Tax reform bills: A new era in Nigeria’s tax administration beckons

By : Joseph Chibueze, Abuja

Tinubu

Barring last-minute changes, President Bola Tinubu is expected to sign into law four tax bills at any moment, ushering in a new tax regime in Nigeria.

The harmonised bills, which were recently passed by the National Assembly and transmitted to the President, include the Nigeria Tax Bill, the Nigeria Tax Administration Bill, the Nigeria Revenue Service (Establishment) Bill, and the Joint Revenue Board (Establishment) Bill.

Nigeria’s tax system is confronted with many challenges such as multiplicity of taxes, corruption, bad administration, non-availability of data, tax touting, complex nature of the tax laws, minimum tax, and non-payment of tax refunds among several others.

In fact, at a point, Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, lamented that there are over 60 taxes and levies officially collectable by the federal, state and local governments, but unofficially, those taxes are over 200, making life difficult for people.

This has resulted in either tax evasion or tax avoidance by citizens who, either out of protest against unjust and unfair taxation or outright exploitation of loopholes in the system, decide not to pay taxes.

The country has paid the price, suffering from low revenue generation, with a tax-to-GDP ratio of just 10 per cent, adjudged to be the lowest in the world.

The result has been the country’s over-reliance on borrowing, which has ballooned its debt profile, while a substantial portion of the little revenue generated is spent on debt servicing.

According to data from the Central Bank of Nigeria (CBN), the Federal Government spent a total of $15.55 billion on debt servicing between 2019 and 2024. In fact, according to a report by BudgIT, a civil society organisation, Nigeria spent 97 per cent of its total revenue in 2020 to service debt.

In January this year, Nigeria’s debt service-to-revenue ratio reached 144 per cent, meaning that debt service obligations exceeded the government’s retained revenue for the period.

The CBN reported that debt service obligations totalled N696.27 billion, while total retained revenue was N483.47 billion in January 2025.

So barely three months after he assumed office as President of Nigeria, precisely on August 8 2023, President Tinubu inaugurated the Presidential Committee on Fiscal Policy and Tax Reforms, with a mandate to among other things reform Nigeria’s tax and fiscal landscape, raise the country’s Tax-to-GDP ratio to 18 per cent within three years, and make the business environment more attractive.

The action was one of the desperate reform measures taken by the President, which included the removal of fuel subsidies and the unification of naira’s exchange rate, intended to rescue the economy from imminent collapse at the time.

The outcome of the committee’s work was the tax reform bills sent to the National Assembly by the President, which the lawmakers completed and transmitted the harmonised bills to the President.

The new tax laws are expected to significantly improve the efficiency and fairness of Nigeria’s tax system, while nearly doubling the country’s tax-to-GDP ratio.

Not surprisingly, the tax reform bills were among the most debated at the National Assembly in recent times.

One of the most contentious aspects of the tax reform is the proposed value-added tax (VAT) revenue-sharing formula, which almost pitched the north against the south.

Under the new models proposed by the bills, the distribution would shift to 10 per cent for the Federal Government, 55 per cent for states and 35 per cent for local government areas. In contrast, for the portion allocated to the states, 60 per cent of the VAT revenue will be allocated to the state where goods and services were consumed, and 20 per cent will be distributed based on population. The remaining 20 per cent is equally shared among all states.

This is opposed to the current model which allocates 15 percent, 50 per cent, and 35 per cent to the federal, state (including the Federal Capital Territory), and local governments, respectively, while states are to retain 20 per cent of the VAT revenue collected within their borders, 30 per cent of the VAT is distributed based on the population of the states. In comparison, the remaining 50 per cent is shared equally among all states. The argument has been that this formula lacks consideration for the principle of derivation, leading to perceived inequities where regions contributing more to VAT might not receive proportional benefits.

The new model drew intense criticism, especially from northern state governors and stakeholders who felt disadvantaged.

The governors’ main concern lies in the derivation-based model, which they argue unfairly shifts a larger share of the revenue to southern states, contending that this approach could exacerbate existing economic disparities and disrupt Nigeria’s delicate balance of fiscal federalism.

Good enough, these issues were resolved, and all adopted the new model.

According to experts, some areas of the new tax laws that are expected to have a positive impact on the economy are the exemption of individuals earning less than N800,000 annually from income tax and small businesses with turnovers below N50 million from corporate tax.

These, of course, are intended to strengthen economic activity by reducing the financial burden on vulnerable groups, improving the living standards of working-class citizens, and enabling small enterprises to reinvest in growth.

The Nigeria Revenue Service (Establishment) Bill 2025, which harmonises revenue collection and establishes a single revenue collection agency —the Nigeria Revenue Service (NRS) —is another significant step to improve revenue collection and increase the revenue accruable to the federation.

Presently, there is a multiplicity of revenue-collecting agencies leading to revenue leakages and inefficiencies in collection.

More importantly, it will also reduce the cost of revenue collection. Under the current system, the Nigeria Customs Service (NCS) retains seven per cent of the revenue it collects, the Federal Inland Revenue Service (FIRS) retains four per cent of the revenue it collects. In contrast, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), also retains four per cent of the revenue it collects.

With the new arrangement, NRS will retain only two per cent of the collected taxes, down from 4 per cent.

But it appears the new tax laws have not provided all the answers to taxation challenges facing the country.

According to the chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr. Taiwo Oyedele, the work of the committee was still far from finished.

According to Oyedele, who spoke during his 50th birthday ceremony in Abuja last week, there is a need for a downward review of corporate tax rates to attract new investments and stimulate economic expansion, which the country so badly needs at the moment.

He warned that high tax rates, especially in an inflationary environment, amount to taxing capital instead of profit.

Speaking on how the new tax laws will benefit the economy and its citizens, Barr. Eze Onyekpere, Lead Director Centre for Social Justice (CSJ) said as long as the new laws will enhance transparency and accountability in tax collection and remittance to the treasury, it is a welcome development.

He said the new laws must ensure an increase in tax revenue available to the government, provide incentives for investments that will lead to job creation and economic growth, enhance progressivity in the tax burden, and ultimately grow the economy and facilitate development.

On his part, Professor Godwin Oyedokun of Lead City University, Ibadan, said the new tax reform bills to be signed into law in Nigeria will address various economic challenges and enhance revenue generation.

He said, “Overall, while the proposed tax reform bills present opportunities for enhancing Nigeria’s economic landscape, there is a need for careful consideration of potential shortcomings and proactive measures for their successful implementation.”

Speaking at a recent forum in Lagos focusing on tax reform, Mr Bismark Rewane, Chief Executive Officer of Financial Derivatives, warned that while the new tax reform bills have the potential to increase the country’s tax-to-GDP ratio, they are a policy that institutional reforms must back. “We must curtail government profligacy,” he stated.

GUARDIAN Newspapers.