Introduction
Nigeria’s tax compliance rate is significantly low compared to other countries of the world especially given the weak revenue administration capacity of Nigeria to deal with tax evasion and avoidance, and lack of data mainly around the informal sector, according to a report by PriceWaterhouseCoopers (PwC). Nigeria taxation law is made up of a complex web of disjointed tax laws which leave much to be desired in terms of economy, efficiency and effectiveness both in administration and in achieving the nation’s fiscal policy goals. Due to this laxity, President Bola Ahmed Tinubu established the Fiscal Policy and Tax Reforms Committee in August 2023, chaired by tax expert Taiwo Oyedele, to address the pressing need for comprehensive tax reform in Nigeria. The committee terms of reference (TOR) included production of recommendations aimed at overhauling the nation’s tax system and achieving fiscal policy goals.
As an aftermath of their recommendations, recently, President Bola Ahmed Tinubu forwarded four tax reform bills to the National Assembly proposing significant changes to the Nigeria tax architecture and environment. The Nigeria Tax Bill (NTB) is a comprehensive piece of legislation that seeks to outline all taxes in the country hitherto administered by different laws and reduce them into a single easy law. Worthy of note is that the NTB vests upon the Nigerian Revenue Service (newly proposed to replace Federal Inland Revenue Services, FIRS) powers to collect all national taxes, including royalties which are collected by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and excise duties, import Value Added Tax (VAT) etc, which are being collected by the Nigeria Custom Service.
The forwarded Tax Bills include: (1) The Nigeria Tax Bill (NTB) 2024; (2) The Nigeria Tax Administration Bill (NTAB); (3) The Nigeria Revenue Service Establishment Bill (JRBEB); and (4) The Joint Revenue Board (Establishment) Bill (JRBEB). The NTB is now fervently being debated in Nigeria. These debates are expected as Nigerians are usually wary when it comes to the issue of taxation. We are used to the old style of administering taxes and we seem to be comfortable with the inefficient method. But change is the only constant phenomenon in life. If we don’t change with time, time will leave us behind. The enactment of the NTB will lead to the repeal of 11 laws, while 13 other laws will experience implicating amendments. The NTB will also revoke one subsidiary law with implicating amendments on two other subsidiary laws.
The Nigeria Tax Bill (NTB) in perspective
As an all-inclusive tax legislation, the NTB harmonises all tax laws in the country into a more simplified and manageable single piece of legislation. Section 1 of the NTB provides that the objective of the Act is to provide a unified fiscal legislation governing taxation in Nigeria. What this means is that various taxes, which were previously administered under different tax laws, are by the provisions of the NTB, unified and compressed into one simplified law and administered accordingly. This simplification is intended to ease compliance for businesses and individuals, making it easier for them to understand their tax obligations. In addition, the unification and simplification of our tax laws which the NTB promises is motivated by the need to engender efficiency and effectiveness in tax administration while eradicating conflicts and the multiplicity of tax laws that the current tax regime is plagued with.
The bills intend to (a) curb the challenge involved in tax collection; (b) consolidate various legal frameworks relating to taxation; (c) expand the country’s tax base; (d) generate substantial revenue streams for national development; (e) address complexities of the current tax system; and (f) improve tax compliance level.
NTB benefits: Individuals, organisations and states
Benefits to individuals: Contrary to most speculations in different quarters, the NTB adopts a progressive personal income tax system and provides tax relief for low-income earners. Particularly, incomes below eight hundred thousand naira (N800,000.00) are exempted, and higher earners are taxed progressively according to their earnings. It follows, therefore, that the tax burden on low-income earners is reduced, and that the tax burden is generally spread to reflect equity and fairness in wealth distribution. The annual tax rate, as outlined in the bill’s Fourth Schedule, is as follows: (a) First N800k – 0%; b. Next N2.2m – 15%; c. Next N9.0m – 18%; d. Next N13m – 21%; e. Next N25m – 23%; and f. Above N50m – 25%.
Before now, the personal income tax rates for different bands of annual income were as follows: a. First N300k – 7%; b. Next N300k – 11%; c. Next N500k – 15%; d. Next N500k – 19%; e. Next N1.6m – 21%; and f. Above N3.2m – 24%.
A glance at the two sets of rates shows that while currently a low-income earner who earns N25,000 monthly, which translates to N300,000 annually, is required to pay 7% income tax, the new rates proposed in the Nigeria Tax Bill exempts individuals who earn N800,000 or less per annum from paying any income tax. Globally, the poor are not taxed. By implication, every worker earning less than minimum wage in Nigeria (N840,000 per annum) would be exempted from personal income tax. In the Nigeria Tax Administration Bill (NTAB), it is now compulsory for financial institutions to report to tax authorities the details of individuals whose monthly cumulative transactions amount to N25 million or more. Also, the bill progressively reformed the capital gains tax regime by exempting some forms of capital gains from taxation and, in other cases, raising the gain limit before charging a capital gains tax. Section 51 of the bill exempts an individual from paying tax on the sale of his residential property or land adjoining his residential property up to one acre. Continues next week
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