Nigeria’s tax system is at a crossroads. As the National Assembly deliberates on the proposed tax reforms bills, hopes are high that they could untangle the inefficiencies that have long plagued the nation’s fiscal framework. Chaired by Taiwo Oyedele, the Presidential Committee on Fiscal Policy and Tax Reforms has presented a framework to reduce the excessive tax burden, streamline revenue administration, and foster a fairer, more inclusive tax system. But do these reforms have the depth and scope to ensure sustained economic growth and fairness?
“Additionally, friendly tax rules for digital workers and remote employees, alongside clarity on the taxation of digital assets, reflect an understanding of Nigeria’s evolving economic landscape.”
The proposed reforms aim to address systemic challenges—including the multiplicity of taxes, excessive burdens on vulnerable groups, and fragmented revenue administration. Highlights include exempting low-income earners from Pay As You Earn (PAYE) taxes, reducing PAYE rates for individuals earning up to ₦1.7 million monthly, and maintaining zero percent Value Added Tax (VAT) on essential goods such as food, healthcare, and education. These measures represent a pivotal shift toward inclusive fiscal policy. However, implementation and broader economic strategies will determine their success.
A break for vulnerable Nigerians
The focus on alleviating the tax burden for vulnerable groups is a critical step forward. Exempting small businesses with annual turnovers below ₦50 million from corporate income tax and withholding taxes is a lifeline for enterprises operating on narrow margins. Similarly, VAT exemptions on essential goods and services such as electricity, transportation, and sanitary products provide much-needed relief to low-income households.
These provisions are not just equitable—they are economically prudent. By reducing regressive taxation, the reforms can stimulate demand, support entrepreneurship, and encourage informal businesses to transition into the formal economy. This transition is vital, as Nigeria’s informal sector contributes over 50 percent to GDP yet remains largely untapped for tax purposes.
Streamlining tax administration
Nigeria’s tax system has long been a labyrinth of complexity, with over 60 taxes levied across federal, state, and local governments. This fragmented approach creates confusion, deters compliance, and stifles business growth. The proposed Nigeria Revenue Service Establishment Bill and Joint Revenue Board Establishment Bill promise to harmonise revenue collection and simplify administrative processes. These measures, if executed effectively, could enhance compliance and provide businesses with greater predictability.
Additionally, friendly tax rules for digital workers and remote employees, alongside clarity on the taxation of digital assets, reflect an understanding of Nigeria’s evolving economic landscape. As digital economies grow globally, these provisions position Nigeria to attract investment and encourage innovation. However, their success hinges on robust regulatory frameworks and investment in digital infrastructure.
Tackling inequality and promoting growth
While the reforms rightly prioritise low- and middle-income groups, they also offer benefits to high-income earners and corporations. For instance, VAT exemptions on real estate purchases and limits on taxable accommodation benefits aim to incentivise investment. However, this dual focus raises questions about equity. Are these provisions enough to redistribute wealth and address Nigeria’s staggering income inequality? Or do they disproportionately favour affluent groups while limiting the government’s ability to raise revenues?
Read also: How Nigeria’s planned tax reform bill could impact economic growth and sustainability
Challenges that persist
Even with these ambitious proposals, several obstacles could undermine their impact. Regulatory uncertainty remains a key concern. Nigeria’s history of policy reversals and inconsistent enforcement erodes investor confidence. To address this, the government must build institutions that guarantee policy stability and transparency.
Security is another pressing issue. Persistent instability, particularly in the northeast, deters investment regardless of fiscal incentives. A secure environment is foundational for any economic reform to thrive. Additionally, bureaucratic inefficiencies—from cumbersome business registration processes to delays in customs clearance—continue to hinder Nigeria’s ease of doing business. Streamlining these processes will be critical to the reforms’ success.
What’s missing?
To fully capitalise on these reforms, Nigeria must adopt a long-term strategy that addresses systemic weaknesses and expands the tax base. Key areas include:
Institutional strengthening: Transparency and anti-corruption measures must underpin the reforms. Strengthening oversight mechanisms will ensure efficient use of tax revenues and bolster public trust.
Public awareness and engagement: Educating citizens about the benefits of the reforms is crucial. Public scepticism, driven by past inefficiencies, could hinder compliance unless there is visible accountability and impact.
Expanding the tax base: Beyond exemptions and incentives, Nigeria must introduce property taxes, curb illicit financial flows, and leverage technology to track economic activity. These measures can enhance revenue without disproportionately burdening low-income groups.
Regional integration: The African Continental Free Trade Area (AfCFTA) offers opportunities to position Nigeria as a manufacturing hub. Tax incentives aligned with regional trade policies could attract investment and foster industrial growth.
Conclusion: A moment of opportunity
The proposed tax reforms represent a bold attempt to recalibrate Nigeria’s fiscal framework in favour of inclusivity and efficiency. By addressing the systemic issues of multiplicity, inequity, and inefficiency, they lay the groundwork for a more resilient economy. However, success will depend on effective implementation, policy stability, and a commitment to long-term institutional reform.
As the National Assembly considers these bills, the stakes are high. Policymakers must seize this moment to enact reforms that not only attract investment but also empower citizens, reduce inequality, and ensure sustainable growth. If managed well, these reforms could mark the beginning of a fiscal revolution—a transformative step toward a prosperous and equitable Nigeria.
Abayomi Fashina (Fash): Tax and Risk Professional | BSc, MSc, AAT, ACA
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
