Adeniyi Bamgboye
“For the policy to be effective and sustainable, the government must demonstrate a clear commitment to utilising these additional revenues responsibly, investing in crucial areas such as infrastructure, education, and healthcare, thereby creating tangible benefits for all Nigerians.”
President Bola Ahmed Tinubu’s recent assent to the Tax Reform Bills has launched Nigeria into a new era of fiscal policy, a period ripe with both transformative potential and considerable challenges. While the stated objectives are laudable, modernisation, enhanced efficiency, and greater equity, the devil, as always, lies in the details. As businesses and individuals alike brace for these sweeping changes, it’s imperative to dissect the key provisions and analyse their likely impact on the Nigerian economy.
The rechristening of the Federal Inland Revenue Service (FIRS) as the Nigeria Revenue Service (NRS) is more than a cosmetic alteration; it signals a fundamental shift toward a centralised revenue collection model. With the NRS slated to absorb revenue-generating responsibilities formerly dispersed across numerous agencies, including Customs and various maritime authorities, the promise of streamlined processes and enhanced coordination is tantalising.
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Theoretically, this consolidation should translate to a more efficient tax administration system, reducing bureaucratic redundancies and simplifying compliance for businesses. Imagine a future where businesses interact with a single, unified entity for all their tax-related needs, rather than navigating a complex web of agencies with often-conflicting requirements.
The introduction of a graduated personal income tax system, featuring an exemption for low-income earners (₦800,000 or less annually) and a higher top rate (25%) for those earning above ₦50 million, reflects a commendable effort to promote income equity and redistribute wealth.
The exemption for low-income earners provides a much-needed safety net for the most vulnerable segments of society, freeing up disposable income for essential needs and potentially stimulating local economic activity. It’s a recognition that the tax burden should be progressive, with those who can afford to contribute more bearing a greater responsibility.
High-income individuals must carefully assess the implications of this increased tax burden and adapt their financial planning strategies accordingly.
For the policy to be effective and sustainable, the government must demonstrate a clear commitment to utilising these additional revenues responsibly, investing in crucial areas such as infrastructure, education, and healthcare, thereby creating tangible benefits for all Nigerians.
The tax reform package offers a mixed bag for corporate entities. The exemption for small businesses represents a significant victory, providing a vital boost to the entrepreneurial spirit and fostering a more competitive marketplace. This measure will empower small businesses to reinvest profits, expand their operations, and create much-needed jobs, serving as a catalyst for economic growth at the grassroots level.
The planned reduction in the corporate income tax (CIT) rate from 30 percent to 25 percent in 2026 offers a welcome, albeit delayed, incentive for medium-sized and large corporations. This reduction, though not immediately realised, provides a valuable signal to both domestic and international investors, demonstrating a commitment to creating a more business-friendly environment and encouraging long-term investment in the Nigerian economy.
The government’s decision to maintain existing VAT exemptions on essential goods such as food and medicine is a pragmatic response to concerns about the potential impact on vulnerable populations. Increasing VAT on essential items would disproportionately affect low-income households, potentially exacerbating poverty and fuelling social unrest.
However, the stability of the VAT rate at 7.5 percent should not be interpreted as a sign of complacency for businesses. The government is likely to intensify its efforts to improve VAT compliance and enforcement, cracking down on tax evasion and streamlining collection processes.
Businesses must ensure their accounting practices are impeccable, their records are meticulously maintained, and their adherence to VAT regulations is unwavering. A proactive approach to VAT compliance will be essential for avoiding costly penalties and maintaining a positive relationship with the tax authorities.
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Perhaps the most contentious element of the tax reform package is the introduction of a new development levy, specifically earmarked for funding critical institutions like the National Education Loan Fund (NELFUND) and the Tertiary Education Trust Fund (TETFund). While the stated objective, to bolster education, technology, and infrastructure, is undoubtedly commendable, the potential impact on business competitiveness and investment remains a significant concern.
Ultimately, the success of Nigeria’s tax overhaul will depend on effective implementation, transparent governance, and open communication between the government, businesses, and the public.
By embracing these principles, Nigeria can harness the power of taxation to build a more equitable, prosperous, and sustainable future for all its citizens.
Adeniyi Bamgboye, MBA, FCA, FCTI, FCCA: is an advisor on accounting, audit, tax and business. He holds an MBA in financial management and is a fellow of Association of Certified Chartered Accountant (ACCA-UK), Institute of Chartered Accountants of Nigeria (ICAN) and the Chartered Institute of Taxation of Nigeria (CITN). 08060603156. bamgboyeadeniyi@yahoo.com
