Nigeria is set to experience a crucial transformation in its Tax structure, intending to move away from its traditional reliance on oil and embrace a more equitable and growth-focused system. The unveiling of the 2024 Tax Reform Bills has ignited several discussions within the National Assembly and the National Economic Council (NEC), highlighting a lively democratic engagement rather than division. Fundamentally, the proposed reform aims to create a stronger Economy that serves the interests of all Nigerians, particularly during challenging global economic conditions.
One of the significant proposed modifications is the alteration of the formula used for sharing Value Added Tax (VAT). At present, the federal government collects 15% of VAT income, but the Nigeria Tax Administration Bill proposes to cut this to 10%. In contrast, state authorities would receive 55%, while local authorities would secure 35%, promoting a more equitable allocation. An important measure raises the percentage of derivation allocated to local governments and states from 20% to 60%. This change seeks to motivate states to improve their revenue-generating efforts while addressing current legal issues related to VAT collection.
Food, education, medical care, and public transit will not incur VAT.
Detractors have expressed worries regarding possible financial disparities; nevertheless, this modification is anticipated to strengthen subnational governments and foster competitive administration. The proposed Legislation presents various tax benefits aimed at promoting Economic Growth and reducing pressure on the populace. Key necessities like food, education, medical care, and public transit will not incur VAT charges. This initiative is anticipated to decrease food costs and enhance the buying capacity of economically disadvantaged families, providing significant assistance to countless Nigerians identified as multidimensionally impoverished.
In addition, the exportation of goods, services, and intellectual property will benefit from a zero VAT rate, boosting Nigeria’s competitiveness in international trade. This all-encompassing strategy highlights the government’s dedication to fostering well-being and economic inclusion. Another crucial element of the reform aims to alleviate the tax load for vulnerable employees and small enterprises. With the implementation of this new system, individuals making up to ₦800,000 per year, including those on minimum wage, will no longer be subject to personal income tax.
Tax exemption limits will be given to small enterprises and others.
This measure is projected to assist more than 90% of the workforce, increasing their available income and helping to counteract inflationary effects. The tax exemption limit for small enterprises has increased from ₦25 million to ₦50 million in yearly revenue, with the total assets limit set at ₦250 million. This amendment acknowledges the significant impact of micro, small, and medium enterprises (MSMEs) that account for about 48% of Nigeria’s GDP and create 87% of jobs across the country. By reducing their tax burdens, this policy intends to promote entrepreneurship and stimulate economic activity.
Also, the reform addresses the persistent challenge of double taxation, which has been a significant worry for large corporations and the formal private sector. The Nigeria Tax Bill suggests a gradual decrease in corporate Income Tax from 30% to 27.5% in 2025 and down to 25% in 2026, bringing Nigeria’s rates in line with those of neighbouring countries such as South Africa and Kenya. Also, a new 4% development tax will supersede multiple current taxes, including the Education tax and Technology development charge. This tax will Finance the Nigerian Education Loan Fund (NEFUND), which has already assisted more than 10,000 students. By merging these taxes, the initiative aims to streamline the tax framework and lessen compliance expenses for enterprises.
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Moreover. the Nigeria Revenue Service Bill establishes strategies to unify revenue collection among federal, state, and local authorities. It encourages cooperation between revenue agencies and seeks to lower collection expenses in accordance with international standards. Additionally, this legislation provides the authority to delegate Tax Collection responsibilities, enhancing efficiency and promoting accountability. The reform also aims to simplify revenue management, targeting obstacles and improving Financial Stability at every government tier. Instead of succumbing to concerns about fiscal emergencies, these initiatives are intended to establish a more equitable and enduring revenue structure.