The presidential proposed tax reform bills have sparked significant debate across Nigeria, as opposition, particularly from Northern Nigeria, has focused on fears that the reforms could exacerbate economic hardship and leave the region impoverished.

These, among other misconceptions about the reforms, have necessitated clarifications. Responding to these concerns, Taiwo Oyedele, Chairman of the Presidential Tax and Fiscal Policy Reforms Committee, has moved to reassure Nigerians that the reforms aim to benefit the entire country, not to create additional economic strain.

Oyedele, tasked with steering the tax reform process, has dismissed these fears as misconceptions, emphasizing that the reforms are designed to strengthen Nigeria’s fiscal framework, promote equity, and reduce inefficiencies in the tax system.

According to him, the proposed changes will not impoverish any region but instead ensure that all parts of the country benefit from improved revenue mobilization. In a post detailing the benefits of the tax reforms shared via social media on Monday, Oyedele argued that the reforms are necessary to correct long-standing imbalances in the country’s tax policy.

Addressing concerns about the potential impact on economic hardship, Oyedele stated that the reforms have been carefully designed to prioritize fairness and efficiency. He noted that they include measures to protect vulnerable populations while ensuring that wealthy individuals and corporations contribute their fair share to the economy.

Below, he shared the benefits of the tax reforms.

The Tax Reforms Will Benefit You In Many Ways – Here is How

A. Households and individuals including the youth:

1. Complete exemption of low-income earners up to N1m p.a. (about N83k per month) from PAYE
2. Reduced PAYE tax for those earning a monthly salary of N1.7m or less
3. Zero (0%) VAT on food, healthcare, education, electricity generation and transmission
4. VAT exemption on transportation, renewable energy, CNG, baby products, sanitary towels, rent and fuel products
5. Tax break for wage awards and transport subsidies to low-income earners
6. Tax incentives for employers to hire more people incrementally than in the previous 3 years
7. Exemption of stamp duties on rent below N10m
8. PAYE tax exemption for other rank and armed forces fighting insecurity
9. Friendly tax rules for remote workers and digital nomads
10. Clarity on taxation of digital assets to avoid double taxation and allow a deduction for losses

B. Small Businesses:

1. Increase in tax exemption threshold for small businesses from an annual turnover of N25m to N50m
2. Exemption from company income tax for small businesses (tax at 0%)
3. No withholding tax deduction on business income of small businesses
4. Exemption from the requirement to deduct and account for tax on payments to vendors
5. Simplified statement of accounts attested to by small business owners for tax returns in place of audited financial statements
6. Introduction of the Office of Tax Ombud to protect taxpayers against arbitrary tax assessments
7. Tax disputes affecting businesses to be resolved within 14 days by the Tax Ombud
8. Harmonization of taxes and repeal of multiple levies
9. Outlaw cash payment and physical roadblocks imposing a burden on businesses
   10 Attractive tax regime to encourage formalization of business and facilitate growth

C. Businesses and investments:

1. Reduction of corporate income tax rate from 30% to 25% and harmonization of earmarked taxes at a reduced rate
2. Unilateral tax credit for income earned abroad to avoid double taxation and input VAT credit on assets and services to reduce the cost of production
3. Introduction of economic development incentive for priority sectors
4. Friendly tax regime for business restructuring and reorganization to improve efficiency
5. Clarity on the 6-year statute of limitation and resolution of objections in favor of the taxpayer if tax authority fails to respond within 90 days
6. Option to pay taxes and levies on foreign currency-denominated transactions in Naira
7. Faster tax refunds within 90 days (30 days for VAT refunds) with the option of set-off against any tax liability of the taxpayer.
8. Request for an advance ruling by a taxpayer to be provided by tax authority within 21 days
9. Expenses incurred by a start-up within 6 years pre-commencement of business to be tax deductible
10. Restriction of interest deduction will only apply to related party loans in order to reduce the cost of finance for businesses

D. High-Income Earners and HNIs:

1. Tax exemption on personal effects not exceeding N5m, sale of a dwelling house, and up to two private vehicles
2. VAT exemption on purchase of real estate
3. Clarity on taxation of benefit in kind and limit of taxable accommodation benefit to 20% of annual income
4. Exemption of tax on the sale of shares up to N150m and gains not exceeding N10m
5. Progressive personal income tax rate up to 25% for HNIs
6. Tax exemption on compensation for loss of employment not exceeding N50m
7. Progressive VAT rate on items mostly consumed by high-income earners to partly compensate for exemption on essential consumptions
8. Tax exemption for income earned on bonds issued by states in addition to federal government bonds
9. Reduction in the corporate tax rate for businesses and a tax break for hiring more people
10. Exemption of tax on bonus shares for investors in Nigerian companies.

E. Subnational government:

1. Federal government to cede 5% of VAT revenue to states
2. Transfer of income from Electronic Money Transfer levy exclusively to states as part of stamp duties
3. Repeal of the obsolete stamp duties law and re-enactment of a simplified law to enhance the revenue for states
4. States to be entitled to the tax of Limited Liability Partnerships
5. Tax exemption for state government bonds to be at par with federal government bonds
6. More equitable model for VAT attribution and distribution
7. Integrated tax administration to provide tax intelligence to states, strengthen capacity development and collaboration, and scope of Tax Appeal Tribunal to cover taxpayer disputes on state taxes
8. Powers for AGF to deduct taxes unremitted by a government or MDA and pay to the beneficiary government
9. Framework to grant autonomy for states’ internal revenue service and enhanced Joint Revenue Board to promote collaborative fiscal federalism
10. Legal framework for taxation of lottery and gaming, and introduction of withholding tax for the benefit of states

There is something in the tax bills for everyone.

The South-East Caucus of the Nigerian Senate has refrained from endorsing President Bola Tinubu’s controversial tax reform bill, citing the need for broader consultations with stakeholders and constituents.

Following a closed-door meeting on Monday, senators from the five Southeast states, led by Senator Enyinnaya Abaribe (APGA, Abia South), voiced concerns over the perceived lack of inclusivity in the process leading up to the bill’s drafting.

While the caucus clarified that it does not oppose the reforms outright, it stressed the importance of engaging stakeholders to ensure that the final framework reflects equity and addresses the concerns of the region.

“As senators from the South-East, we are not against the Tax Reform Bills. However, we insist on wider consultations with our constituents across the 15 senatorial districts, state governments, and other critical stakeholders in our zone,” Abaribe stated during a briefing after the meeting.

The caucus noted that the proposed tax reforms hold significant implications for all regions and must be approached cautiously to ensure fairness. Abaribe emphasized the need to engage with constituents, state governments, and other critical actors to develop a framework that aligns with the interests of the South East and the country at large.

“We have reviewed the bills and feel it is essential to share our insights with stakeholders in the South-East to ensure the final framework reflects equity and addresses regional concerns. Consultation is vital for inclusiveness and effective legislation,” he said.

The South-East senators’ stance mirrors broader sentiments of caution expressed by other regions. While the South-West and South-South have largely shown support for the tax reform bills, opposition has come from the North, where governors and other stakeholders have argued that the proposed value-added tax (VAT) sharing formula disproportionately disadvantages the region.

Background of Opposition to the Tax Reform Bills

The tax reform bills, central to President Tinubu’s economic agenda, aim to enhance Nigeria’s fiscal performance by expanding the tax base and addressing revenue shortfalls. However, the reforms have faced significant resistance from various quarters.

In the North, governors have criticized the proposed VAT sharing formula, which allocates 10% of VAT revenue to the federal government, 55% to states, and 35% to local governments. They argue that the formula fails to consider regional economic disparities, warning it could widen the gap between the resource-rich South and the North.

However, the South-East’s stance has drawn criticism from economists, who argue that the region’s hesitation could undermine national progress. Kalu Aja, a prominent economist, described the caucus’s position as “short-sighted,” urging the region to adopt the reforms while identifying specific areas of concern for negotiation.

“There is nothing in that tax bill that impedes the progress of the South-East in particular and Nigeria in general. The South-East should have adopted the bill and detailed where they have issues,” Aja stated in a critique of the caucus’s approach.

Aja’s comments reflect a broader sentiment among economic analysts, who see the reforms as a necessary step toward improving Nigeria’s revenue-to-GDP ratio and reducing reliance on oil revenue.

However, Abaribe noted that the caucus intends to engage stakeholders across the 15 senatorial districts in the region, as well as state governments, to ensure that the final framework addresses regional concerns.

“We need to consult with our constituents across the 15 senatorial districts in the zone, with our state governments, and with other critical stakeholders,” he said.

The outcome of these consultations is expected to influence the trajectory of the tax reform agenda, which has been put on hold, particularly in addressing concerns about equity and fairness.

Good People, join me to congratulate Zimi (withzimi.com), for raising $2m. Zimi is  a tech-enabled fulfillment provider that is bringing Amazon Prime-like delivery to exporters in emerging markets. Simply, it makes it easier, faster, and cheaper to sell products internationally. Merchants, you reach global buyers in as little as 2 days while saving up to 80% on shipping costs!

Africa’s largest market is the diaspora market. The diaspora has the size and the financial resources to fund the next phase of Africa’s development and growth. This diaspora includes the first and new generations of diasporas. Yet, the question is this: how do you reach them? Answer that, and you have an alpha moment.

And Zimi is answering. Tekedia Capital (capital.tekedia.com) is honoured to be part of this mission. Win more markets, Zimi.

The Revenue Mobilization Allocation and Fiscal Commission (RMAFC) has raised objections to the value-added tax (VAT) sharing formula proposed in President Bola Tinubu’s tax reform bills, arguing that the provisions contravene Nigeria’s constitution.

In a memorandum signed by Muhammad Shehu, the commission’s chairman, RMAFC outlined a range of constitutional, legal, and technical concerns, asserting that the proposed changes violate Nigeria’s 1999 Constitution.

President Tinubu presented the tax reform bills to the National Assembly on October 3, urging lawmakers to pass them swiftly despite significant pushback from stakeholders. Central to the controversy is the new VAT sharing formula, which proposes allocating 10 percent of VAT revenue to the federal government, 55 percent to state governments, and 35 percent to local governments.

This is a departure from the current arrangement, which allocates 15 percent of VAT revenue to the federal government, 50 percent to states, and 35 percent to local governments. While the proposed changes are intended to empower states with greater financial autonomy, RMAFC has expressed grave concerns over what it describes as the arbitrary nature of the reforms.

In its memorandum, the commission stated that Section 162(2) of the 1999 Constitution grants it the sole authority to determine equitable revenue-sharing formulas among the three tiers of government. Muhammad Shehu emphasized that RMAFC’s constitutional mandate includes ensuring that revenue-sharing arrangements adhere to principles of fairness, justice, and equity.

Although the RMAFC acknowledged that the entire tax reforms bills will boost Nigeria’s economic growth, and expressed support for it, the commission opposed the VAT sharing formula.

Speaking about the tax reform bills, it said: “They will help integrate untapped revenue sources, including contributions from the informal sector, into the tax net. Additionally, these reforms will enhance Nigeria’s revenue-to-GDP ratio, positioning the country more favorably among nations with high fiscal performance.

“The Commission, therefore, expresses its full support for the proposed legislation and is confident it will serve as a pivotal step toward elevating Nigeria’s revenue generation and financing sustainable development.”

However, Shehu argued that the proposed bills bypass this mandate and risk undermining the commission’s role as a key player in Nigeria’s fiscal framework. He explained that the formula must be developed through a thorough and inclusive process to reflect the diverse needs and circumstances of the country.

“This memorandum outlines the commission’s position, emphasizing its constitutional mandate to ensure that VAT allocation adheres to the principles of fairness, justice, and equity, and highlighting why any arbitrary apportionment may be inappropriate and unconstitutional,” he said.

The commission also highlighted that the lingering debate over VAT derivation—how VAT is allocated based on where it is generated—has created significant tensions among stakeholders. RMAFC warned that adopting an arbitrary formula, such as the one proposed in the reform bills, could exacerbate these divisions, threatening national unity and constitutional harmony.

RMAFC has called for the federal government to empower the commission to finalize a VAT allocation formula that aligns with its constitutional responsibilities. The commission insists that any legislative or executive measure undermining its authority would be detrimental to Nigeria’s fiscal integrity.

Shehu proposed adopting modern tools like electronic invoicing and transaction monitoring to ensure VAT collections are tied to end-user locations. Additionally, he called for legislative amendments to address derivation issues in interstate transactions.

RMAFC’s intervention is a response to broader concerns about the potential implications of the tax reform bills. While the reforms aim to boost Nigeria’s revenue-to-GDP ratio and integrate untapped revenue sources, such as contributions from the informal sector, the commission warns that rushing the process could lead to unintended consequences.

The commission’s position has placed it at odds with the administration’s push for reform, making it the only government institution to challenge the new VAT-sharing formula. This highlights the complexities of balancing fiscal reforms with constitutional obligations and the diverse interests of Nigeria’s federating units.