Nigeria’s lower house of parliament has passed four tax reform bills aimed at overhauling the country’s tax system. Despite some modifications, including retaining VAT at 7.5% and easing taxes for minimum wage earners, the reforms focus on enhancing revenue, including a proposed VAT increase and revised corporate tax rates. These bills will soon be reviewed by the upper house.
On Thursday, Nigeria’s lower house of parliament advanced four tax reform bills proposed by President Bola Tinubu, reflecting a significant step towards overhauling the nation’s tax system. However, certain measures were modified, as the initial proposals were lessened in their impact. Presently, Nigeria maintains one of the lowest tax-to-GDP ratios globally at 10.8%, which necessitates government borrowing to sustain budgetary needs.
Following the cessation of costly subsidies and the currency’s devaluation during his first year, President Tinubu is concentrating on tax reforms to enhance revenue and operational efficiency. The proposed tax reforms aim to increase the value-added tax (VAT) to 12.5% by 2026 while also aiming to simplify tax collection and alter the revenue distribution between federal and state levels.
Despite the proposals, the lawmakers decided to retain the VAT at 7.5%, rejecting the initial increase, and exempted minimum wage earners from income tax to alleviate the tax burden on lower-income individuals. Additionally, rather than implementing a 60% allocation of VAT revenue for high-revenue states, which was contentious among northern states, lawmakers approved a 30% cap. The distribution of the remaining 70% includes 50% shared equally among all states and 20% allocated by population.
Furthermore, the legislators replaced the existing 85% petroleum profit tax with a 30% corporate tax rate on profits from oil industry activities. A global minimum tax has also been instituted for multinational corporations with a turnover exceeding $970.80 million, while the minimum tax threshold for domestic entities was increased to 50 billion naira (approximately $32.66 million). Free zone entities exporting at least 75% of their goods and services will be exempt from the minimum tax.
The upper house of parliament is expected to review and potentially pass these bills next week, pending President Tinubu’s approval for enactment.
In summary, the passage of these tax reform bills by Nigeria’s lower house is a pivotal move towards improving the nation’s fiscal landscape. Despite the amendments that dilute some original proposals, the reforms aim to increase VAT, address income tax burdens for lower earners, and establish fairer revenue distribution among states. The anticipated impact, alongside adjustments for multinational corporations, reflects a progressive shift in Nigeria’s economic strategy.
Original Source: www.marketscreener.com
