The Nigerian lower house has passed four tax reform bills from President Bola Tinubu. Key changes include maintaining VAT at 7.5%, excluding minimum wage earners from income tax, and restructuring revenue allocation. The reforms aim to boost efficiency and tax revenues as the bills move to the upper house for approval.
Nigeria’s lower house of parliament has recently approved four tax reform bills advocated by President Bola Tinubu. This development signifies a significant step towards revamping the nation’s tax framework, although some of the proposed measures were adjusted before approval. Presently, Nigeria possesses one of the lowest tax-to-GDP ratios globally, approximating 10.8%, compelling the government to depend heavily on loans for budgetary support.
In light of the recent termination of costly subsidies and the devaluation of the naira during his initial year in office, President Tinubu is now concentrating on revising the tax structure to enhance both revenue and operational efficiency. The proposed reforms aim to increase the value-added tax (VAT) from the current rate of 7.5% to 12.5% by 2026, streamline tax collection processes, and enhance the sharing of revenues between federal and state governments.
Despite these ambitions, the lawmakers opted to maintain the VAT at 7.5%, opposing the original increase. Additionally, they excluded minimum wage earners from income tax, thus alleviating some of the financial burdens on lower-income individuals. Furthermore, in response to concerns over fairness in revenue allocation, the legislature replaced the proposed 60% VAT revenue allocation for high-revenue states with a 30% cap; the remaining funds will distribute 50% equally among all states and 20% based on population size.
Moreover, the bills aim to revamp the taxation on petroleum profits, substituting the previous 85% tax with a new corporate tax rate of 30% on earnings from the oil sector. A new global minimum tax will also apply to multinational corporations with revenues exceeding $970.80 million, and the threshold for domestic businesses will be raised to 50 billion naira ($32.66 million).
Entities operating within free zones that export 75% or more of their goods and services will be exempt from the minimum tax. The legislation is anticipated to progress to the upper house of parliament for deliberation next week, with enforcement pending President Tinubu’s approval.
In summary, the Nigerian lower house’s approval of the tax reform bills represents a pivotal move towards enhancing the country’s fiscal policies. While certain measures received modifications, the overarching goal remains to improve revenue generation and establish a more equitable tax system. The reforms are poised to facilitate a stronger economic environment as they progress through the legislative process.
Original Source: www.marketscreener.com
