act (NTA), the Joint Revenue Board Act (JRBA), and the Nigeria Tax Administration Act (NTAA). The new tax system, which will become operational early next year, is expected to usher in a better tax administration, boost government revenue, reduce business costs, reduce financial burden on low income earners and SMEs, and drive economic growth. Businesses that make N100 million yearly are exempted from company income tax while individuals who earn N800,000 and below yearly are now exempted from income tax.
Essentially, the new tax regime seeks to achieve four key outcomes: reduce the financial burden on low income earners and small businesses to encourage more household spending and investments by SME; ensure equity in taxation; encourage compliance by simplifying the system; and articulate a new tax system that aligns with a digital economy.
Taxation in Nigeria
Historically, taxation has been a thorny issue in the country. On the one hand, the government claims Nigerians have one of the lowest tax burdens in Africa and even across the world and yet compliance is poor and the tax base is narrow. Many, however, will argue against the rates being among the lowest. Tax collection though has remained inadequate. As a result of this, government revenue from taxes is abysmal. While smaller economies like Kenya and Ghana, for instance, have a double digit tax-to-GDP ratio, Nigeria’s tax-to-GDP ratio, that is, tax earnings as a percentage of the GDP, have historically been below the 10% threshold. This is not surprising because focus continues to be on the oil & gas industry to drive government revenue to the negligence of other revenue sources.
On the other hand, Nigerians believe they have a high tax burden, both formal and informal. The bulk of the taxes paid are informal in nature, hence their non-capture. They point to the implicit taxes they are compelled to pay through self-help where they provide essential services like road maintenance, water, security, and others for themselves. So, the citizens, who continue to operate under some of the poorest and most dilapidated infrastructure, question the value of paying formal taxes without corresponding services from government.
Other challenges of the old tax system
Other than a narrow tax net, other challenges with the old tax system include: multiple taxation, cumbersomeness, opaque and unequitable tax laws, costly compliance, narrow tax net, and corruption. These shortcomings largely discourage tax compliance.
Multiple taxation
The country has about 70 types of taxes and levies collected by the three tiers of government: local, state, and federal governments. There are signage, mobile advertising, sales, market, stall, and many other taxes. States would duplicate a federal tax and the local government would do likewise. An example is Value Added Tax from which states derived Sales Tax. Both state and local governments charge environmental levy under different names; Company Income Tax is duplicated as Business Premises Levy; Signage fees are charged by two tiers of government; and the list goes on.
How the new tax acts address multiple taxation
The Joint Revenue Board (Establishment) Act, 2025, one of the four new tax acts, establishes the Joint Revenue Board (JRB). JRB is charged with the responsibility to harmonise taxes across the three tiers of government. JRB will lead intergovernmental coordination on tax policy and administration in Nigeria.
Cost of compliance
There is no doubt that multiple taxation adds an extra layer of tax burden on the taxpayers, particularly businesses which incur extra costs in computing different tax obligations, filings and payments of such taxes. Businesses have to deal with different agencies of governments to file their taxes. It is cumbersome and cost inefficient. This is one reason the cost of doing business in the country is high.
How the new tax acts address compliance cost
The new tax law has collapsed many of the legacy taxes under one umbrella to reduce fragmentation and multiple offices. The NTA has repealed and consolidated legacy laws such as Capital Gains Tax Act, Companies Income Tax Act, Stamp Duties Act, and others thus making tax filing more efficient. Most importantly, tax filing by businesses can now be done without audited accounts, reducing cost.
Cumbersomeness
The tax laws are complex and difficult to understand. In some cases, even professionals struggle to understand the laws. The multiplicity of taxes and different tax agencies tend to compound this. Sometimes, taxpayers are not even aware of the existence of certain taxes. Tax officials often fail in their responsibility to provide adequate information on tax laws.
How the new tax acts address cumbersomeness
The consolidation of some outdated statutes and legacy taxes is expected to simplify the tax law thus making understanding easier leading to better compliance. Taxpayers’ education is also envisaged and addressed in the new tax. One of the key functions of the JRB is to facilitate capacity building both for tax officers and tax payers. It is also charged with publishing tax information on tax waivers, incentives issued by all levels of government, and exemptions to ensure transparency and that taxpayers are fully aware of their tax obligations at all times. The JRB membership is broad based, with representatives of key revenue-generating federal agencies, the Services, Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), chairpersons of all state Internal Revenue, and private-sector consultants as members, to ensure thorough knowledge and understanding of tax regimes across the country.
Narrow tax net
Very few taxable Nigerians actually pay tax. Only about 8% of the country’s GDP comes from taxes. This could be traced to a number of issues, including poor tax laws that are cumbersome and costly to comply with, the highly informal nature of business enterprise. More than 80% of SMEs, the key drivers of the economy, operate informally and their activities are not adequately captured. The informal sector often operates without proper bookkeeping and records. In such cases, tax assessors often resort to estimates to determine tax liabilities. Such is prone to errors; the taxpayer is either overtaxed or undertaxed. The lack of trust of the government by the citizens due to widespread official corruption, which has often led to government failing to provide necessary infrastructure. Failure of government to prioritise tax collection; it has been more interested in revenue from oil and gas, and has shown little interest in tax enforcement. Government needs to widen the tax net to boost its revenue and reduce reliance on excessive public sector borrowing.
How the new tax acts address narrow tax base
The act has mandated the issuance of a Taxpayer Identification Number (TIN) for taxable citizens, even non-resident businesses that make money from Nigeria. This will ensure proper digital records of all taxpayers, individual and corporate. And the TIN is to be linked to financial activities and tax transactions of the TIN owner. JRB has been charged with harmonising the integration and maintenance of the national taxpayer identification database (TINs). This should widen the tax net. The simplicity, transparency, and consolidation of taxes, as well as the tax rebates, should encourage Nigerians to pay. TIN will also make enforcement less challenging. The new tax law, through NTAA, has also introduced a self-assessment system. This will empower taxpayers to calculate their tax liabilities and file returns.
Corruption
A major reason Nigerians evade tax payment can be traced to corruption. They experience minimal impact of governance in their lives as they continue to operate under some of the poorest and most dilapidated infrastructure. Thus, many question the value of paying formal taxes without corresponding services from the government. Governments in the country are generally perceived as corrupt and taxes paid are expected to go into private pockets as political leaders ‘share the national cake.’
The attitude of tax administrators, assessors, and collectors has not helped either. It is not uncommon for people to bribe tax officials rather than pay taxes. In some cases, people collude with tax assessors to pay lower taxes.
How the new tax acts address corruption
The digitisation of the tax system, with TIN and self-assessment, should reduce malpractices among tax managers. Regular training and capacity building, better welfare for tax workers, in conjunction with a better monitoring system, will be essential to eliminating corrupt practices. Taxpayers however need to hold political leaders to account to ensure the taxes collected are used appropriately.
Next steps for individuals
Individuals must seek to understand the new tax laws and its likely benefits or impact on their income and household spending. They must understand that tax payment is a civic responsibility and failure to pay tax is a criminal offence.
Next steps for businesses
Before the new tax acts become operational next year, businesses must urgently assess the laws to fully understand them, analyse their operational and corporate structure to ensure they align with the new laws, and if not, articulate new strategies that will incorporate the new tax laws and their obligations under the laws, in line with their business objectives. Staff will need to be sensitised and trained, where necessary, on the tax laws.
Next steps for governments
The tax authority has its work nicely cut out. It must undertake massive sensitisation and awareness drive to ensure Nigerians properly appreciate the new tax laws thereby boosting compliance.
While the new tax laws look good on paper, its success will largely depend on implementation and government’s fiscal attitude. The three tiers of governments must not only spend the tax revenue well, they must be seen to be doing so to build trust otherwise the efforts of the Presidential Fiscal Policy and Tax Reform Committee, which crafted the new laws, would have been wasted.
