Nigeria’s Parliament Advances Tax Reform Bills with Legislative Adjustments

Nigeria’s lower house of parliament has passed four tax reform bills introduced by President Bola Tinubu, aimed at overhauling the country’s tax system. Key changes include maintaining VAT at 7.5% and introducing a global minimum tax for multinationals. The reforms address revenue collection efficiency while attempting to ease the tax burden on lower-income citizens. The bills await approval from the upper house.

On Thursday, Nigeria’s lower house of parliament successfully passed four tax reform bills proposed by President Bola Tinubu, indicating progress in the administration’s efforts to revamp the tax system. However, notable amendments were made to the initial proposals, reflecting the legislative body’s adjustments to concerns. Nigeria currently faces one of the lowest tax-to-GDP ratios globally at 10.8%, necessitating government reliance on borrowing for budgetary needs.

President Tinubu, following the termination of costly subsidies and the devaluation of the naira in his initial year, is now prioritizing tax reforms to enhance revenue and operational efficiency. The proposed tax reforms aim to elevate the value-added tax (VAT) rate to 12.5% by 2026, streamline the tax collection process, and revise revenue-sharing between federal and state levels. Nonetheless, lawmakers retained the VAT at 7.5%, rejecting the original elevation, and excluded minimum wage earners from the income tax to alleviate the financial burden on lower-income citizens.

Furthermore, in response to concerns concerning fairness among states, the initial proposal to allocate 60% of VAT revenue to high-revenue states was amended to a 30% limit. The remaining portion will be divided, with 50% allotted equally to all states and 20% distributed based on population. The reform framework also includes a modification of the petroleum profit tax, substituting the previous 85% rate with a fixed corporate tax rate of 30% on oil industry revenues.

New provisions entail the implementation of a global minimum tax applicable to multinational enterprises exceeding a turnover of $970.80 million, while domestic businesses will also see their minimum tax threshold increased to 50 billion naira ($32.66 million). Exemptions from the minimum tax will apply to entities in free zones that export 75% or more of their goods and services. The bills are anticipated to gain the endorsement of the upper house next week and will come into effect pending President Tinubu’s approval.

In conclusion, the passage of President Tinubu’s tax reform bills signifies a strategic move to enhance Nigeria’s revenue generation capacity. Despite the adjustments made by lawmakers, the reforms aim to streamline tax collection and balance the interests of various states. The proposed changes not only demonstrate an attempt to improve fiscal efficiency but also address the concerns of lower-income earners regarding tax obligations. The anticipated approval from the upper house will pave the way for these reforms to become operational, further shaping Nigeria’s economic landscape.

Original Source: www.marketscreener.com