A comprehensive attempt to modernise Nigeria’s Tax system and solve systemic inefficiencies that have impeded Revenue collection for decades is reflected in the country’s tax reform bill. Harmonising taxes across the federal, state, and local levels is the main component of the reform, which aims to make compliance easier for both individuals and corporations. It is anticipated that this action will lessen the burden of Nigeria’s infamously intricate and overlapping tax structure, which frequently results in double Taxation and inhibits the expansion of businesses.
In order to combat Nigeria’s widespread Tax Evasion issue—where it is believed that less than 10% of eligible taxpayers fulfil their obligations—the measure also contains provisions to bolster the enforcement of current tax laws. Nigeria’s proposed tax reform plan has been heralded as a possible economic turning point. The reform, which aims to expand the tax base and reduce inefficiencies, has the potential to greatly raise government revenue. Nigeria has historically relied on erratic oil earnings, which make up more than 60% of government income, and has one of the lowest tax-to-GDP ratios in the world, at just 6%, compared to the average for Africa, which is 16.5%.
Businesses nowadays frequently struggle with conflicting taxes.
According to economists, this reliance is unsustainable, particularly as the world’s energy markets move towards renewable sources. Nigeria’s disjointed tax structure will be unified as part of the suggested improvements. Businesses nowadays frequently struggle with conflicting federal, state, and municipal taxes, which causes confusion and inefficiencies. In order to minimise bureaucratic obstacles and facilitate compliance for both individuals and companies, the reform aims to standardise these procedures under a single tax law. Furthermore, the measure provides specific advantages, such as reduced tax rates and tax holidays, to small and medium-sized businesses (SMEs).
Given that SMEs employ more than 80% of Nigeria’s workforce and account for 48% of its GDP, this is crucial. The deployment of Technology to digitise tax processes, decrease human intervention, and improve transparency is a major area of focus for the bill. For example, the TaxPro Max platform, which enables online tax filing and payment for both people and businesses, is being expanded by the Federal Inland Revenue Service (FIRS). Similar programs have shown effectiveness in other African nations, such as Kenya’s iTax system.
These monies might be used to address out-of-school children.
After two years of iTax implementation, Kenya reported a 14% increase in revenue and an 18% increase in tax compliance. If successfully implemented, Nigeria’s digital reforms might have similar outcomes and contribute to the country’s goal of increasing its tax-to-GDP ratio from the current 6% to 15% during the next ten years. But there are obstacles on the path to progress. Strong interest groups and a lack of political will opposed earlier attempts to restructure the tax code. The initial expenses of educating staff and putting in place digital tax systems are another issue that analysts caution about.
Gaining the support of taxpayers—many of whom are still dubious because they believe the government is incompetent and corrupt—will require effective public communication. The tax reform has the potential to produce revolutionary outcomes if it is executed successfully. According to the International Monetary Fund (IMF), Nigeria could boost its yearly Tax Revenue by at least 15%, boosting its coffers by more than $15 billion. These monies might be used to address the 20 million out-of-school children in the nation, improve access to healthcare, and construct vital infrastructure. Furthermore, lowering dependency on the $113 billion in foreign debt would improve resilience and economic autonomy.
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Reforms have the ability to “unlock Nigeria’s economic growth,” according to experts like Taiwo Oyedele, Fiscal Policy Partner at PwC Nigeria. “This is an opportunity for the government to restore confidence by making sure that every Naira collected is tracked down and used to help the people,” he says. Nigeria’s journey can benefit greatly from lessons learnt from nations like Rwanda, whose tax reforms helped quadruple tax receipts in ten years. Nigeria’s tax reform bill is a daring move to change the economic climate of the nation. The reform’s emphasis on digitalisation, equity, and inclusivity could increase incomes, diversify the economy, and provide real advantages to Nigerians.