The Nigerian tax bill 2023 at a glance: Highlights and key provisions, By Oyetola Atoyebi

The tax reform bills mark a remarkable paradigm shift from the current tax regime putting an end to the complex and multi-layered tax system with its consequent lapses and inefficiencies. In concert, the bills foster economic equity, encourage exportation, extend the tax net to reflect current global trends and create a business-friendly environment to attract local and foreign investments. The bills further strengthen fiscal federalism and facilitate cooperation between taxpayers, subnational governments and MDAs for a vibrant and prosperous economy.

Introduction

The tax regime in Nigeria is made up of a complex web of disjointed tax laws which leave much to be desired in terms of efficiency and effectiveness both in administration and in achieving the nation’s fiscal policy goals. Sequel to this, President Bola Ahmed Tinubu (GCFR) established the Fiscal Policy and Tax Reforms Committee in August 2023 to address the pressing need for comprehensive tax reform in Nigeria. The committee, chaired by the tax expert, Mr Taiwo Oyedele, was tasked with producing recommendations aimed at overhauling the nation’s tax system and achieving fiscal policy goals. Recently, the President transmitted four tax reform bills to the National Assembly proposing significant changes to the face and character of the tax landscape. The tax reform bills together represent the comprehensive efforts and recommendations of the Presidential Fiscal Policy and Tax Reforms Committee.

The Nigeria Tax Bill (from now on referred to as the NTB) is a comprehensive piece of legislation that seeks to outline all taxes in the country hitherto administered by different laws and compress them into a single simplified law. Most importantly, the NTB vests upon the Nigeria Revenue Service (expected to succeed FIRS) powers to collect all national taxes, including royalties hitherto collected by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and excise duties, import VAT etc, hitherto collected by the Nigeria Customs Service.

The Tax Bills are:

1. The Nigeria Tax Bill (NTB) 2024
2. The Nigeria Tax Administration Bill (NTAB)
3. The Nigeria Revenue Service (Establishment) Bill (NRSEB); and
4. The Joint Revenue Board (Establishment) Bill (JRBEB).

The enactment of the NTB will lead to the repeal of 11 laws, while 13 other laws will experience consequential amendments. The NTB will also revoke one subsidiary legislation and consequential amendments on two other subsidiary legislations. The laws that would be revoked once the NTB comes into effect (as currently proposed) include:

1. Capital Gains Tax Act
2. Companies Income Tax Act
3. Casino Act
4. Deep Offshore and Inland Basin Act
5. Industrial Development (Income Tax Relief) Act
6. Income Tax (Authorised Communications) Act
7. Personal Income Tax Act
8. Petroleum Profits Tax Act
9. Stamp Duties Act
10. Values Added Tax Act and
11. Venture Capital (Incentives) Act.

The existing legislation that will witness consequential amendments include:

1. The Petroleum Industry Act, No 6. 2021 (the areas to be deleted in the PIA include parts I – X of chapter four; the Fifth and Sixth Schedule; paragraphs 6, 9, 10, 11 and 12 of the Seventh Schedule; and subparagraph 6 of paragraph 14 of the Seventh Schedule.
2. The Nigerian Export Processing Zones Act (sections 8 and 18(1)(a) deleted).
3. The Oil and Gas Free Trade Zone Act (sections 8 and 18(1)(a) deleted).
4. The National Information Technology Development Agency Act (sections 1, 2, and 3(3) deleted).
5. The Tertiary Education Trust Fund (Establishment, Etc.) Act (sections 1, 2, and 3(3) deleted).
6. The National Agency for Science and Engineering Infrastructure (Establishment) Act (section 20(2), paragraph b(i) and b(ii) deleted).
7. The Customs, Excise Tariffs, Etc. (Consolidation) Act (section 21(2) deleted).
8. The National Lottery Act (sections 35A, 35B and 35C deleted).
9. The Nigerian Minerals and Mining Act (sections 28 and 33 deleted).
10. The Nigeria Start-up Act (sections 25(2), (3), (4) and 29(3) deleted).
11. The Export (Incentives and Miscellaneous Provisions) Act (section 11(1) deleted).
12. The Federal Roads Maintenance Agency (Establishment, Etc.) Act (section 14(1)(h) deleted).
13. The Cybercrime (Prohibition, Prevention, Etc.) Act (subsections (2)(a) and (4) of section 44 and the Second Schedule are deleted).

For the subsidiary legislations, the Value Added Tax Act (Modification) Order 2021 will be revoked, while the Company Income Tax (Significant Economic Presence) Order 2020 will be amended by deleting paragraph 2 even though the parent legislation, the Company Income Tax, would be repealed. Finally, the Petroleum (Drilling and Production) Regulations 1969 would be amended by deleting regulations 60B, 60C, 61(1), (2), (4) and 62.

Crucially, the Nigeria Tax Bill included a supremacy clause in Section 202, part of which states that” this Act shall take precedence over any other law with regards to the imposition of tax, royalty, levy, excise duty on services or any other tax, where the provisions of any other law is inconsistent with the provisions of this Act, the provisions of this Act shall prevail and the provisions of that other law shall, to the extent of the inconsistency, be void.” This clause effectively elevates the NTB to be Nigeria’s supreme legislation on taxes.[1]

This Article appraises the four Tax Bills highlighted above with particular focus on the Nigeria Tax Bill, which seeks to harmonise all the major taxes such as corporate income tax, personal income tax, and value-added tax etc., discussing key provisions and significant changes.

The Nigerian Tax Bill at a Glance

As a comprehensive tax legislation, the NTB harmonises all tax laws in the country into a more simplified and manageable single piece of legislation. Section 1 of the NTB[2] provides that the objective of the Act is to provide a unified fiscal legislation governing taxation in Nigeria.

Hence, various taxes which were previously administered under different tax legislations are by the provisions of the NTB unified and compressed into one simplified law and administered accordingly.  This simplification is intended to ease compliance for businesses and individuals, making it easier for them to understand their tax obligations. In addition, the unification and simplification of our tax laws which the NTB promises is motivated by the need to engender efficiency and effectiveness in tax administration while eradicating conflicts and the multiplicity of tax laws that the current tax regime is plagued with.

Aim of the Bills Include:

1. Address the challenge of multi-layered taxation
2. Consolidate various legal frameworks relating to taxation
3. Expand the country’s tax base
4. Generate sustainable revenue streams for national development
5. Address complexities of the current tax system.
6. Enhance tax-compliance.

Significance of the NTB To Individuals, Corporate Entities and States 

To Individuals 

Contrary to most speculations on social media, the NTB adopts a progressive personal income tax system and provides tax relief for low-income earners. Particularly, incomes below (800,000.00) eight hundred thousand naira are completely exempted, and higher earners are taxed progressively according to their earnings.[3] It follows, therefore, that the tax burden on low-income earners is reduced, and that the tax burden is generally spread to reflect equity and fairness in wealth distribution. The annual tax rate, as outlined in the Fourth Schedule of the bill, is as follows:

1. First N800,000 – 0 per cent
2. Next N2.2 million – 15 per cent
3. Next N9 million – 18 per cent
4. Next N13 million – 21 per cent
5. Next N25 million – 23 per cent and
6. Above N50 million – 25 per cent.

Before now, the personal income tax rates for different bands of annual income are as follows:

1. First N300,000 – 7 per cent
2. Next N300,000 – 11 per cent
3. Next N500,000 – 15 per cent
4. Next N500,000 – 19 per cent
5. Next N1.6 million – 21 per cent
6. Above N3.2 million – 24 per cent.

A glance at the two sets of rates shows that while currently a low-income earner who earns N25,000 monthly, which translates to N300,000 annually, is required to pay 7 per cent income tax, the new rates proposed in the Nigeria Tax Bill exempts individuals who earn N800,000 or less annually from paying any income tax. In effect, every minimum wage earner in Nigeria would be exempted from personal income tax.

However, with the new provisions in Section 28 of NTAB, financial institutions are now mandated to furnish tax authorities with details of individuals whose monthly cumulative transactions amount to N25 million or more. This would bring more high-income earners into the tax net.

Also, the Bill progressively redesigned the capital gains tax regime by exempting some forms of capital gains from taxation and, in other cases, raising the gain threshold before imposing a capital gains tax. For example, Section 51 of the bill exempts an individual from paying tax on the proceeds of the sale of his residential property or land adjoining his residential property up to a distance of one acre.

In Section 50, the Bill exempts compensation paid to individuals for personal injuries, such as loss of employment, defamation, libel, slander, etc., from capital gains tax once the amount is N50 million or below. Above N50 million, only the excess constitutes chargeable gains. The current provision of the subsisting Capital Gains Tax Act is that compensation for loss of office, etc, is subject to capital gains tax on the portion of the income above N10 million at 10 per cent.

To Corporate Entities

The Bill aims to ensure ease of doing business, which has long been a hurdle in Nigeria’s economic growth. Businesses, particularly small and medium enterprises (SMEs), have historically struggled with the complex web of tax regulations. By streamlining tax rules, the Nigeria Tax Bill 2024 simplifies compliance, enabling businesses to focus more on innovation and expansion rather than wading through bureaucratic red tape. In doing so it creates a more conducive environment for entrepreneurship and investment.

The Bill in Section 20(1)(a)-(l) also indirectly reduces the taxable income of companies by increasing the deductions allowed from the company’s gross earnings before ascertaining the company’s profit, which is eventually taxed. The bill also eliminates a minimum income tax of around 1 per cent of gross earnings hitherto imposed on companies that did not declare profit.

For corporate entities, the NTB pursuant to Section 56[4] provides for a reduction of the current 30 per cent rate for corporate income tax, and proposes 27.5 per cent in 2025 and 25 per cent in 2026, while completely exempting small companies. This significantly reduces the tax obligation of corporate bodies, and according to research, is rather conservative compared to 27 per cent and 30 per cent rates in sister African countries like South Africa and Kenya.[5] Additionally, the NTB raises the threshold for corporate tax emption from 25 million naira to 50 million naira in annual turnover, thereby exempting many small businesses from corporate tax.[6] Furthermore, the NTB tackles the problem of multiplicity of taxes for corporate bodies by harmonising multiple levels of taxes by introducing a 4 per cent development levy which will regress to 2 per cent by 2030.[7]

The bill went further in Section 59 to harmonise all the special deductions on companies’ profit (different from the profit tax) into a single development levy that is expected to progressively decline from a rate of 4 per cent in 2025 and 2026 assessment years to just 2 per cent from 2030. The three direct annual deductions on companies’ profit consolidated into a one-off development levy by the bill include:

1. Tertiary Education Tax – as of today, companies are required by the TETFUND Act to pay 2 per cent of their annual assessable profit as tertiary education tax into TETFUND;
2. NASENI Levy – apart from the deduction of 3 per cent of the total revenue accruing to the Federation Account, the National Agency for Science and Engineering Infrastructure (NASENI) Act also mandates FIRS to collect 0.25 per cent of the turnover of companies and firms with income or turnover of N4,000,000 (Four Million naira) and above; and
3. Information Technology Tax companies with an annual turnover of N100 million or more who are engaged in banking and other financial activities; insurance activities; pension fund administration; GSM service providers and telcos, as well as cyber and internet service providers, are required by the NITDA Act to pay 1 per cent of their profit before company income tax (CIT) as information technology tax annually to the National Information Technology Development Agency (NITDA) Nigeria Fund (NITDF).

Nigerian Education Loan Fund’s (NELF) primary funding source is through the deduction of 1 per cent of all taxes, levies and duties collected by FIRS and not necessarily extra direct deductions from companies’ profits.

However, in the Nigeria Tax Bill, the NELFUND is the greatest beneficiary of the development levy. According to section 59(2), the development levy to be collected by NRS (i.e. FIRS) at progressively declining rates from 2025 shall be distributed as follows:

1. Tertiary Education Trust Fund (TETF) will receive 50 per cent of the total development levy in 2025 and 2026 (rate of 4 per cent). In 2027, 2028 and 2029, TETFUND will receive 66 per cent of the total development levy collected (the levy rate declines to 3 per cent). From 2030 and above, TETFUND will cease to receive any share of the development levy.
2. The Student Education Loan Fund will receive 25 per cent of the development levy in 2025 and 2026, 33 per cent in 2027, 2028, and 2029, and 100 per cent from 2030 onwards. This would now be 2 per cent of the assessable profits of all companies (except small companies and non-resident companies).
3. The National Information Technology Development Fund will receive 20 per cent of the development levy in 2025 and 2026 and 0 per cent from 2027 onwards.
4. The National Agency for Science and Engineering Infrastructure (NASENI) will receive 5 per cent of the development levy in 2025 and 2026 and 0 per cent from 2027 onwards.

For most companies, the Nigeria Tax Bill is coming to harmonise their taxes into a maximum of two (income tax and development levy) with a maximum total rate of 27 per cent (25 per cent profit tax and 2 per cent development levy) for the biggest companies from 2030 instead of a top rate of 33.25 per cent they currently pay, which is a relief for businesses.

Also, the Nigeria Tax Bill effectively handed over the revenue collection duty of the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) to the NRS (FIRS). The Seventh Schedule of the Nigeria Tax Bill prescribed the royalties all production of petroleum (from inland basin, onshore, offshore and deep water) would be subjected to, which are to be collected on behalf of the Federation by the NRS (FIRS) with the royalties so collected by the NRS administered in accordance with provisions of the Nigeria Tax Administration Bill (Act).

To States 

The notable implication of the tax bills to the States is the changes regarding revenue sharing generated from Value Added Tax (VAT). Pursuant to Section 77 of the Nigerian Tax Administration Bill, the new sharing formula has the States and Local Governments receiving the bulk of the VAT revenue, thereby reducing the existing quota accruable to the federal government. Precisely, 55 per cent and 35 per cent of the VAT revenue is accruable to the State and Local Governments respectively, while 10 per cent goes to the federal government.

While this sharing formula represents fiscal federalism, it is noteworthy to state that the VAT derivation model pursuant to Section 77[8] which potentially redistributes revenues amongst state governments equitably, incurs significant losses to some state governments. Based on the 60 per cent derivation model, states that contribute more in VAT revenue will earn more while states that contribute less might earn significantly less.

Benefit To Lawyers

1. Advice on Compliance and Regulatory Services: The introduction of the new tax Bill means an increase in the demand for legal services related to compliance and regulatory issues. Lawyers will be essential in guiding businesses and individuals on what the new tax Bill is all about and how to navigate the tax law and structure their businesses efficiently to ensure compliance and avoid penalties, thus creating a business opportunity for lawyers.
2. Tax Dispute Resolution: The unification of the various existing tax laws into a more coherent and consolidated system has significant advantage for lawyers. A unified Tax law means that lawyers can quickly identify the applicable rules when briefed on tax-related matters, helping lawyers to conduct dispute resolution more efficiently and reducing the complexity involved in representing clients in tax-related matters. Lawyers will no longer have to navigate through a maze of different legislations which can occasion overlooking important provisions.

Other Notable Highlights of the Tax Reform Bills

In line with the aims of the bills to address the challenge of multi-layered taxation, expand the tax base, simplify and harmonise various tax legislations, and generate sustainable revenue streams for national development, the following are notable highlights of the bills:

1. Establishment of the Nigeria Revenue Service (NRS) and Joint Revenue Board (JRB):The tax reform bills, particularly the Nigeria Revenue Service (Establishment) Bill and the Joint Revenue Board (Establishment) Bill establish the NRS and JRB respectively.[9] Pursuant to the NRSEB[10] the NRS replaces the FIRS and performs a broader role of revenue administration in Nigeria, and also drives collaboration with subnational governments and MDAs. In the same manner, the JRBEB established the JRB to replace the current Joint Tax Board (JTB) with an enhanced role for cooperation and tax harmonisation. Additionally, the bill also established the office of the tax ombudsman to protect taxpayers and ensure tax simplification.
2. Promotion of Exports and International Trade: Exports of goods, services, and intellectual property will benefit from zero-rated VAT alongside additional incentives aimed at boosting Nigeria’s competitiveness in international trade. By eliminating VAT on exports, the new law provides a fertile ground for international trade, support for local industries in accessing global markets, and attracting foreign investment.
3. Simplifying and Rationalising Taxes: Over 50 nuisance taxes are to be repealed, with remaining levies harmonised into a few number of taxes. Corporate income tax rates will reduce from 30 per cent to 25 per cent over the next two years, and earmarked taxes on companies will be replaced with a streamlined single levy. Further, essential goods and services, such as food, education, and healthcare, will be subject to 0 per cent VAT, while rent, public transportation, and renewable energy will also be VAT-exempt.
4. Enhancing Business Competitiveness: Businesses will gain from input VAT credits on assets and services, alongside the removal of minimum tax requirements for companies with low margins or those reporting losses. These changes will reduce production costs and foster increased investment activity.
5. A Tax System Based on Equity and Fairness: the bills implement progressive rates for personal income tax, VAT, and capital gains tax, ensuring protection for low-income earners. In addition, taxes on foreign currency transactions will be payable in naira, simplifying compliance for businesses and alleviating pressure on the exchange rate.
6. Equity Among States: VAT revenue will be allocated to states using a fairer model that rewards their actual economic contributions, replacing the current system that disproportionately benefits states hosting corporate headquarters where VAT remittances are typically made.
7. Tax Accountability and Transparency: With the establishment of the Tax Ombudsman vulnerable taxpayers are protected thereby ensuring equity and fairness in tax administration.

Conclusion 

The tax reform bills mark a remarkable paradigm shift from the current tax regime putting an end to the complex and multi-layered tax system with its consequent lapses and inefficiencies. In concert, the bills foster economic equity, encourage exportation, extend the tax net to reflect current global trends and create a business-friendly environment to attract local and foreign investments. The bills further strengthen fiscal federalism and facilitate cooperation between taxpayers, subnational governments and MDAs for a vibrant and prosperous economy.

References

[1] ProShare. President Tinubu’s Tax Reform Bills Under a Microscope. Avaliable at https://proshare.co/articles/president-tinubus-tax-reform-bills-under-a-microscope?menu=Economy&classification=Read&category=Taxes%20%26%20Tariffs accessed 6^th December 2024.

[2] NTB 2024, s 1.

[3] Ibid, section 58 and the Fourth Schedule.

[4] NTB 2024, s 56.

[5] Opeyemi B., ‘Five Takeaways from Tax Reform Bills’. Punch (December 3^rd, 2024) <https://punchng.com/five-takeaways-from-tax-reform-bills/ > accessed 5^th December 2024.

[6] NTB 2024, s 203.

[7] Ibid, s 59.

[8] Nigeria Tax Administration Bill, s 40.

[9] Nigerian Revenue Service (Establishment) Bill, s 3 and the Joint Revenue

[10] Ibid.

Oyetola Muyiwa Atoyebi is a Senior Advocate of Nigeria (SAN).