President Bola Tinubu yesterday signed into law the much talked about tax reform bill, paving the way for a streamlined revenue collection for the country.
The new law comes on the back of series of debate involving lawmakers, governors and industry experts who expressed reservations about the VAT sharing formula, company income tax and taxation of inherited assets.
However, after months of negotiations, these reservations were addressed with key concessions made by key stakeholders, leading to the passage of the four major tax bills – Nigeria Tax Bill, Nigeria Tax Administration Bill, Nigeria Revenue Service (Establishment) Bill, and Joint Revenue Board (Establishment) Bill.
With the President’s assent, Nigeria now moves from the old, colonial-styled tax system, into a modern and inclusive model. Essentially, the Federal Inland Revenue Service will now be known as the Nigeria Revenue Service. In addition to its other responsibilities, the new body will collect revenues on behalf of the customs service, ports authority and maritime agency.
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Also, the tax law pegs the VAT rate at 7.5%. However, it creates a new VAT sharing formula giving states 10% to the federal government, 55% to states and 33% to local governments. 20% of the revenue will be shared based on population, 50% equality and 30% generation, ensuring a fair and equitable sharing model.
Additionally, the law creates VAT exemption for essential goods and services consumed by the poor, including food items, medical services, pharmaceuticals, education and electricity
The new tax regime also makes it mandatory for Nigerians to have a tax identification number for routine bank transactions. This means to open or operate a bank account, sign a contract with a government agency, or access financial services like insurance and stock trading, a tax ID must be provided.
Furthermore, the Nigerian tax system now recognises crypto assets, NFTs and other digital transactions as taxable property. The law also reduces tax burden on low income earners, exempting those earning below N800,000 per annum from paying any tax.
Also, the new law creates a seamless tax payment system with the option to pay taxes and levies on foreign currency denominates transactions in Naira. In addition, it targets a more business friendly environment by reducing corporate income tax from 30% to 20% while exempting small businesses with less than N25 million annual turnover.
