Key Highlights of the Tax Reform Bill

• Unanimous Approval: Speaker Tajudeen Abbas commended the Committee on Finance, noting that the bill received 100% approval from representatives of all 36 states and the FCT.
• Value Added Tax (VAT) Structure: The bill maintains VAT at 7.5%, ensuring it remains consumption-based.
• Federal Inland Revenue Service (FIRS) Repeal: The bill proposes replacing FIRS with the Nigeria Revenue Service (NRS) to improve tax collection and administration.
• Seamless Tax Harmonization: The NRS will centralize revenue collection, enhancing efficiency and compliance.

Impact of the Reform

• Simplified tax processes for businesses and individuals.
• Enhanced revenue generation for national development.
• Greater transparency and efficiency in tax administration.

The Tax Reform Bill is a landmark policy shift aimed at improving Nigeria’s fiscal structure and boosting economic growth.

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Bede Ogueri Anyanwu, FRC’s Head of Strategic Communications, described the bill as crucial for Nigeria’s economic transformation.

According to him, Victor Muruako, FRC’s chairman, believes the bill promotes fiscal responsibility and strengthens Nigeria’s economic foundation.

Muruako emphasized the alignment of the proposed bill with the Fiscal Responsibility Act, 2007, ensuring fiscal policy transparency.

He stressed diversifying revenue sources, reducing oil dependence, and promoting fiscal transparency to prevent unsustainable government expenditures.

Muruako added that a simplified, predictable tax system would encourage investments, stimulate growth, and enhance Nigeria’s fiscal resilience.

Additionally, the FRC urged lawmakers to modernize tax operations, improving efficiency and eliminating bureaucratic hurdles slowing tax administration.

The commission also emphasized providing robust support for MSMEs through targeted tax incentives to stimulate business growth.

Equity in taxation remains vital, ensuring no sector of the economy faces unfair or excessive tax burdens.

It further recommended strengthening compliance frameworks and enforcement measures to curb tax evasion and improve revenue collection.

The FRC called for fair revenue distribution among federal, state, and local governments to sustain national development.

The commission asserted that successful reforms would create an equitable, efficient, and business-friendly tax environment nationwide.

Such reforms, it stated, will generate stable government revenue, fostering long-term economic growth and fiscal sustainability across Nigeria.

The FRC pledged ongoing collaboration with stakeholders, ensuring tax policies stimulate economic progress and transparency nationwide.

These strategic recommendations, the commission believes, will reposition Nigeria’s economy for sustainable growth and global competitiveness.

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The Nigeria Governors’ Forum (NGF) has endorsed a revised Value Added Tax (VAT) sharing formula, which it believes will ensure equitable distribution of Nigeria’s resources.

The details were disclosed in a communiqué issued on Thursday and signed by AbdulRahman AbdulRazaq, Chairman of the Nigeria Governors’ Forum and Governor of Kwara State.

The communiqué was released at the end of sub-national consultations and engagements with the Presidential Tax Reform Committee and other relevant stakeholders including the Federal Inland Revenue Service.

 

 

NGF Decision   

• According to the communiqué, following deliberations between the NGF and the Presidential Tax Reform Committee on critical national issues, including reforms to Nigeria’s fiscal policies and tax system, the forum arrived at several resolutions.
• First, the forum reiterated its strong support for the comprehensive reform of Nigeria’s archaic tax laws.
•  Members acknowledged the importance of modernizing the tax system to enhance fiscal stability and align with global best practices.

The NGF endorsed a revised VAT-sharing formula aimed at the equitable distribution of resources:

• 50% based on equality,
• 30% based on derivation, and
• 20% based on population.

Members also agreed that there should be no increase in the VAT rate or reduction in Corporate Income Tax (CIT) at this time.

This decision, they noted, was aimed at maintaining economic stability.

“The Forum advocated for the continued exemption of essential goods and agricultural produce from VAT to safeguard the welfare of citizens and promote agricultural productivity. 

” The meeting recommended that there should be no terminal clause for TETFUND, NASENI, and NITDA in the sharing of development levies in the bills, ” the communique also added. 

Furthermore, the communiqué stated that attendees supported the continuation of the legislative process at the National Assembly, which will culminate in the eventual passage of the Tax Reform Bills.

What You Should Know   

Nairametrics previously reported that the Northern Governors’ Forum, chaired by Gombe State Governor Muhammed Inuwa Yahaya, had rejected the derivation-based model for VAT distribution proposed in the new tax bill under deliberation at the National Assembly.

• In a communiqué signed by Governor Yahaya after a meeting between Northern governors and elders, the forum criticized the proposal, arguing that it undermines the interests of the North and other sub-national regions.
• The forum also urged members of the National Assembly to reject the bill and any similar legislation that could compromise the welfare of Northern people.
• However, President Bola Tinubu maintained that governors and other stakeholders should engage the legislative process on the issue.
• The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr Taiwo Oyedele, also reacted to the Northern Governors’ Forum’s opposition to the derivation-based VAT distribution model in the new finance bill.

According to Oyedele, the current VAT distribution model is not only unfair to Northern states but also to states across all geopolitical zones.

He explained that the committee’s proposal aims to create a fairer system that considers where goods are consumed or supplied, irrespective of their VAT status.

Currently, under Section 40 of the VAT Act, VAT revenue is allocated as follows:   

• 15% to the Federal Government,
• 50% to the States and FCT, and
• 35% to Local Governments, with at least 20% of the distribution to states and local governments based on a derivation principle.

While not explicitly stated in the VAT Act, other factors affecting the distribution include:   

• 50% based on equality, and
•  30% based on population.

Additionally, a 4% collection fee is allocated to the FIRS, and 2% to the NCS for import VAT.

The tax reform bills have already passed the second reading in the Senate.

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In a heartfelt statement released on Saturday, the Chairman of the Forum’s Management Board, Al-Amin Daggash, expressed disappointment with the federal government for not consulting experts and critical stakeholders before drafting the controversial bill.

“This bill, as it stands, appears strategically designed to cripple the country’s economy. It is concerning that such a critical reform has not undergone the due diligence it requires,” Daggash said.

While affirming their openness to meaningful reforms, the Forum stressed the importance of following global best practices in public policy-making. Daggash noted that successful reforms are built on a foundation of extensive consultation and engagement with experts and stakeholders to ensure widespread acceptance and understanding.

“It is important to clarify that Nigerians, especially those from the North, are not opposed to meaningful reforms at any level of government. However, reforms must follow key principles, such as securing buy-in through pre-reform consultations and engagements,” he explained.

The NEF also called on President Tinubu to adopt a more transparent approach by developing a robust media and communication strategy. They emphasized that the government must articulate the full scope of the reforms clearly and ensure public enlightenment across the nation to avoid misunderstandings.

“The government must prioritize public awareness and nationwide enlightenment to bridge the gap between policy intentions and public understanding,” Daggash added.

The Forum highlighted that the current Tax Reform Bill fails to meet these global standards, which compromises its potential to succeed and foster trust among Nigerians.

In a bid to find common ground, the Northern Elders expressed their readiness to engage in dialogue with President Tinubu to propose a more inclusive and sustainable path forward.

“We are prepared to sit with the President to chart a better course for reforms that work for all Nigerians,” Daggash concluded.

The Forum’s stance reflects growing public concern about the proposed reforms and signals the need for the government to approach economic policies with inclusivity and transparency.

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At a webinar put together by the Chartered Institute of Taxation of Nigeria (CITN), the Executive Chairman of Kano State Internal Revenue Service (KIRS), Zaid Abubakar, who made a Critical Review of Taxation of Income of Persons under the Proposed Nigeria Tax Bill, 2024, sported some grey areas in the bill.

Abubakar maintained that, though the fiercely debated bill, which comprises 43 clauses and six parts, has been adjudged by the federal government of having the potential to protect small businesses and engender economic growth and development; however, there are much that needed to be addressed to avoid overheating the polity.

KIRS Executive Chairman, explained that where gains accrue to a person on disposal of shares from Nigerian company, it is not clear whether both the proceeds and gains must equal or exceed N150M and N10M respectively to be taxed, or if exemption can be enjoyed, and if either one of the proceed or the gain is below the stated threshold and the other is above.

Moreover, he pointed out that the N150M threshold for asset disposal is high, as most sub -nationals do not have significant number of residents that own such volume of assets. “Section 35(1) while extending the disposal of assets beyond sale, transfer, assignment and compulsory acquisition, to include ‘lease’, did not define the type of – lease- Is it finance or operating lease? What if the -lease- is the ordinary course of business of an enterprise? In essence, the definition of ‘lease’ is too generic.

“The N50M compensation for individuals is a welcome development, especially for those whose integrity has been impaired by libel, etc. The exemption for lands attached to primary dwelling is a further relief for individuals”

He stressed that small companies are not well defined- going by paid up capital, number of employees, or turnover. However reduction in CIT will be welcome development for corporate entities, while the minimum tax rate of 15% is good, but the baseline N208 to qualify for the minimum tax is high.

“The exemption of tax payers at the bottom of the pyramid will bring some relief to the poor. However, it will erode the tax base of most sub -nationals without any compensation. It is not clear what will happen to incomes between N800K to N2.2M bracket. Will they be zero-rated or charged at 15%” he queried.

He posited that, allowing NITDA, TETFUND, and NASENI to rely on budgetary allocations or having a sunset clause for them, will negatively affect the educational and technological advancement of Nigeria.

On Pension, which is included as part of income, he suggested that it should be part of eligible deductions, while there is need to harmonise Section 4(1) and Section 12 in order not to give room for misinterpretations on account derived, brought and received in Nigeria.

“The exemption of employers such as start up, tech-driven services or creatives arts has the implication of denying competent Nigerians the opportunity to compete. The non -inclusion of IPGs brought or received in Nigeria may create gaps in determining total income subject to tax in Nigeria. There is need to align this clause with the ADBR test, as it is in the current Act.

“The failure of Section 17(9d) to include digital space in the meaning of a place is incompatible with the reality of the digital age. Therefore, there is need for a regulation to be issued by the Minister. To him, Assessable Profit as captured in the document was not clearly defined, asking “Is it accounting profit or adjusted profit”?

The expert highlighted that the provision on chargeable gains did not successfully distinguish between gains accruing from assets used in trade, vocation or business with gains from disposal of individual assets.

“Section 30 of the Bill, allows for ‘eligible deductions’ which includes payment made as contributions for National Housing Fund, National Health Insurance scheme, pension, payment for life insurance for the individual or spouse, interest payment on loans for developing an owner occupied residential house and rent relief of 200,000 or 20% of annual rent paid (whichever is lower). This effectively eliminates consolidated relief allowance and minimum tax for individual tax payers,” he added.

Meanwhile, the President/Chairman in Council of CITN, Mr. Samuel Agbeluyi, called on analysts, tax professionals, policymakers, legal practitioners, other experts, and Nigerians at large to tread with caution as reactions towards the tax bill heightened.

He urged tax experts to explain better for Nigerians to understand the direction of the presidency and why everyone should be very careful, bearing in mind the economic storms overwhelming the country at the moment.

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