In a historic move last week, the Nigerian Senate passed a suite of tax reform bills aimed at revitalizing the country’s economy. These reforms, central to President Bola Tinubu’s economic agenda, focus on increasing government revenue, addressing Nigeria’s low tax-to-GDP ratio of 10.8%, and reducing the nation’s reliance on borrowing. The bills, which include the Nigeria Revenue Service (Establishment) Bill and the Nigeria Tax Administration Bill, mark the most significant attempt in decades to overhaul Nigeria’s fragmented and inefficient tax system.
One of the key elements of the reform is the proposed increase in the value-added tax (VAT) rate from 7.5% to 12.5%, with plans for gradual increments reaching 15% by 2030. Essential items like food and medicine will remain exempt to protect lower-income households. The bills also consolidate over 60 separate taxes into a streamlined system, simplifying the tax process for businesses. Small businesses with annual turnovers under N50 million will be exempt from corporate income tax, while larger corporations will see a gradual reduction in tax rates by 2026.
A major change in the reform is the establishment of the Nigeria Revenue Service (NRS), which will replace the Federal Inland Revenue Service and centralize tax collection across all government levels. This move aims to reduce redundancies, improve efficiency, and enhance transparency. Additionally, the reforms propose stricter penalties for tax offenses, including fines for failure to file returns and imprisonment for severe violations. The government expects the tax overhaul to double revenue within two to three years and raise Nigeria’s tax-to-GDP ratio to 18%.
However, the reforms have faced criticism from some lawmakers and regional leaders, who express concerns about potential regional inequalities in revenue distribution. The government has made adjustments, including shifting 60% of VAT revenues to revenue-generating states, and changing the VAT sharing formula to a “place of consumption” model. Despite these changes, apprehension remains over the impact of the VAT hike on consumption and industrial growth.
Experts’ reactions to the reform have been mixed, with some praising the overhaul as long overdue, while others caution that successful implementation will be key. Analysts stress that building public trust, ensuring transparency, and providing support for small businesses are essential for the reforms to succeed. If effectively executed, the overhaul could significantly boost Nigeria’s non-oil revenue, reduce fiscal deficits, and create a more predictable tax environment, fostering economic growth and investor confidence.
Source: The Sun