Nigeria’s tax reform bill: A test of governance and equity

Nigeria has made a bold promise to address fiscal inefficiencies, encourage investment, and transform the business environment with its proposed tax reform plan. However, underneath this reform façade is a complicated and risky strategy that could worsen economic inequality and further tax already struggling Nigerians.

“Although the shift addresses fairness concerns with the current system, its implementation demands advanced infrastructure and unprecedented transparency—qualities Nigeria’s tax administration has yet to demonstrate.”

Fundamentally, the measure suggests simplifying Nigeria’s complex tax structure by reducing 66 levies to just eight. This simplification should reduce compliance chaos, but it remains to be seen whether Nigeria’s bureaucratic machinery can overcome its notorious inefficiency and corruption to deliver on these promises. Without institutional reform, a simplified tax regime might merely centralise inefficiency.

The most contentious aspect of the reform is the proposed Value-Added Tax (VAT) hike, set to rise incrementally from 7.5 percent in 2024 to 15 percent by 2030. While alignment with the ECOWAS benchmark is commendable in theory, the timing is troubling. This tax rise may feel harsh to Nigerians who are already dealing with inflation, stagnating salaries, and declining buying power. A VAT hike in an economy where informal markets dominate could also stoke tax evasion, undermining the projected revenue gains.

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Further, the bill’s plan to distribute VAT revenues based on consumption (derivation model) rather than company registration risks deepening regional inequalities. States with vibrant consumption patterns stand to benefit disproportionately, while economically weaker regions may find themselves further marginalized. Although the shift addresses fairness concerns with the current system, its implementation demands advanced infrastructure and unprecedented transparency—qualities Nigeria’s tax administration has yet to demonstrate.

The bill positions itself as pro-growth and equitable, with exemptions for minimum wage earners and essential goods, alongside reduced corporate tax rates for large companies. However, the optics of reducing corporate tax rates while raising VAT are troubling. While the reforms may attract foreign direct investment (FDI) and incentivise large-scale employment, they risk exacerbating income inequality. For many Nigerians, particularly those in the middle class, the tax burden will likely grow heavier, straining household budgets further.

The promise of tax relief for small businesses, raising the turnover threshold for tax exemptions to ₦50 million, is a welcome provision. But for a policy ostensibly targeting economic inclusivity, these gains are dwarfed by the disproportionate compliance costs that mid-sized businesses will shoulder.

Beyond the fiscal arithmetic, the bill underscores a familiar failure of Nigerian policy: a disconnect from the lived realities of citizens. Reforms that prioritise revenue collection over economic stimulation risk alienating businesses and citizens alike. Nigeria’s infrastructure deficit, chronic energy challenges, and fragile security landscape require policies that foster innovation and resilience, not merely extract revenue.

The lack of a clear strategy for reinvesting tax proceeds into public goods further undermines the bill’s credibility. Nigerians deserve a transparent framework showing how these funds will address pressing needs like healthcare, education, and infrastructure—a fundamental element of any social contract.

For the tax reform bill to fulfil its potential, the government must recalibrate its approach. Phased implementation, guided by extensive stakeholder consultations, is essential to mitigate shocks to businesses and households. Mechanisms for accountability, particularly in VAT revenue distribution, must be institutionalised.

Additionally, the government must rethink its approach to high-net-worth individuals (HNIs). Taxing the wealthy may sound equitable, but aggressive measures without complementary policies to retain capital could backfire, driving assets offshore and undermining revenue targets.

The Tax Reform Bill is both a test of governance and a defining moment for Nigeria’s economic future. Its success depends not merely on technical precision but on political will, administrative competence, and a genuine commitment to equity. The stakes are high: a misstep risks further alienating a populace already sceptical of government intentions. A bold yet balanced execution, underpinned by transparency and inclusivity, could transform this reform from a bureaucratic exercise into a cornerstone of Nigeria’s economic revitalisation.

To achieve this, the government must prioritise effective implementation. Ensuring that the new tax laws are implemented efficiently and fairly, minimising disruptions to businesses and individuals, is crucial. Transparent revenue allocation is also essential. The government must clearly communicate how the additional revenue generated from the tax reforms will be used to benefit the public.

Strengthening the tax administration system to improve compliance and reduce tax evasion is another key factor. Providing targeted support and incentives to help small and medium-sized enterprises navigate the new tax regime is also important. Finally, continuous evaluation and adjustment are necessary. Regularly assessing the impact of the reforms and making necessary adjustments can ensure their effectiveness.

By taking these steps, the government can harness the potential of the Tax Reform Bill to drive economic growth, reduce poverty, and improve the quality of life for all Nigerians. The success of this reform will not only strengthen Nigeria’s fiscal position but also enhance its reputation as a responsible and accountable government.