On Thursday, Tinubu’s proposed tax reform bills made significant progress, successfully passing their Second Reading in the Senate despite some lawmakers’ objections.
Senate Leader Michael Opeyemi Bamidele, who led the debate on the Executive Bill, characterized the legislation as a crucial step towards overhauling Nigeria’s tax system. He stated, “These bills are designed to simplify the tax landscape, lessen the burden on small businesses, and enhance tax collection efficiency.”
According to Tribune Online, the tax reform bills, introduced by the Presidential Committee on Fiscal and Tax Reform under Taiwo Oyedele, have ignited extensive discussions in recent weeks. Here are ten essential facts about the proposed tax reform bills:
1. Key Bills Introduced*
The reform package consists of four primary bills: the Nigeria Tax Bill, the Nigeria Tax Administration Bill, the Nigeria Revenue Service (Establishment) Bill, and the Joint Revenue Board (Establishment) Bill. Each bill targets specific areas of tax administration, compliance, and enforcement.
2. Major Benefits
The proposed legislation aims to standardize tax revenue administration across Nigeria, eliminate double taxation, leverage taxation to stimulate private sector investment in vital industries, and increase disposable incomes through targeted tax exemptions.
3. Reduction of Tax Burden
A significant aspect of the reforms is the proposal to lower the corporate income tax rate from 30% to 25% over the next two years, aimed at easing financial pressures on businesses and encouraging investment.
4. Derivation Principles in VAT Revenue Distribution
The bills suggest a major change in VAT revenue distribution, proposing that revenues be allocated based on the states where goods and services are consumed, rather than being pooled centrally for redistribution. FIRS Chairman Zacch Adedeji noted that this aligns VAT with its nature as a consumption tax.
5.*Exemptions for Low-Income Earners
The reforms propose exempting individuals earning below the minimum wage from the Pay As You Earn (PAYE) tax. Additionally, small businesses with annual revenues of N50 million or less would also be exempt from taxation.
6. Harmonization of Tax Administration
The Nigeria Tax Administration Bill seeks to standardize tax regulations across federal, state, and local levels, aiming to reduce taxpayer confusion and compliance costs while enhancing transparency and efficiency in tax collection.
7. Creation of the Nigeria Revenue Service
The Nigeria Revenue Service (Establishment) Bill proposes to transform the Federal Inland Revenue Service (FIRS) into a centralized agency responsible for nationwide tax collection, enhancing accountability and streamlining revenue generation processes.
8. Joint Revenue Board for Taxpayer Rights
The establishment of a Joint Revenue Board is proposed to replace the existing Joint Tax Board. This new entity would focus on safeguarding taxpayer rights and resolving disputes, with representatives from all tax authorities to promote a unified approach to tax administration.
9. Supporting Private Sector Investment
The reforms position taxation as a strategic tool to attract private sector investment in critical industries, contributing to Nigeria’s broader economic development objectives.
10. Second Reading Approved in the Senate
Despite some lawmakers expressing concerns about stakeholder consultations and the derivation principle, the proposed bills advanced to their Second Reading in the Senate. The Senate Committee on Finance has been tasked with reviewing the bills and reporting back within six weeks.
