President Tinubu’s Tax Reforms, made simple and understandable
President Bola Tinubu
President Tinubu’s Tax Reforms, made simple and understandable.
Since President Bola Tinubu transmitted four executive bills tagged #TaxReformBills to the national assembly last month, many needless controversies have engulfed the debate around the bill. Most of these controversies are simply borne out of inability of those flaming the controversies to carefully go through the contents of the bills currently before the parliament. As a result of, a lot of ordinary Nigerians are confused about the true position of these bills especially as it affects their pockets.
I want to briefly breakdown the tax reform bills in a very concise and easily understood manner.
The tax reform bills are four different bills that seeks to bring everything about taxation and administration of tax in Nigeria under four different pieces of legislation. The bills are as follows:
1. The Nigeria Tax Bill
2. The Nigeria Tax Administration Bill
3. The Nigeria Revenue Service Establishment Bill
4. The Joint Revenue Board Establishment Bill
The Nigeria Tax Bill is where all major taxes imposed on individuals and companies are clearly stated as well as the rates. This bill is just like a compendium of taxes charged in Nigeria. The Nigeria Tax Bill basically amalgamated all the existing laws in which provisions for taxation was made. If passed, this bill will lead to the repeal of 11 laws that contain provisions on imposition and collection of taxes.
Some of major provisions contained in the Nigeria Tax Bill that has far reaching bearing on both individuals and businesses include:
1. Exemption of individuals earning N800,000 or less from paying income tax. Currently, if you earn a total of N800,000 annually, you are required to pay N84,000 out of this amount as income tax. With this bill, you will not pay anything.
2. Only those earning above N50 million get to pay 25% personal income rate. Under the current law, once you earn above N3.2 million you will be charged 24% income tax.
3. Exemption of small businesses from paying income tax. In this bill small companies are defined as those with annual turnover of N50 million or less. In the current law, small businesses are defined as those with turnover of N25 million or less. What this means is that up to 90% of businesses in Nigeria will be exempt from paying income tax.
4. Reduction of company income tax rate from 30% to 25% in 2026 for medium and large companies.
5. Elimination of minimum income tax of 1% charged on the gross earnings of medium and large companies that did not declare profit. Only profit is taxed under the new tax bill.
6. Harmonisation of 2.5% education tax, 1% NITDA tax and 0.25% NASENI tax that many firms pay in addition to their company income tax annually into a single development levy of 2% that will be used exclusively to fund student loans from 2030. This further reduces the total tax burden of some companies from around 33.75% of their earnings (when you add these three deductions to their income tax rate of 30%) to just 27% of their earnings.
7. Review of the VAT revenue sharing formula where states now take 55% of the revenue instead of 50% while the federal government’s share of VAT revenue shrinks from the current 15% to 10%. The share of LGAs remain the same.
8. Progressive increase in VAT rate from the current 7.5% to 10% in 2025; 12.5% between 2026-2029 and 15% from 2030.
9. Exemption of many basic items consumed by the poor from VAT such as food items, medical services and pharmaceuticals, educational fees, electricity etc.
10. Tax exemptions to encourage investment in both associated natural gas and non-associated gas.
The Nigeria Tax Administration Bill on the other hand is the bill that sets out how the tax authorities will administer the taxes, which include assessment, collection of, and accounting for the various t…
