Nigeria’s Tax system has undergone significant changes since the country’s independence in 1960. The Income Tax decree of 1961 established the foundation for modern Taxation in Nigeria. Over the years, various reforms have aimed to improve tax efficiency and reduce evasion. The latest proposal by the Presidential Committee on Fiscal Policy and Tax Reforms, chaired by Mr. Taiwo Oyedele, marks a significant milestone in this journey. The committee proposes reducing personal income tax rates for Nigerians earning less than ₦2 million monthly and increasing rates for those earning above ₦5 million.
Its aim is to make Nigeria’s tax policy more progressive, aligning with international best practices. Currently, the same tax rate applies to all Nigerians, regardless of income level, which Oyedele notes is not progressive. Nigeria’s tax history reveals a complex system with multiple collection agencies at federal, state, and local levels. The proposed central tax agency, the Nigerian Revenue Service, would consolidate these efforts, replacing over 100 existing collection agencies. The joint tax board would be replaced by a Nigeria Revenue Commission.
Plan to create a more equitable and more efficient tax system.
Also, the committee’s recommendations include addressing systemic corruption, prioritizing Basic Needs spending, limiting borrowing, and improving public procurement efficiency. Implemented “quick wins” include removing VAT on diesel and eliminating multiple taxes in the informal sector. The proposed tax reform would reduce the number of taxes from approximately sixty to eight: income tax, VAT, customs duties, excise tax, harmonized levy, special levy, stamp duties, and property taxes. The harmonized levy encompasses local government collections, while the special levy includes Education tax for TETFund, NASENI, and others.
This reform aims to create a more equitable and efficient tax system, aligning Nigeria with global standards. By reducing taxes for lower-income earners and increasing rates for the wealthy, Nigeria takes a step towards a more progressive tax policy. Historically, Nigeria’s tax system has faced challenges, including widespread evasion and a large informal sector. The country has relied heavily on oil revenues, which has led to a lack of diversification in the economy. The proposed reforms aim to address these issues by broadening the tax base and encouraging compliance.
History and evolution of the tax system in Nigeria.
In the 1960s and 1970s, Nigeria’s tax system was largely based on the British colonial system, with a focus on income tax and customs duties. The 1970s saw the introduction of value-added tax (VAT). Since then, it has become a significant source of revenue for the Nigerian government. The 1990s and 2000s saw efforts to reform the tax system, including the establishment of the Federal Inland Revenue Service (FIRS) and the introduction of the National Tax Policy.
Despite these efforts, Nigeria’s tax system remains complex and fragmented. There are multiple taxes and levies imposed by federal, state, and local governments. However, the proposed reforms aim to simplify the system and reduce the burden on taxpayers. The committee’s proposal to reduce taxes for lower-income earners is a significant step towards reducing Poverty and inequality in Nigeria. By increasing taxes for the wealthy, the government can generate revenue for social programs and Infrastructure development.
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The proposed central tax agency, the Nigerian Revenue Service, would consolidate Tax Collection efforts and improve efficiency. The agency would be responsible for collecting taxes, enforcing tax laws, and providing tax education and awareness. The committee’s recommendations also include addressing systemic corruption, which has been a major challenge in Nigeria’s tax system. Corruption has led to widespread Tax Evasion and a lack of trust in the tax system. By addressing corruption and improving transparency, the government can increase tax compliance and generate revenue for development.