15 crucial things you should know about Tinubu’s controversial Tax Reform Bills

The nation is currently engulfed in heated debates, generated by controversies over President Bola Tinubu’s proposed quadruple Tax Reform Bills, which seek to reform tax collection and administration in the country. Following his commitment to fiscal reforms to ramp up government revenue and entrench equitable wealth distribution, Tinubu inaugurated the Fiscal Policy and Tax Reforms Committee in August 2023. The committee, chaired by Taiwo Oyedele, the former Fiscal Policy Partner and Africa Tax Leader at PriceWaterhouseCoopers (PwC), consists of experts from both the private and public sectors. The President mandated the committee to produce a report that will cover tax reform, fiscal policy design and coordination, harmonisation of taxes and revenue administration among other items. After several months of deliberations and consultations with relevant stakeholders across the country, the committee came up with recommendations, which birthed the controversial Tax Reform Bills transmitted to the National Assembly by the President in September. The documents are four separate bills, encompassing everything about taxation and tax administration in Nigeria under four pieces of legislation. The Tax Reform Bills are as follows: The Nigeria Tax BillThe Nigeria Tax Administration BillThe Nigeria Revenue Service Establishment BillThe Joint Revenue Board Establishment Bill Controversy rumbles on over Nigeria Tax Bill Meanwhile, the Nigeria Tax Bill is the crux of the ongoing controversies, particularly the part that seeks to review the Value Added Tax (VAT) revenue-sharing formula among federal, state, and local governments. The bill also contains provisions with far-reaching bearing on both individuals and businesses. Alarmed by some of the proposals, some Nigerians, including governors, lawmakers, and religious leaders mostly from the North have risen in arms against the bills. Though the bills have passed for second reading at both the Senate and House of Representatives, the aggrieved groups called on the National Assembly to suspend further deliberation on them. Chief among their concerns is the proposed distribution of VAT, which provides for more revenues for the states where they are generated. The critics have described the move as a systemic way to shortchange the North and tilt the balance of revenue allocations in favour of Southern states, particularly Lagos where Tinubu hails from. Following the controversies over the bills, the Senate on Wednesday halted further action on the legislature to make room for more consultations. As the rumblings rage on, below are 15 crucial things Nigerians should know about the bills. 15 things to know about Tinubu’s Tax Bill Reform Bills Exemption of individuals earninN800,00000 or less from paying income tax. Currently, if you earn a total of NN800,000 annually, you are required to pay N84,000 out of this amount as income tax. With this bill, you will not pay anything.Changing the name of the Federal Inland Revenue Service (FIRS) into the Nigeria Revenue Service (NRS) to reflect the fact that it collects revenue for the federation and not just the federal government since most of the revenue it collects is shared by the three tiers of government.Drawing the rich into the tax net. The bill puts in place a mechanism to ensure that individual customers of financial institutions whose cumulative transactions in a month amount to N25 million or more and corporate customers whose cumulative transactions in a month amount to N100 million or more do not evade taxes by mandating financial institutions to give the tax authority a list of such individual or corporate customers with their addresses.Establishment of a Local Government Revenue Committee to handle the collection of taxes, fines and rates under the jurisdiction of each local government area.Only those earning above N50 million get to pay a 25% personal income rate. Under the current law, once you earn above N3.2 million you will be charged 24% income tax.A new VAT derivation model where 60% of VAT revenue standing to the credit of the states is shared based on derivation while 20% is shared based on population sizes and the other 20% is shared equally among the states. Most importantly, VAT revenue from the new derivation model will no longer be attributed to the place of remittance (which is usually the headquarters of companies) but attributed to the actual locations across the states where the consumption of goods and services took place. The current method favours states like Lagos, Rivers and Oyo states which have a lot of company headquarters located in them.Exemption of small businesses from paying income tax. In this bill, small companies are defined as those with an annual turnover of N50 million or less. In the current law, small businesses are defined as those with h turnover of N25 million or less. What this means is that up to 90% of businesses in Nigeria will be exempt from paying income tax.Harmonisation of 2.5% education tax, 1% NITDA tax and 0.25% NASENI tax that many firms pay in addition to their company income tax annually into a single development levy of 2% that will be used exclusively to fund student loans from 2030. This further reduces the total tax burden of some companies from around 33.75% of their earnings (when you add these three deductions to their income tax rate of 30%) to just 27% of their earnings.NRS will collect revenues hitherto collected by some regulatory agencies such as Nigeria Customs Service, Nigeria Upstream Petroleum Regulatory Commission (NUPRC), NPA, NIMASA, etc. This provision is meant to allow these regulatory agencies to focus on their regulatory functions while NRS whose duty is revenue collection carries out the collection of taxes and royalties.Progressive increase in VAT rate from the current 7.5% to 10% in 2025; 12.5% between 2026-2029 and 15% from 2030.Tax Appeal Tribunal to settle tax disputes between tax authorities on issues such as residency of personal income tax collection etc.Office of the Tax Ombudsman to help taxpayers get justice if they feel aggrieved against the tax authorities.Exemption of many basic items consumed by the poor from VAT such as food items, medical services and pharmaceuticals, educational fees, electricity etc.Joint Revenue Board of Nigeria to help harmonise all taxes in the country and scrap nuisance taxes while also creating a national database of taxpayers.Deployment of technology to automate tax assessment, collection and accounting. This will enhance tax collection, especially on companies that operate digitally such as social media companies, music streaming platforms, etc.