How Tinubu’s tax reforms will ease citizens burdens
By Trek Africa Newspaper
The transmission of four bills that aim to overhaul Nigeria’s tax system to the National Assembly two weeks ago by President Bola Tinubu has sparked debates in the polity about the purpose of the bills. Some have expressed fears that the bills may encapsulate proposals calling for a raise in tax rates in a way that will further burden the citizens. Some Nigerians have received the news with mixed feelings, while others have chosen to wait for details before commenting on the development.
It is common knowledge that one factor that has continued to impede efficiency in Nigeria’s tax system and has negatively impacted revenue is the multiplicity of taxes.Tinubu, in his inauguration speech, had pledged to address the issue of multiple taxation and remove all hurdles against investment in the country. The myriad of taxes is one of the issues that the Nigeria Tax Bill seeks to end. This will certainly bring ease to corporate Nigeria. Imposition of tax by more than one agency or level of government, without a shadow of a doubt, constitutes a chokehold on businesses, especially micro and small businesses and individuals.
How will this bill address multiplicity of taxes? In Nigeria today, laws dealing with various aspects of taxation are disorganised and disseminated into different legislations. Some of these laws are: Companies Income Tax Act, Personal Income Tax Act, Capital Gains Tax Act, Value-Added Tax Act, Stamp Duties Act, Petroleum Profits Act, Tertiary Education Fund Act, Petroleum Industry Act, and so on. In addition to the tax-specific laws, there are many tax provisions in non-tax laws such as the NLNG Act, Tertiary Education Trust Fund Act, NASENI Act, Lottery Act, Companies and Allied Matters Act, etc. The list is seemingly endless.
In enforcing these disparate tax provisions, unintended multiple taxation occurs and this is one of the things that the bill seeks to address. The Nigeria Tax Bill aims to codify all of the taxing provisions into one single document, to be known as the Nigeria Tax Act when passed into law. In the bill, chapters are devoted to the various tax types in a simplified format. The proposed tax law is also written in a simple language that anyone with basic literary education can read and understand. The complexity of the extant law, for instance, is such that it will be pretty difficult for a Professor of Mathematics to compute his personal income tax on his own because of all the inter-twinning provisions that will confuse him, as to what income is taxable or what deduction is allowable. All these complications and complexities have been removed in the new proposals.
In the proposed law, companies doing business within the country have been re-classified into two: small and large. This is based on the companies’ respective turnover thresholds. A company will be deemed small if its turnover is N50m or less in a year. Under the extant law, any company which records a turnover of N25m or less is not required to pay Companies Income Tax. In the new tax bill, companies with a yearly turnover of up to N50m will not pay CIT. As regards large companies, that is, those whose turnover thresholds are above N50m, there is a proposal in the bill to give some relief to them. The objective of this concession for such companies is attuned to Tinubu’s avowed commitment to protect small businesses and eliminate inhibitions that negatively impact entrepreneurship in the country.
Perhaps the game-changer among the several pleasant provisions of this document is what the bill seeks to do with VAT. It is an eloquent testimony to the fact that Tinubu has listened and harkened to the complaints by Nigerians, particularly the ordinary Nigerians who are bearing the substantial brunt of the initial pain of the government’s economic reformation policies. In the proposed law, VAT will not be charged on all items that have a direct existential impact on the common people. Items such as food, medicals, education, transport business, and agriculture are not chargeable to VAT. For instance, tuition fees or rent paid by proprietors or purchases made by school owners for the business of educating Nigerians will be free from VAT. It is the same for owners of hospitals, those in agricultural business, and those who buy vehicles for transportation. These are the areas where the lives of the common people will be positively affected, especially given the temporary pain of the ongoing reforms.
In addition, certain input VAT which hitherto is not possible to claim under the current law can now be claimed. Another relief the president has put in the bill is that VAT refunds will be made within 30 days upon completion of paperwork by such companies or entities. Already VAT is not being charged on diesel and petrol. The president had in July this year directed the suspension of duties, tariffs, and taxes on importation of food commodities as part of measures to arrest the rising cost of living.
It may interest many to know that the VAT rate of 7.5 percent currently being charged in Nigeria is the lowest on the continent and one of the most considerable in the world. Madagascar and Morocco charged 20 percent VAT in 2022, while it is 19.25 percent in Cameroon. Many countries of the world, recognising the importance of tax revenue in providing public services, have this year reviewed their VAT upwards with one of the most striking examples being Saudi Arabia which upped its rate from 5 percent to 15 percent in July.
