10 Things You Should Know About The Tax Reform Bills

On Thursday, Nigeria’s proposed tax reform bills made significant progress, passing their Second Reading in the Senate, despite notable opposition from some lawmakers. Senate Leader, Michael Opeyemi Bamidele, who led the debate on the Executive Bill, hailed the legislation as a crucial step in overhauling the country’s tax system.

“These bills are designed to simplify the tax framework, reduce the burden on small businesses, and streamline tax collection,” Bamidele stated.

The bills, introduced by the Presidential Committee on Fiscal and Tax Reform, chaired by Taiwo Oyedele, have sparked significant debate in recent weeks.

Here are 10 key facts about the proposed tax reforms.

1. Key Bills Introduced
   The reform package comprises four main bills: the Nigeria Tax Bill, the Nigeria Tax Administration Bill, the Nigeria Revenue Service (Establishment) Bill, and the Joint Revenue Board (Establishment) Bill. Each bill focuses on different aspects of tax administration, compliance, and enforcement.
2. Major Benefits
   The reforms aim to standardize tax revenue management across Nigeria, eliminate double taxation, incentivize private sector investment in critical sectors, and enhance disposable incomes through targeted tax exemptions.
3. Reduction in Tax Burden
   A key feature of the reforms is the proposal to reduce the corporate income tax rate from 30% to 25% over the next two years. This reduction is intended to ease financial pressures on businesses and encourage greater investment.
4. Changes to VAT Revenue Distribution
   The bills propose a shift in VAT revenue distribution, where the funds will be allocated based on where goods and services are consumed, rather than being pooled centrally for redistribution. Federal Inland Revenue Service (FIRS) Chairman, Zacch Adedeji, explained that this aligns VAT with its nature as a consumption tax.
5. Exemptions for Low-Income Earners
   The reforms aim to exempt individuals earning below the minimum wage from the Pay As You Earn (PAYE) tax. Additionally, small businesses with annual revenues of N50 million or less would also be exempt from paying taxes.
6. Harmonization of Tax Administration
   The Nigeria Tax Administration Bill seeks to unify tax rules across federal, state, and local governments. This move is designed to reduce confusion for taxpayers, lower compliance costs, and promote greater transparency in tax collection.
7. Creation of the Nigeria Revenue Service
   The Nigeria Revenue Service (Establishment) Bill proposes restructuring the Federal Inland Revenue Service (FIRS) into a centralized agency responsible for tax collection nationwide. This reorganization is intended to improve accountability and streamline revenue generation.
8. Joint Revenue Board for Taxpayer Rights
   A new Joint Revenue Board is proposed to replace the existing Joint Tax Board. This body would focus on protecting taxpayer rights and resolving disputes, with representatives from all tax authorities working together to ensure a unified approach to tax administration.
9. Encouraging Private Sector Investment
   The reforms aim to use tax policies as a strategic tool to attract private sector investment into key industries, supporting Nigeria’s broader economic development objectives.
10. Second Reading Approved in the Senate
    Despite objections from some lawmakers about stakeholder consultations and the derivation principle, the tax reform bills advanced to their Second Reading in the Senate. The Senate Committee on Finance has been tasked with reviewing the bills and reporting back within six weeks.