Imagine a bustling market in the heart of Lagos, filled with blue-collar workers and traders of all scales—civil servants retiring home after a very long day, street vendors selling roasted corn, and mega-merchants dealing in electronics. This market represents Nigeria’s economy, vibrant but uneven. Some workers contribute their fair share to maintain the nation’s infrastructure, while others slip through the cracks, exploiting loopholes or avoiding contributions altogether. The nation’s tax administration, historically disorganised, has struggled to collect enough to fix the crumbling economy. Then comes a proposal—a new set of rules promising clarity, fairness, and modern tools for enforcement. Citizens are divided: some welcome the change, hoping for better services and improved welfare, while others fear added burdens and potential disruptions.
Read also: Tax reforms leave no escape route for evaders
This is the crux of the Nigeria Tax Reform Bills 2024 debate. They propose significant changes to the tax landscape, including simplified structures, new rates, and digital tools to track compliance, all under President Tinubu’s “Renewed Hope” agenda. The bill seeks to streamline existing frameworks, such as replacing the Federal Inland Revenue Service (FIRS) with the modernised Nigeria Revenue Service (NRS), ensuring fairness and transparency in tax collection as well as sanitising the fiscal policy and legislative milieu in the country. For instance, small businesses with turnovers below ₦25 million are exempt from company income taxes, a nod to fostering entrepreneurship and job creation, as these make up about 90 percent of Nigeria’s businesses. Meanwhile, larger corporations face new tax rates aimed at aligning with global practices while easing compliance burdens.
The bill also proposes progressive changes to VAT, starting with an increase from 7.5 percent to 10 percent in 2025 and exemptions for critical sectors like oil and gas exports, baby products, and electricity generation. These adjustments balance revenue generation with economic stimulation, particularly for SMEs. Additionally, a new development levy will fund education and infrastructure, progressively declining from 4 percent in 2025 to 2 percent by 2030.
Critics, however, point to potential pitfalls: increased burdens on consumers through VAT, challenges for northern states with less diversified economies, and the risk of higher compliance costs for medium-sized enterprises. The debate echoes broader questions about trust in government spending and whether revenue increases will translate into tangible public benefits. Our goal is to highlight the importance of the bill and invite readers to consider its potential impact through both hopeful and critical lenses.
“Citizens are divided: some welcome the change, hoping for better services and improved welfare, while others fear added burdens and potential disruptions.”
Current tax administration landscape in Nigeria
Nigeria’s tax system is a paradox of potential and missed opportunities. Anchored by direct taxes like personal and corporate income taxes, alongside indirect taxes such as VAT and customs duties, the framework aspires to fund national development yet falls short of its promise. With a tax-to-GDP ratio hovering around 8 percent, Nigeria lags behind the African average of 17 percent, highlighting a significant revenue gap. The informal sector, which contributes over 70 percent of GDP, largely operates outside the tax net, while administrative inefficiencies and evasion further strain collections. Yet, within these challenges lies immense potential.
By streamlining policies, embracing technology, and fostering trust, Nigeria can transform its tax landscape into a catalyst for equitable growth and a thriving, self-reliant economy.
Read also: Why Nigeria tax reform bill could be a game changer for economy
Highlights of 2024 tax reform bills
Four weeks ago, President Bola Tinubu transmitted four proposed executive bills to the National Assembly christened—the Nigeria Tax Reform Bill, Nigeria Tax Administration Bill, Nigeria Revenue Service (Establishment) Bill, and Joint Revenue Board (Establishment) Bill—sparking debates over their potential impact on Nigerians. While some fear these reforms could introduce higher taxes and burden already overstretched citizens, others have adopted a wait-and-see approach. The bills, which aim to create a more transparent and efficient fiscal framework, were translated from the recommendations of the Presidential Committee on Fiscal Policy and Tax Reforms, led by Taiwo Oyedele, into actionable legislation. Advocates believe these bills will lay a foundation for fiscal stability and economic growth, ultimately providing relief and opportunities for Nigerian businesses and citizens.
The 2024 Nigeria Tax Reform Bill introduces a sweeping overhaul aimed at addressing inefficiencies and fostering economic growth. Key provisions include the simplification of tax laws into a unified framework, making compliance easier for businesses and individuals. SMEs, which make up 90 percent of businesses, benefit significantly from exemptions on company income tax for turnovers below ₦25 million, while medium and large businesses see a gradual reduction in corporate tax rates from 30 percent to 25 percent by 2026. Digital taxation provisions target high-net-worth individuals and tech-based revenues, signalling Nigeria’s intent to modernise its tax approach.
One key highlight is the reclassification of companies based on turnover, with small businesses (up to ₦50 million annual turnover) exempt from company income tax (CIT), while larger corporations receive tax reliefs to encourage expansion and job creation. Key reforms include a gradual reduction of corporate income tax (CIT) from 30 percent to 25 percent within two years, signalling a commitment to easing business burdens. Further proposals include granting input VAT credits to businesses for investments in assets and services, reducing upfront costs, and promoting capital formation. Allowing taxes on foreign currency transactions to be settled in naira enhances convenience for multinational operations, while small businesses gain significant benefits through withholding taxes (WHT) and VAT exemptions and an increased CIT exemption threshold for turnovers up to ₦50 million.
Progressive personal income tax reforms also bring significant relief to low-income earners, exempting individuals earning up to ₦800,000 annually from paying taxes, while wealthier individuals bear higher rates, reflecting a “tax prosperity, not poverty” ethos. The previous tax system allowed a Consolidated Relief Allowance (CRA) deduction of 20 percent of gross income plus N200,000. For instance, on an ₦8 million annual salary, a deduction of ₦1.6 million would reduce taxable income to ₦6.4 million. Additionally, statutory contributions like pension schemes, life insurance premiums, and the National Housing Fund (NHF) could further reduce taxable income. Under the current PAYE system, a person on an N8 million annual salary would incur approximately ₦1,328,000 in taxes, highlighting a significant tax burden increase. However, with the new tax provision, such workers will be made to pay ₦1,220,000.
Similarly, the Nigeria Tax Administration Bill streamlines tax processes across jurisdictions, improving compliance and reducing administrative burdens. The Joint Revenue Board (Establishment) Bill proposes replacing the underperforming Joint Tax Board and introducing a tax ombuds office to address grievances. Additionally, the bills seek to regulate the lucrative cryptocurrency market, addressing revenue losses in a sector valued at $1 trillion globally. The Nigeria Revenue Service Bill updates the Federal Inland Revenue Service’s scope, emphasising revenue collection for all tiers of government and offshore transactions, aligning with the need for broader fiscal reforms.
These measures collectively aim to strengthen fiscal stability, enhance ease of doing business, and foster trust in Nigeria’s tax administration system.
Read also: G20 Summit : Tinubu seeks changes to global tax system
BDI Commentary: An efficient, optimal tax system is needed
An optimal tax system is characterised by fairness, efficiency, simplicity, and robust revenue generation. Fairness ensures that taxes are levied equitably, with higher earners contributing more while protecting low-income individuals. Efficiency minimises economic distortions, encouraging investment and productivity. Simplicity reduces administrative costs and compliance burdens, making tax policies accessible and understandable. Revenue generation ensures sufficient funds to support government operations and development initiatives. The harmonised Nigeria Tax Reform Bills propose transformative measures aimed at modernising the country’s tax framework to boost revenue, foster equity, and enhance economic competitiveness.
The 2024 Nigeria Tax Reform Bills have the potential to address key inefficiencies in the current system. By exempting small businesses (annual turnovers below ₦50 million) from corporate income taxes and implementing progressive personal income tax structures, the bills promote equity and economic inclusion. Streamlined processes proposed in the Nigeria Tax Administration Bill, such as harmonised filing and dispute resolution, promise to enhance compliance and reduce bureaucratic hurdles. Additionally, the inclusion of digital taxation and cryptocurrency regulation expands the tax net, tapping into previously unmonitored revenue streams.
Lessons from countries like Ghana and South Africa offer valuable insights. Ghana successfully implemented simplified tax regimes for SMEs, fostering higher compliance and revenue growth. South Africa’s focus on efficient administration, including the adoption of digital tools, significantly improved collection rates and taxpayer experience. Both examples highlight the importance of clarity, enforcement, and public trust—lessons Nigeria can incorporate to ensure the success of its reforms.
If effectively implemented, these reforms could position Nigeria to increase its tax-to-GDP ratio, foster economic stability, and enhance public confidence in the tax system. However, success will depend on consistent enforcement, stakeholder engagement, and transparent utilisation of revenue.
Again, the real test of this reform lies in implementation! As the metaphor illustrates, even the best rules need equitable enforcement and reinvestment to win the trust of stakeholders. With Nigeria’s economic aspirations in focus, the stakes for getting this reform right are higher than ever.
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