On June 26, President Bola Tinubu signed the new tax bills into law to become the Nigeria Tax Reform Acts.
They are expected to overhaul tax administration and revenue generation in Nigeria.
The tax reform acts are products of the Taiwo Oyedele-led Presidential Committee on Fiscal Policy and Tax Reforms inaugurated in August 2023.
From the onset, Tinubu had made it clear that tax reforms were a major focus of his administration, in order to lay a strong fiscal and revenue foundation for sustainable economic growth.
The laws seek to outline all taxes in the country hitherto administered by different laws and compress them into a single law.
The aim is to simplify tax laws, broaden the tax base, increase fairness, and boost revenue.
Several existing tax statutes are being repealed and consolidated.
Key laws being replaced include Companies Income Tax Act, Personal Income Tax Act, Value Added Tax Act, Capital Gains Tax Act, Petroleum Profits Tax Act and Stamp Duties Act.
For Personal Income Tax, Individuals earning N800, 000 or less per year will be exempted.
According to the Federal Inland Revenue Service, Personal income refers to the total earnings or revenue received by an individual from various sources during a given period, typically a financial year.
It encompasses all the money an individual earns from different activities and sources, both employment-related and non-employment-related.
The new PIT law provides that individuals with taxable income of N800,000 or less per year are completely exempt from PIT.
It provides for progressive rates, rising to a top rate of 25 per cent.
Some stakeholders believe that the new PIT regime will create more financial difficulties for salary earners, especially those in the low income bracket.
Emmanuel Ugu, a civil servant, said that it amounted to double taxation because income tax was already deducted at source from the monthly salaries of civil servants.
“If this does not amount to multiple taxation, then what is it?
“Government will deduct tax from our salaries through the Paye As You Earn model and still go ahead to tax any extra money in our bank accounts? That is unfair,” he said.
Abbas Sule, a policy analyst, said that the law only exempted N800,000 per annum, which is just about N67,000 per month from the PIT.
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“This means that minimum wage earners of N70, 000 per month will still pay tax,” he said.
Nonetheless, Oyedele said that the previous tax table was introduced in 2011.
According to him, due to high inflation and lack of review, the structure has resulted in fiscal drag where many low income earners have been pushed to the top tax bracket over time.
“This means that an individual earning just N400,000 a month is paying the same top marginal income tax rate as a wealthy individual earning say N20 million per month.
“Therefore, the tax table had become regressive rather than progressive as it was originally designed.”
Oyedele said that the perception that workers would pay more in taxes was not correct.
“Individuals earning about N1.7 million or less per month will pay lower PAYE tax under the new law, while those earning the new minimum wage and slightly more will be fully exempted.
“These thresholds will result in over 90 per cent of workers in the public and private sectors paying lower taxes.
“High income earners will pay slightly more in a progressive manner up to 25 per cent for the ultra-high net worth individuals,” he said.
According to Uche Uwaleke, a Professor of Capital Market and the President of Capital Market Academics of Nigeria,
the tax reforms represent a welcome development that will boost the capital market.
Uwaleke said that section 56 of the acts proposed a gradual reduction in the income tax on total profits of a company from the current 30 per cent to 27.5 per cent in 2025 and to 25 per cent from 2026.
“This reduction will go a long way in improving shareholders’ wealth and valuation of companies listed on the exchanges.
“In addition, what is considered as the threshold for small companies exempted from income tax has been increased from N20 million per annum to a maximum gross turnover of N50 million per annum.
“It bears repeating that the reduced income tax rates and other generous incentives to small businesses will most likely spur business activities and create more job opportunities essential for the growth of the capital market,” he said.
He said that one of the objectives of the law was to simplify tax administration and reduce the number of taxes from over 60 to a single digit.
Uwaleke said that it would go a long way in improving the ease of doing business in Nigeria, and also rub-off positively on the bottom line of listed companies.
“It is pertinent to note that the law contains a number of tax incentives capable of uplifting the capital market.
“All said, the capital market in Nigeria needs fiscal incentives to gain traction.
“The implementation of the tax reforms, as contained in the tax acts will help provide the needed elixir for the Nigerian capital market,” he said.
As the debates continue, experts agree that the success of these tax reforms will depend on careful implementation and addressing the concerns of various stakeholders.
They suggest that finding a balance between revenue generation and economic growth will be crucial for their long-term effectiveness.
NAN
