By Chinelo Obogo
On October 3, 2024, President Bola Tinubu submitted the following bills to the National Assembly: the Nigerian Tax Bill, Nigeria Tax Administration Bill, Joint Revenue Board Bill, and Nigeria Revenue Service Bill. Taiwo Oyedele, Chairman of the Fiscal Policy and Tax Reforms Committee, stated that the reform aims to tackle the challenges of multiple taxation and the complexities of the current tax system.
Though the tax reforms have sparked intense debate and faced fierce opposition, the President has expressed in various forums his strong willingness to push them through. If successful, the reforms would impact every sector of the economy, including aviation, where domestic airlines have consistently complained about the burden of multiple taxation, levies, and charges they endure. Daily Sun examines the potential effects of some sections of the reforms on airlines: Will they alleviate the current tax burden on airlines, or will they make no difference? The proposed tax reforms appear to offer some benefits to Nigerian airlines and the aviation sector, mainly through reduced CIT rates and a simplified tax system.
Corporate income taxes
The current tax system in Nigeria charges different Corporate Income Tax (CIT) rates based on company size: small companies with revenue less than N25 million annually are exempt, medium companies that earn N25 million to N100 million annually pay 20 per cent, and large companies with more than N100 million annually pay 30 per cent. Section 56[4] of the NTB proposes the exemption of small companies and unifying the rate for medium and large companies. In 2025, both will pay 27.5 per cent, which will drop to 25 per cent in 2026. Additionally, big companies paying an effective tax rate below 15 per cent must pay extra to meet that minimum.
The reduction in CIT rates for medium and large companies from the current 30 per cent to 27.5 per cent in 2025 and further down to 25 per cent in 2026 will directly benefit airlines. This will reduce their tax burden, freeing up funds that could be reinvested into operations. This is particularly helpful for airlines that are currently profitable but facing high operating costs. Additionally, Section 59 of the Bill proposes a consolidation of all special deductions on companies’ profits into a single development levy. This levy will start at 4 per cent for 2025 and 2026, and gradually decrease to 2 per cent by 2030.
The Nigeria revenue service bill
This Bill seeks to replace the Federal Inland Revenue Service (FIRS) with the Nigeria Revenue Service (NRS), thereby centralizing tax collection. The reforms propose that the NRS will handle all tax collection, assist state and local governments, and simplify the tax system by merging multiple tax acts into a single act. This will reduce confusion for businesses, as they will deal with one agency instead of multiple. The reforms also propose the establishment of a Tax Appeal Tribunal for quick dispute resolution and a tax regulator to address taxpayer issues. Additionally, a Joint Revenue Board will coordinate tax matters across all government levels. These changes would create a less complex and more efficient tax system for businesses and individuals.
If this Bill is passed into law, the unification of tax laws under a single act and the centralization of tax collection under the NRS will simplify tax compliance for airlines. They will no longer need to traverse multiple agencies and navigate various tax laws. This would reduce administrative costs, and the streamlined process will save time and resources. The establishment of a Tax Appeal Tribunal should also provide a faster and more efficient way for airlines to resolve tax disputes, and the introduction of a tax regulator should provide a channel for airlines to address issues more quickly.
Value added tax
Some of the proposed reforms make provisions for exemptions for essential goods such as food, healthcare, and education to remain VAT-free, while luxury items consumed by wealthier individuals will face higher VAT rates. Businesses with a turnover below N50 million will be exempt from charging VAT. Businesses are also promised VAT neutrality through tax credits. The promise of VAT neutrality through tax credits could benefit airlines, although the effectiveness of this measure remains to be seen.