The controversy triggered by President Bola Ahmed Tinubu to reform Nigeria’s tax regime is not about to go away.
The reform controversy dominated the headlines for most of last week as the Senate debated the four bills Tinubu had sent to the National Assembly to effect fundamental changes in the tax regime.
The Senate debate degenerated into a rowdy session as supporters and opponents of the bills attempted to advance their cause.
The Tinubu administration deployed a high-powered team to the upper chamber to plead its case.
Meanwhile the bills passed the Second Reading and will now go into the Committee Stage, from where it will go into Public Hearing before returning to the Senate for the Third Reading, debate and passage or non-passage.
The Senate Committee has six weeks to do its job.
The bills will go through the same process in the House of Representatives.
So what are the issues?
Whereas many people admit that the bills will substantially address the grey areas in the Nigerian tax regime, some believe there are parts that are discriminatory and favour only a few states.
The issues include multiple taxation, under-taxation, over-taxation and tax evasion resulting from the non-capturing of the bulk of Nigeria’s potential tax payers in the tax net.
For critics, the area that irks them most is the bills’ provision for the sharing of the proceeds from Value Added Tax (VAT).
The critics of the provision include some governors who believe their states would be short-changed in terms of the revenues that would accrue to them from VAT if the bills were to be passed into law the way they are.
In league with the governors are some northern leaders who argue that the reform bid is targeted at the North to deprive that region of the country funds and are mobilizing against the bills unless the ‘offending’ provision was removed.
Indeed one of the bills provides for more VAT revenues for the states where they are generated.
Analysts say this should encourage states to engage in economic activities that generate VAT revenues.
However, Tinubu administration officials are unrelenting in their bid to push the bills into passage by the National Assembly, arguing that the bills are pro-poor and will promote prosperity in Nigeria.
One of the officials, Dada Olusegun, in explaining the tax reforms in “layman’s language”, says many basic items consumed by the poor such as food items, medical services and pharmaceuticals, educational fees, electricity etc will be exempted from VAT, leading to a reduction in prices.
He also speaks of exemption of individuals earning N800, 000 or less from paying income tax, saying: “Currently, if you earn a total of N800,000 annually, you are required to pay N84,000 out of this amount as income tax. With this bill, you will not pay anything.
“Only those earning above N50 million get to pay 25% personal income rate. Under the current law, once you earn above N3.2 million you will be charged 24% income tax.
“Exemption of small businesses from paying income tax. In this bill small companies are defined as those with annual turnover of N50 million or less. In the current law, small businesses are defined as those with turnover of N25 million or less. What this means is that up to 90% of businesses in Nigeria will be exempt from paying income tax”.
The official also speaks on the review of the VAT revenue sharing formula where states now take 55% of the revenue instead of 50% while the Federal Government’s share of VAT revenue shrinks from the current 15% to 10%.
The share of LGAs, he says, remains the same.
Olusegun, who is the Special Assistant to President Tinubu on Digital Media, in his analysis, breaks down the four bills, listing 23 things a layman may not know about the Tinubu tax.
Under the Nigeria Tax Bill, he lists 10 of such things, another 10 under the Nigeria Tax Administration Bill and three under the Joint Revenue Board Establishment Bill. His analysis:
Confused
Since President Bola Tinubu transmitted four executive bills tagged #TaxReformBills to the national assembly last month, many needless controversies have engulfed the bill.
Most of these controversies are simply borne out of inability of those flaming the controversies to carefully go through the contents of the bills currently before the parliament.
As a result of, a lot of ordinary Nigerians are confused about the true position of these bills especially as it affects their pockets.
I want to briefly breakdown the tax reform bills in a very concise and easily understood manner.
The tax reform bills are four different bills that seeks to bring everything about taxation and administration of tax in Nigeria under four different pieces of legislation.
The bills are as follows:
The Nigeria Tax Bill
The Nigeria Tax Administration Bill
The Nigeria Revenue Service Establishment Bill
The Joint Revenue Board Establishment Bill
Nigeria Tax Bill
The Nigeria Tax Bill is where all major taxes imposed on individuals and companies are clearly stated as well as the rates.
This bill is just like a compendium of taxes charged in Nigeria.
The Nigeria Tax Bill basically amalgamated all the existing laws in which provisions for taxation was made.
If passed, this bill will lead to the repeal of 11 laws that contain provisions on imposition and collection of taxes.
Some of major provisions contained in the Nigeria Tax Bill that has far reaching bearing on both individuals and businesses include:
Exemption of individuals earning N800, 000 or less from paying income tax. Currently, if you earn a total of N800, 000 annually, you are required to pay N84, 000 out of this amount as income tax. With this bill, you will not pay anything.
Only those earning above N50 million get to pay 25% personal income rate. Under the current law, once you earn above N3.2 million you will be charged 24% income tax.
Exemption of small businesses from paying income tax. In this bill small companies are defined as those with annual turnover of N50 million or less. In the current law, small businesses are defined as those with turnover of N25 million or less. What this means is that up to 90% of businesses in Nigeria will be exempt from paying income tax.
Reduction of company income tax rate from 30% to 25% in 2026 for medium and large companies.
Elimination of minimum income tax of 1% charged on the gross earnings of medium and large companies that did not declare profit. Only profit is taxed under the new tax bill.
Harmonisation of 2.5% education tax, 1% NITDA tax and 0.25% NASENI tax that many firms pay in addition to their company income tax annually into a single development levy of 2% that will be used exclusively to fund student loans from 2030. This further reduces the total tax burden of some companies from around 33.75% of their earnings (when you add these three deductions to their income tax rate of 30%) to just 27% of their earnings.
Review of the VAT revenue sharing formula where states now take 55% of the revenue instead of 50% while the federal government’s share of VAT revenue shrinks from the current 15% to 10%. The share of LGAs remains the same.
Progressive increase in VAT rate from the current 7.5% to 10% in 2025; 12.5% between 2026-2029 and 15% from 2030.
Exemption of many basic items consumed by the poor from VAT such as food items, medical services and pharmaceuticals, educational fees, electricity etc.
Tax exemptions to encourage investment in both associated natural gas and non-associated gas.
The Nigeria Tax Administration Bill on the other hand is the bill that sets out how the tax authorities will administer the taxes, which include assessment, collection of, and accounting for the various tax revenues they collect. The bill also outlines the powers and functions of the tax authorities, which taxes are reserved exclusively for the NRS to collect and which ones are reserved for the states among other miscellaneous provisions relevant to the effective administration of tax in Nigeria.
Nigeria Tax Administration Bill
Some of the major provisions of the Nigeria Tax Administration Bill include:
Drawing the rich into the tax net. The bill puts in place mechanism to ensure that individual customers of financial institutions whose cumulative transactions in a month amount to N25 million or more and corporate customers whose cumulative transactions in a month amount to N100 million or more do not evade taxes by mandating financial institutions to give the tax authority a list of such individual or corporate customers with their addresses.
Payment of taxes and royalties in Naira. Under these new provisions, taxes including royalty assessed in a currency other than the Nigerian Naira may be paid in that currency or in Naira at the prevailing exchange rate in the official exchange market. This will boost efforts to stabilise the naira.
NRS to collect revenues hitherto collected by some regulatory agencies such as Nigeria Customs Service, Nigeria Upstream Petroleum Regulatory Commission (NUPRC), NPA, NIMASA, etc. This provision is meant to allow these regulatory agencies to focus on their regulatory functions while NRS whose duty is revenue collect carry out the collection of taxes and royalties.
Deployment of technology to automate tax assessment, collection and accounting. This will enhance tax collection especially on companies that operate digitally such as social media companies, music streaming platforms, etc.
Deduction of unremitted tax revenues by MDAs that serve as agents of tax authorities from their budgetary allocations.
A new VAT derivation model where 60% of VAT revenue standing to the credit of the states is shared on the basis of derivation while 20% is shared based on population sizes and the other 20% is shared equally among the states. Most importantly, VAT revenue for the purpose of the new derivation model will no longer be attributed to the place of remittance (which is usually the headquarters of companies) but attributed to the actual locations across the states where the consumption of goods and services took place. The current method favours states like Lagos, Rivers and Oyo states which have a lot of company headquarters located in them.
Installment payment of tax.
Funding of tax refund accounts by deducting a percentage of money collected by the tax authority before distribution. This is to ensure that every tax refund claim that is verified is paid. Before now the tax refund account was funded by budgetary provisions, which are grossly inadequate.
Establishment of Local Government Revenue Committee to handle collection of taxes, fines and rates under the jurisdiction of each local government area.
Harmonisation of all tax offences and penalties to ensure compliance.
The Nigeria Revenue Service Establishment Bill seeks to change the name of Federal Inland Revenue Service (FIRS) into the Nigeria Revenue Service to reflect the fact that it collects revenue for the federation and not just the federal government since most of the revenue it collects are shared by the three tiers of government. The bill also specifically empowered the NRS to administer all taxes including the other taxes hitherto collected by some federal agencies like Nigeria Customs Service, NUPRC, NPA, NIMASA etc.
Joint Revenue Board Establishment Bill
Finally, the Joint Revenue Board Establishment Bill provided for the establishment of three separate bodies namely:
Joint Revenue Board of Nigeria to help harmonise all taxes in the country and scrap nuisance taxes while also creating a national database of taxpayers.
Tax Appeal Tribunal to settle tax disputes between tax authorities on issues such as residency for the purpose of personal income tax collection etc.
Office of the Tax Ombudsman to help taxpayers get justice if they feel aggrieved against the tax authorities.
The above summary shows at a glance that these four bills, contrary to what some mischievous persons are pushing out there, are meant to radically transform tax administration in Nigeria for greater efficiency.
These bills will update our archaic tax laws and simplify our complicated tax ecosystem. Apart from these, the tax reforms clearly favour the low income earners and small businesses, which will be exempted from paying income taxes. These bills are simply pro-poor, pro-growth and pro-efficiency. Every patriotic Nigeria needs to back these tax reforms.
Credit: Vanguard News
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The 4 Bills in my view are progressive,pro- poor and pro small scale industries.
My only observation is that the progressive increase of Value Added Tax,VAT,from 7.5% now to 15% in 2030 is outrageous.
The private sector,in spite of removing VAT from some goods and services by the Bill,may not translate to reduction in prices since the Bill especially on VAT had no provision for enforcement.
The progressive increase in VAT from 2025 would likely affect the poor than the rich.
I commend the Bill on Tax Administration where the proposed National Revenue Service will now be charged with the responsibility of major tax collection instead of Nigeria Customs Service,NPA,NIMASA etc.
The beauty of this new system is that more money will go into the Federation Accounts as the ” Cost of Collection” which is usually a % of the money collected would no longer be paid to these agencies again. A lot of leakages in assessment would be blocked too.
Those States complaining about the Bill on VAT are not serious.They want to reap where they did not sow.
Many of them had prohibited the consumption of ‘vattable’ goods whilst other states allowed consumption and as such derived VAT. The States that had prohibited certain consumable items want to share on the basis of the bogus indices used for sharing Revenue Allocation, such as equality of states and population.
Instead of taking these Bills as challenge and work conscientiously at improving their IGR,they want to throw away the baby with the bathwater.
If these States still oppose the Bills,the Fed Govt.should allow the judicial process embarked upon by the Rivers State against the FGN to take its course.ie,in the case instituted by Rivers State against FGN on VAT by the former governor.Nyesom Wike.
In brief,the 4 Bills are good for the country and at the proposed Public Hearing to be organised by the
NASS,any grey area found,would be rectified.