In August 2023, Nigeria began the process of revamping its tax laws and processes, thanks to the establishment of the Fiscal Policy and Tax Reforms Committee. This committee was established by President Bola Ahmed Tinubu and chaired by Mr. Taiwo Oyedele, a renowned tax expert. The committee was tasked with transforming the Nigerian tax system and aiding the country to achieve fiscal sustainability through proper fiscal policy.

The committee reform effort has produced four significant bills as part of its tax reform initiatives: the Nigeria Tax Bill (NTB) Nigeria Tax Administration Bill, the Nigeria Revenue Service Establishment Bill (NRSEB), and the Joint Revenue Board Establishment Bill (JREBEB), aimed at overhauling Nigeria’s tax system. This article outlines the key changes expected from these reforms and their effect on various tax categories.

1.     Companies Income Tax (CIT)

Reduction in CIT Rate: The Nigeria Tax Bill proposes a phased reduction in the Company's Income Tax (CIT) rate from 30% to 25% within a two-year period. This significant decrease aims to ease the tax burden on businesses, especially large corporations, thereby fostering a conducive environment for business growth and also attracting foreign investment, thereby spurring economic growth.

Exemption for Small Companies: In a bid to promote the growth of small companies and start-ups valued at up to Fifty Million (N50,000,000.00) are exempt from paying Companies Income Tax (CIT). This exemption aims to alleviate the tax burden on small companies, allowing them to focus on development and expansion.

Abolition of Minimum Tax: One of the key proposals made under the Nigeria Tax Bill (NTB) is the elimination of the minimum tax requirement. This change would bring significant relief to businesses operating at a loss or with minimum profit margins, allowing them to conserve resources and focus on recovery and growth. By removing this requirement, the government aims to support vulnerable businesses and foster a more favourable business environment.

Introduction of New Development Levy: The NTB introduced a new 4% levy which will see a phased reduction to 2% over a five-year period. Revenue generated from this levy will be dedicated to funding developmental projects and infrastructure improvements across Nigeria. This would contribute to improved public services and long-term growth, as it potentially improves key sectors like transportation, energy, and telecommunications, which are critical for overall economic growth.

2.   Personal Income Tax (PIT)

Tax Rate Adjustments: The reform proposes a review of PIT rates, particularly for high-income earners. This could involve creating more progressive tax brackets to ensure fairness and increase revenue collection from individuals.

Incentives for Low-Income Earners: There may be adjustments or exemptions aimed at reducing the tax burden of low-income earners, in order to achieve greater economic equity.

Taxation Based on Physical Presence and Digital Nomad Incentives: The Nigeria Tax Bill (NTB) also aims to encourage remote work and digital nomadism by stipulating that income earned by non-resident individuals from employment in Nigeria will only be subject to taxation if the services are performed physically within the country.

3.   Value Added Tax (VAT)

VAT Compliance and Rate Adjustments: The Nigeria Tax Bill (NTB) proposes a gradual increase in Nigeria’s VAT rate, aiming for a new rate of 12.5% by 2026 and 15% by 2030. This phased approach is designed to align Nigeria’s VAT rate with ECOWAS standards by 2030.

Streamlined VAT Refund Process: The NTB introduces a simplified VAT refund procedure, ensuring that refunds are processed and issued within 30 days of application without the need for an audit.

VAT Reliefs for Small Companies: The NTB proposes VAT reliefs for small businesses aiming to reduce their tax burdens and support their growth and sustainability.

Revision of VAT Revenue sharing formula: The NTB proposes significant changes to the Value Added Tax (VAT) revenue sharing formula, restructuring how these funds are distributed among federal, state, and local governments. The new formula aims to create a more equitable distribution system that better addresses development needs across all levels of government while ensuring fiscal sustainability and ensuring that the regions contributing more to the economy are appropriately compensated.

4.   Corporate Tax Administration and Compliance

Improved Tax Administration:  with the establishment of the Nigeria Revenue Service (NRS) by the Nigeria Revenue Service Bill, there would be better coordination in tax collection and administration, leading to improved compliance rates and more efficient revenue collection.

Cross-Border Tax Cooperation: The Nigeria Tax Bill (NTB) introduces comprehensive measures to strengthen cross-border tax cooperation, establishing frameworks for information exchange with international tax authorities. These provisions aim to combat tax evasion, prevent profit shifting, and align Nigeria's tax practices with global standards. The reforms promote transparency in international transactions while protecting Nigeria's tax base from erosion through sophisticated cross-jurisdictional arrangements.

Introduction of Joint Tax Audits:  The JRBEB introduces joint tax Audits between Federal and State Tax agencies. This will minimize the duplication of efforts, lower compliance costs for businesses and create a more cohesive audit system.

5.   Other Changes Brought by the Tax Reform

Creation of a Unified Revenue Board: The Joint Revenue Board Establishment Bill (JRBEB) proposes the establishment of a unified collaboration between federal and state tax authorities. This structure is designed to promote better coordination and reduce inefficiencies.

Standardized Tax Collection Procedures: The JRBEB introduces standardized tax collection procedures aimed at reducing the administrative burdens on taxpayers and making the tax process more transparent and efficient.

Coordinated Tax Dispute Resolution Mechanisms: The JRBEB introduces the creation of a Tax Ombudsman office, representing a significant advancement in Nigeria's tax governance structure. This independent body will serve as an impartial mediator between taxpayers and tax authorities, addressing complaints and resolving disputes outside the traditional court system. The Tax Ombudsman will be empowered to investigate claims of unfair treatment, procedural errors, and excessive delays in tax administration. This institution aims to enhance taxpayer rights protection, improve the overall fairness of the tax system, reduce delays in resolving tax–related issues, and build greater public trust in Nigeria's tax framework.

Integrated Data Sharing Protocols: The JRBEB proposes the development of integrated data-sharing protocols among different revenue agencies. This approach ensures that tax information is shared seamlessly, improving accuracy and reducing tax evasion.

Introduction of Joint Tax Audits:  The JRBEB introduces joint tax Audits between Federal and State Tax agencies. This will minimize the duplication of efforts, lower compliance costs for businesses and create a more cohesive audit system.

In conclusion, the proposed reforms are designed to address longstanding issues of fragmentation in Nigeria's tax administration system while enhancing revenue collection efficiency and taxpayer compliance. These changes are expected to foster a friendlier business environment, while ensuring that the tax system remains transparent, efficient and conducive to economic growth, ultimately improving tax compliance across Nigeria.

WRITTEN BY: COLLEEN ICHENWO ESQ