Nigeria’s lower house of parliament has approved four tax reform bills proposed by President Tinubu, though several measures were modified. The reforms aim to enhance revenue and efficiency, with proposals to increase VAT and adjust revenue-sharing among states. Notably, VAT remains at 7.5%, and minimum wage earners are exempt from income tax. Lawmakers have opted for a 30% cap on VAT allocations, and a global minimum tax was introduced for major corporations.
On Thursday, Nigeria’s lower house of parliament approved four tax reform bills put forth by President Bola Tinubu, reflecting an advancement in the attempt to reform the country’s taxation framework. However, certain proposals were modified, resulting in a less robust implementation than initially anticipated. Currently, Nigeria’s tax-to-GDP ratio stands at a mere 10.8%, necessitating governmental borrowing to finance the national budget.
President Tinubu has concentrated on tax reforms following the cessation of costly subsidies and two devaluations of the naira currency during his first year. The government aims to enhance revenue generation and operational efficiency. Proposed changes encompass increasing the value-added tax (VAT) to 12.5% by 2026, refining tax collection processes, and restructuring revenue-sharing mechanisms between federal and state administrations.
Although the tax proposal initially called for an increase in VAT, lawmakers opted to maintain it at 7.5%. Additionally, to alleviate the financial burden on lower-income earners, minimum wage recipients were excluded from income tax obligations. The proposed 60% VAT revenue allocation for states generating high revenues was reduced to a 30% limit, addressing concerns from northern states regarding equity; the remaining allocation is divided with 50% shared equally and 20% distributed based on population.
Furthermore, the bills substitute the 85% petroleum profit tax with a 30% corporate tax rate on profits derived from oil sector activities. A global minimum tax was instituted for multinational firms with revenue exceeding $970.80 million, while the minimum tax threshold for domestic companies was raised to 50 billion naira ($32.66 million). Entities within free zones that export 75% or more of their products and services are exempt from this minimum tax.
The bills are anticipated to be approved by the upper house of parliament in the following week and will come into effect upon receiving President Tinubu’s approval.
In summary, the passage of the four tax reform bills by Nigeria’s lower house signifies an essential step in the nation’s fiscal reform efforts. Although certain measures have been softened, the revisions reflect a balanced approach aimed at increasing government revenue while addressing concerns of equity among states and protecting lower-income earners from excessive taxation. The upcoming vote by the upper house will determine the fate of these reforms, heralding a crucial phase for Nigeria’s economic rejuvenation.
Original Source: www.marketscreener.com
