By Idris Muhammed Abdullahi
Nigeria’s federal government has taken a bold step to overhaul its tax system, introducing a transformative Tax Reform Bill that promises a fairer, smarter, and more inclusive approach to revenue generation. With this reform, the government aims to balance equity, boost state revenues, and ensure that Nigeria’s tax code keeps pace with emerging economic realities, including the digital economy.
Key Features of the Tax Reform Bill
- Stable VAT Rate, But a New Sharing Formula
- The Value Added Tax (VAT) rate remains unchanged at 7.5%, providing consumers with some relief amid rising living costs. However, the method of distributing VAT revenues has been overhauled to ensure a fairer allocation:
- States and Local Governments:
- Equality: 50%
- Consumption: 30%
- Population: 20%
- Local Governments Only:
- Equality: 70%
- Population: 30%
- States and Local Governments:
- The Value Added Tax (VAT) rate remains unchanged at 7.5%, providing consumers with some relief amid rising living costs. However, the method of distributing VAT revenues has been overhauled to ensure a fairer allocation:
- Revised Revenue Allocation Structure
- The Federal Government’s share of total revenue drops from 15% to 10%.
- State Governments now receive a boosted share of 55%, up from 50%.
- Local Governments maintain their 35% share, reinforcing their role in grassroots development.
- Introduction of a Development Levy
- A 4% Development Levy is introduced to fund critical national agencies, including:
- TETFUND: 50%
- NELFUND: 15%
- NASENI: 10%
- NITDA: 10%
- National Cybersecurity Fund: 5%
- Defense Security Fund: 10%
- A 4% Development Levy is introduced to fund critical national agencies, including:
- Expanding the Tax Net to Digital Assets
- The bill extends tax obligations to Virtual Asset Service Providers (VASPs), requiring them to declare earnings from digital assets, aligning Nigeria with international cryptocurrency tax standards.
- Enhanced Compliance and Enforcement Measures
- All tax offences and penalties are consolidated into a single section, simplifying compliance for taxpayers and strengthening enforcement capabilities.
- Boosting Economic Growth Through Incentives
- The reform replaces the existing pioneer status incentives with Economic Development Incentives. These are designed to reward genuine productivity and innovation rather than mere industry classification.
- Adjustments to Corporate and Sectoral Taxation
- Corporate income tax is maintained at 30%.
- Lottery and gaming companies are now taxed as regular corporations at the standard 30% rate.
- A new surcharge is introduced for telecommunications, gaming, and lottery sectors.
- The “reasonability and necessity” tests for business expense deductions are removed, simplifying the process for businesses.
- Stronger Legal and Regulatory Frameworks
- Limited Liability Partnerships (LLPs) are now explicitly recognized as companies.
- VAT can be claimed on all eligible expenses, including fixed assets and services.
- New mechanisms for dispute resolution, advance rulings, and transparency in tax planning are established.
- The Senate version of the bill reinstates investigative powers for tax authorities, which were removed in the House version.
- Adoption of Global Minimum Tax Rules
- The bill aligns Nigeria with the OECD’s Global Minimum Tax framework, but with a safeguard for small businesses. Companies with annual turnover below N20 billion are exempted, protecting small and medium enterprises.
A Step Toward a Modern, Fair, and Accountable Tax System
This Tax Reform Bill is more than a legal document—it is a strategic roadmap for a transparent, efficient, and forward-looking tax system. By widening the tax base, optimizing revenue sharing, and introducing incentives that reward innovation, the government aims to create a system that not only funds national development but also promotes compliance and productivity.
Idris Muhammed Abdullahi is an expert in Anti-Corruption, Anti-Money Laundering (AML), Counter Financing of Terrorism (CFT), Illicit Financial Flows (IFF), Beneficial Ownership, and Tax Governance.
