Nigeria’s Tax Revolution: A Leap towards Economic Growth and Fairness

Nigeria’s President Bola Tinubu has signed four pivotal tax bills into law, marking a significant overhaul of the nation’s tax system. This reform aims to simplify revenue collection, reduce the tax burden on low-income earners and small businesses, and boost government revenue through efficient collection methods.

The Four Pillars of Tax Reform

• Nigeria Tax Act: Consolidates various tax rules into a single, easier-to-understand code, eliminating over 50 overlapping taxes to simplify compliance and reduce bureaucratic hurdles for businesses.
• Tax Administration Act: Sets uniform rules for tax collection across federal, state, and local government levels, fostering greater consistency and transparency.
• Nigeria Revenue Service Act: Replaces the Federal Inland Revenue Service (FIRS) with a new, independent agency – the Nigeria Revenue Service (NRS) – to enhance autonomy and efficiency.
• Joint Revenue Board Act: Improves coordination between different levels of government in revenue collection and establishes a Tax Ombudsman and Tax Appeal Tribunal to resolve tax-related disputes.

Impact on Nigerians

• Low-Income Earners: Individuals earning up to 1 million naira ($650) annually will receive a rent relief of 200,000 naira ($130), effectively reducing their taxable income and potentially eliminating their income tax liability. Essential goods and services like food, healthcare, education, rent, power, and baby products will be exempt from Value Added Tax (VAT), helping families better afford their basic needs.
• Small Businesses: Businesses with an annual turnover below 50 million naira ($32,400) will be exempt from company income tax and allowed to file simpler returns without audited accounts.
• Large Businesses: Corporate tax rates will be reduced from 30% to 27.5% in 2025 and 25% in subsequent years, with tax credits available for VAT paid on expenses and assets.

Challenges and Concerns

While the reforms promise relief for small businesses and low-income earners, economist Emmanuel Idenyi warns that the reality may differ unless enforcement practices change. Overzealous implementation by tax authorities could undermine the government’s good intentions. Successful implementation will depend on awareness and trust, with 90% of Nigerians supporting the tax reform bills, according to Taiwo Oyedele, chair of the Presidential Fiscal Policy and Tax Reform Committee ¹.

The Road Ahead

.The Nigerian government aims to grow its tax-to-GDP ratio from 10% to 18% by 2026 without raising taxes on basic goods or overburdening struggling citizens. By simplifying tax rules and encouraging voluntary compliance, officials hope to raise more money for funding infrastructure and public services, such as healthcare and education, while reducing reliance on borrowing money. If executed effectively, this tax overhaul could serve as a model for fiscal modernization across Africa ².