November 13, 2024/CSL Research
Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reform Committee, announced through his X handle that under Nigeria’s new tax reforms, individuals earning the minimum wage or slightly above it will be exempt from the Pay As You Earn (PAYE) tax. On 3 September 2024, President Bola Tinubu submitted four tax reform bills to the National Assembly for review.
These were the Nigeria Tax Bill 2024, which aims to provide a comprehensive fiscal framework for taxation, and the Tax Administration Bill, designed to establish a clear legal structure for tax operations and reduce disputes. Additionally, the Nigeria Revenue Service Establishment Bill seeks to replace the Federal Inland Revenue Service Act by forming a new Nigeria Revenue Service, while the Joint Revenue Board Establishment Bill proposes creating a tax tribunal and tax ombudsman.
The tax reform bills recently submitted by Nigeria’s Presidential Fiscal Policy and Tax Reform Committee introduce a range of significant changes designed to simplify tax administration, reduce the tax burden for low-income earners, and drive economic growth. Individuals earning minimum wage or slightly above will be exempted from Pay-As-You-Earn (PAYE) tax, which aims to reduce the financial pressure on low-income workers. Additionally, the bill proposes adjusting tax bands and rates, meaning the majority of workers will see a lower effective tax rate, while top earners will face a slightly increased tax rate of up to 25% for high-income individuals
Corporate income tax rates will be reduced progressively, starting with a rate of 27.5% in 2025 and dropping to 25% from 2026. Small companies will be exempt, while larger multinational enterprises will be required to pay an additional tax if their effective rate falls below 15% in any given year. This aims to enhance tax fairness and compliance among large corporations.
The VAT rate is set to gradually increase from 7.5% to 10% in 2025, and eventually to 15% by 2030. However, essential goods, such as food and education-related items, will remain VAT-exempt to shield basic consumption from these increases. Companies will be subject to a “Development Levy” that contributes to education funds. Additionally, a 5% excise tax is proposed on lottery and gaming revenues.
The reforms also aim to consolidate and harmonize tax administration to reduce duplication and improve efficiency. Leveraging technology will help create a streamlined tax process, reducing compliance burdens on businesses and encouraging greater economic participation. These reforms are expected to gradually increase Nigeria’s tax-to-GDP ratio while fostering equity and economic growth. However, certain aspects, like the VAT and income tax changes, have sparked debate, especially among legislators and state leaders who are concerned about the potential impact on regional revenues.
