Onome Amuge

Nigeria has placed what has been considered its most ambitious tax reform in decades on the table, but its success depends less on technical design than on convincing citizens that taxation will be fairer, simpler and more supportive of economic growth.

The Presidential Fiscal Policy and Tax Reforms Committee, chaired by Economist Taiwo Oyedele, has proposed changes that could redefine the country’s revenue structure. The plan, unveiled at a stakeholder session in Lagos, seeks to harmonise over 60 taxes into fewer than 10, simplify compliance for small businesses, recalibrate personal income taxation, and draw millions of informal enterprises into the net.

“This is a pivotal moment for Nigeria’s economy. By streamlining tax laws and reducing the burden on small businesses, we can drive greater compliance, increase revenue, and strengthen our economic stability,” Oyedele told journalists and civil society participants at an interactive session held recently in Lagos. 

Reports show that Nigeria’s tax-to-GDP ratio sits at just under 10 per cent, among the lowest on the continent. By contrast, South Africa’s is about 25 per cent, while Ghana and Kenya record between 13 and 15 per cent. Economists argue that complexity is only part of the problem.  The deeper issue is seen to be ‘trust”, as many Nigerians often believe that taxes vanish into the air rather than funding roads, hospitals, or schools.

Oyedele acknowledged this perception, stressing that reform must go hand in hand with transparency and better governance. “We must avoid misinformation and position ourselves for the better days ahead,” he said.

The reforms, he explained, are not about extracting more from struggling households but about fairness. He noted that  small businesses with turnover below N25 million will remain VAT-exempt, while larger micro-enterprises will face a tax system designed to be both affordable and easy to comply with, especially via digital tools.

Another issue addressed at the event is one relating to personal income tax. Under current rules, Nigerians earning about N400,000 per month pay the same marginal rate as billionaires, a structure critics say entrenches inequality. However, the new framework introduces a progressive tilt, reducing the burden on low- and middle-income earners while raising the top rate for high-income earners to 25 percent.

“The top two to three percent of Nigerians who are the very high earners will pay more. But for the majority, taxes will go down. This is about fairness and sustainability,” Oyedele said.

He pointed out that even at 25 per cent, Nigeria’s top marginal rate will remain far below South Africa’s 45 per cent and Ghana’s 35 per cent. “Globally, high earners pay more. Nigeria cannot be the exception if we want to build a fair and competitive system,” he added.

For corporations, the new system proposes cutting the standard rate from 30 per cent to 25 per cent, making it more attractive for businesses to formalise. Oyedele argued that this change could stimulate growth by reducing incentives for large firms to avoid incorporation.

According to the chairman of the presidential committee, VAT, currently at 7.5 per cent, will remain among the lowest in Africa, but critical items such as food, healthcare, and education will move from “exempt” to “zero-rated.” This means producers can reclaim VAT paid on inputs, lowering costs and ultimately reducing consumer prices.

“Your net income will rise because your tax liability will fall, and at the same time the cost of essentials will come down. That dual effect will enhance the purchasing power of Nigerian households,” Oyedele explained.

The reform also promises to bring about tax harmonisation. This is as Nigerian businesses often operate under a thicket of levies, from signage fees to multiple environmental charges. These often overlap between federal, state, and local governments, creating a hostile environment for investment.

The committee’s plan is to shrink the number of taxes drastically, creating predictability and lowering the cost of compliance. “No one benefits from a system where honest taxpayers are disadvantaged while evaders thrive. Harmonisation is about fairness, efficiency, and growth,” Oyedele stated.

Another major plank is the introduction of a unified tax ID system, with the Central Bank of Nigeria requiring all business accounts to have valid identification by 2026. The goal is to close loopholes that allow businesses to operate in the shadows. Unlike past efforts, however, the ID system will leverage existing identifiers such as NIN and CAC numbers to avoid duplication.

At the same time, new digital tools, including a tax calculator launched on the committee’s portal, will enable citizens to estimate their liabilities under both the current and reformed system. The aim is to empower taxpayers and counter misinformation.

The reforms come amid a fiscal crisis. Oil revenues have shrunk due to production shortfalls and global energy shifts, while debt service consumes over half of federal income. Broader taxation is no longer optional, but implementing reform in Nigeria’s fractious political economy is another matter. There are concerns state governments, local councils, and vested elites may resist. Meanwhile, ordinary Nigerians remain wary of any new policy that touches their pockets, regardless of long-term benefits.

Oyedele admitted the path ahead will be difficult, stating: “We are not going to celebrate our efforts. The true test is impact. When businesses begin to thrive, households see relief, and government has resources to deliver services, that is when we will celebrate.”

Unlike past reforms written in Abuja and imposed top-down, the committee has emphasised consultation, gradual implementation, and transparency. Phased rollouts are designed to allow businesses and individuals to adjust. Importantly, the government has already suspended several taxes introduced by the previous administration including levies on airtime, vehicles, and carbon emissions.

Oyedele expressed confidence that if successful, the reforms could reset Nigeria’s economic trajectory by expanding the formal economy, boosting investment, and increasing trust in public finance.