23 Insights into Tinubu’s Tax Reform: Cutting Costs for Nigerians

The proposed tax reforms by President Bola Ahmed Tinubu have sparked significant debate across Nigeria, with many Nigerians keen to understand how these changes could impact their daily lives. To simplify these reforms and provide clarity, here’s an easy-to-digest overview of the key aspects of the four tax reform bills and their potential benefits:

Breaking Down Tinubu’s Tax Reform Bills

The reforms are encapsulated in four bills currently under review by the National Assembly:

1. Nigeria Tax Bill
2. Nigeria Tax Administration Bill
3. Nigeria Revenue Service Establishment Bill
4. Joint Revenue Board Establishment Bill

These bills aim to address critical issues such as multiple taxation, tax evasion, and under-taxation while promoting fairness and economic growth.

Key Highlights of the Nigeria Tax Bill

1. Tax Relief for Low-Income Earners
   • Individuals earning ₦800,000 or less annually will no longer pay income tax. Currently, such earners pay ₦84,000 annually.
2. Progressive Taxation for High-Income Earners
   • Personal income tax rates will increase to 25% only for individuals earning above ₦50 million annually. This is a shift from the current 24% tax rate imposed on those earning above ₦3.2 million.
3. Support for Small Businesses
   • Businesses with annual turnovers of ₦50 million or less will be exempt from income tax, up from the current threshold of ₦25 million.
4. Reduction in Corporate Tax
   • Corporate tax rates for medium and large businesses will drop from 30% to 25% by 2026.
5. Elimination of Minimum Income Tax
   • Companies will no longer pay the 1% minimum tax on gross revenue if they declare no profit.
6. Unified Development Levy
   • Taxes such as the 2.5% education tax and others will be streamlined into a single levy of 2%, reducing corporate tax burdens.
7. VAT Revenue Sharing Adjustment
   • States will now receive 55% of VAT revenue (up from 50%), while the Federal Government’s share reduces from 15% to 10%.
8. VAT on Essential Goods
   • Essential items like food, electricity, medical services, and educational materials will remain exempt from VAT, reducing costs for consumers.
9. Encouraging Investment in Natural Gas
   • Tax exemptions will incentivize investments in both associated and non-associated gas projects.
10. Planned VAT Rate Increases
    • VAT rates will gradually rise from 7.5% to 15% by 2030, allowing businesses and individuals to adjust over time.

Key Features of the Nigeria Tax Administration Bill

1. Tracking High-Income Transactions
   • Financial institutions must report individuals with monthly transactions exceeding ₦25 million and companies exceeding ₦100 million to ensure compliance.
2. Tax Payment Flexibility
   • Taxes assessed in foreign currencies can now be paid in naira, boosting exchange rate stability.
3. Streamlining Revenue Collection
   • The Nigeria Revenue Service (NRS) will centralize tax collection duties, allowing agencies like Customs and NIMASA to focus solely on regulatory functions.
4. Digital Tax Administration
   • Technology will automate tax collection, particularly for digital platforms like social media and streaming services.
5. Enhanced VAT Sharing Model
   • VAT will now be allocated based on the location of consumption rather than company headquarters, benefiting less industrialized states.

Additional Reforms: Revenue Service and Joint Revenue Board Bills

1. Rebranding the FIRS
   • The Federal Inland Revenue Service (FIRS) will be renamed the Nigeria Revenue Service to reflect its role in collecting revenue for all tiers of government.
2. Establishing a Taxpayer Advocacy System
   • The Office of the Tax Ombudsman will address grievances against tax authorities, ensuring fairness and transparency.
3. Simplifying Tax Disputes
   • The Tax Appeal Tribunal will handle disputes between taxpayers and authorities.

What This Means for Nigerians

1. Reduced Cost of Living
   • Exemptions on food, medicine, and electricity from VAT will lower everyday expenses.
2. Support for Small Businesses
   • Over 90% of Nigerian businesses will benefit from tax exemptions, encouraging entrepreneurship.
3. Regional Revenue Redistribution
   • States will gain more control over VAT revenues generated within their borders, promoting regional economic growth.
4. Pro-Poor Policies
   • These reforms prioritize low-income earners, ensuring they are not burdened by unnecessary taxes.

Conclusion: A Step Toward Economic Efficiency

Tinubu’s tax reforms are designed to simplify Nigeria’s tax system, eliminate redundancies, and promote economic growth. By providing exemptions for essential goods and services and focusing on progressive taxation, these bills aim to create a more equitable financial ecosystem for all Nigerians.

As these bills progress through the legislative process, the public has a chance to engage, ensure fairness, and support reforms that can lead to a more prosperous Nigeria.