President Bola Tinubu recently signed into law four tax bills in the government’s boldest effort to restructure Nigeria’s tax system. The implementation of the new tax laws will begin January 1, next year. The new laws will, among other objectives, simplify revenue collection, reduce tax burden on some individuals and businesses, protect low-income households, as well as support workers by expanding their disposable income and restore investors’ confidence in Nigeria’s economy.
The National Assembly had earlier passed the four bills after months of controversy, followed by consultations with various interest groups, stakeholders and amendment of the grey areas in contention before they were sent to the President for his assent. As one of the best initiatives of Tinubu’s administration, the new tax laws contain key areas of Nigeria’s fiscal and revenue framework. The largest of the four bills is the Nigeria Tax Administration (Ease of Doing Business) law. Others are: the Nigeria Revenue Service (Establishment) law, the Nigeria Tax Law, and the Joint Revenue Board (Establishment) Law.
Each of them has specific objectives. For instance, the Nigeria Tax Law merges various rules into a single, easier-to-understand code and seeks to eliminate more than 50 small, overlapping taxes, reducing multiplicity/duplication of taxes that will make ease of doing business more efficient and effective. The tax administration Act sets common rules on how taxes can henceforth be collected across federal, states and local governments. Similarly, the Nigeria Revenue Service Act, which replaces the Federal Inland Revenue Service (FIRS), is now an independent agency, just as the Joint Revenue Board is aimed at improving coordination among different levels of government, and creates a tax ombudsman and Tax Appeal Tribunal to resolve disputes arising from tax collection processes.
Generally, the new tax law is a significant step towards improving the nation’s tax system. It is remarkably different from the repealed old tax system that was characterized by non-availability of tax statistics, poor tax administration and multiplicity of taxes. It is a big win for Micro Small and Medium Enterprises (MSMEs). Some of the gains of the new tax system include tax reliefs, digital filling, and formalisation incentives. The new law is designed to simplify and expand the tax net, and improve revenue generation without hampering business growth, especially MSMEs. With MSMEs contributing over 48 per cent to Nigeria’s GDP and employing over 80 per cent of the workforce, the impact of the reforms on their operations will be far-reaching.
It is cheering that the unified tax framework that now consolidates federal taxes, eliminates duplication is good news for small businesses. The reform has also increased the turnover threshold for simplified tax filling from N25 million to N50million. It also exempts more businesses from complex tax obligation and audits. Besides, when the implementation takes effect in January next year, digital tax platforms will allow MSMEs to file and pay taxes from anywhere, significantly reducing the cost and time burden of tax compliance.
In addition, informal businesses will come under the tax net. Henceforth, newly registered firms with the Corporate Affairs Commission (CAC) will be eligible for one-year startup tax credit. There is also a 2-year ‘tax holiday’ for MSMEs operating in priority sectors of the economy, such as agriculture, manufacturing and technology innovation. The elimination of nuisance taxes and arbitrary levies that have long stifled micro enterprises is welcome. Moreover, businesses investing in productive equipment can now benefit from enhanced capital allowances that reduce their taxable income, thereby encouraging reinvestment and growth.
Altogether, the impact of the new tax laws will be all- encompassing, especially for low-income earners, small businesses and informal traders. Also, sellers of essential goods like food, healthcare, education products, and many others in that category will no longer pay Value Added Tax (VAT). This will help many struggling families meet their basic needs. But high-income earners and luxury consumers may feel the pinch slightly, with higher VAT. All of this will boost Nigeria’s tax-to-GDP ratio, which is a key measure of how much tax the country collects relative to its economy.
Currently, Nigeria’s tax-to-GDP ratio is slightly over 10 per cent, far below the African average of 16-18 per cent. President Tinubu had during the inauguration of the committee on fiscal policy and tax reform, last year, said that his administration would grow Nigeria’s tax-to-GDP ratio to 18 per cent by the end of 2025 without raising taxes on basic goods or over-burden struggling citizens. In all, transparency in implementation is crucial in ensuring that the lofty aims of the new tax laws are achieved. Nigerians expect more tax revenues for funding critical sectors of the economy such as education, road and rail infrastructure, alleviating poverty as well as reducing external borrowing, which has increased the nation’s debt profile to N149 trillion. Let the new tax laws be adequately implemented.