National Assembly Passes Landmark Tax Reform Bills: A Comprehensive Breakdown of the Nigeria Tax Framework.
By Teekay Adams
Adeleke reporters
29th November, 2024
The Nigerian National Assembly has approved a series of groundbreaking tax reform bills aimed at overhauling the country’s tax system for greater efficiency, equity, and simplicity. Transmitted by President Bola Tinubu on October 3, 2024, these bills collectively represent a significant shift in Nigeria’s fiscal landscape. The four bills include:
1. Nigeria Tax Bill 2024
2. Nigeria Tax Administration Bill
3. Nigeria Revenue Service Establishment Bill
4. Joint Revenue Board Establishment Bill
Key Highlights of the Reforms
1. Comprehensive Simplification of Tax Laws (Nigeria Tax Bill 2024)
The Nigeria Tax Bill consolidates various tax laws into a unified framework, transferring all national tax collection responsibilities to the Nigeria Revenue Service (NRS). This includes taxes previously managed by agencies like the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and Nigeria Customs Service. The bill repealsgg 11 outdated laws and amends 13 others for alignment.
2. Reduced Tax Burden on Individuals and Businesses
Personal Income Tax (PIT):
The new progressive tax regime exempts individuals earning up to ₦800,000 annually from PIT, a significant relief for low-income earners. For high-income earners, the top tax rate of 25% applies only to incomes exceeding ₦50 million.
Corporate Taxation:
Small businesses with annual turnovers below ₦25 million are exempt from profit tax, while large companies will see a reduction in corporate tax rates from 30% to 25% by 2026.
Development Levy Harmonization:
Previously separate levies, such as the Tertiary Education Tax and NASENI Levy, have been streamlined into a single development levy with progressively declining rates, reducing the compliance burden for companies.
3. Incremental VAT Rates with Exemptions for Essential Goods
The bill proposes a gradual increase in Value Added Tax (VAT) from 7.5% to 10% in 2025 and up to 15% by 2030. However, essential goods and services, such as food items, medical supplies, and transportation, remain exempt or zero-rated, ensuring minimal impact on low-income households.
4. Enhanced Tax Incentives and Investment Support
The reforms introduce targeted incentives for startups, technology-driven firms, and priority economic sectors. Employees in startups are exempt from income tax, fostering innovation and youth employment.
5. Efficient Royalty Collection and Sectoral Reforms
The Nigeria Tax Bill simplifies revenue collection in the mining and petroleum sectors by centralizing royalty payments under the NRS. It also provides tax exemptions to encourage investments in gas production, particularly Compressed Natural Gas (CNG).
6. Improved Transparency and Derivation Formula
The Nigeria Tax Administration Bill mandates financial institutions to report transactions exceeding ₦25 million monthly, bringing more high-income earners into the tax net. Additionally, VAT revenues will be shared based on the place of consumption, ensuring fairness in allocation.
Conclusion
These reforms aim to modernize Nigeria’s tax system, reduce the tax burden on individuals and businesses, and enhance government revenue. By addressing inefficiencies and promoting equity, the bills set the stage for sustainable economic growth and development.
This landmark legislation marks a pivotal moment in Nigeria’s fiscal history, aligning the tax system with global best practices while addressing the unique needs of the Nigerian economy.
