The Presidential Fiscal Policy and Tax Reforms Committee today engaged journalist, influencers, and public analysts in an interactive session to clarify some misconceptions surrounding Nigeria newly enacted tax reforms laws.
Speaking at the session, the Committee’s Chairman, Taiwo Oyedele, stated that while it is not unusual for tax reforms to be misunderstood anywhere in the world, deliberate misreporting and uniformed analyses are harmful to our collective interest given that the reforms are designed to benefit ordinary Nigerians, secure long-term economic stability and inclusive growth for the country.
“The objectives of the reforms have been unclear from the very beginning- reduce tax burden on the masses, harmonies and simplify tax rules to address multiplicity of taxes, promote a modern, business friendly and globally competitive tax system. Our approach is people-centric, growth-focused, and efficiency-driven”. Mr. Oyedele said.
Key Highlights of the New Tax Reforms Laws
- Personal Income Tax: Low income earners including those earning national minimum tax are exempted from tax. The average income earners will pay less tax while high-income earner (about the top 3% of the population) will contribute progressively more, up to 25%^ of their income. This is a much lower rate than the top rates in countries such as Ghana & Kenya at 35% abd South Africa at 45%.
- Value Added Tax (VAT): Businesses will enjoy broader input credits on their assets and overhead to lower costs. Basic items such as food, education and health services are taxe4d at 0% while rent and transportation are exempt. These measures are expected to result in lower prices for consumers. In addition, small business is exempted from changing VAT ensuring they are not overburdened with excessive tax obligations.
- Tax Identification (Tax ID): The provision of “Tax ID” is only mandatory for opening and operating a bank account intended for income generating or business purposes. The “Tax ID” is a new ID card but a system that builds on and harmonies the existing Tax Identification Numbers (TIN) for ease of economic activities. The requirement to provide a TIN for operating a business account was introduced via the 2020 Finance Act and has been implemented since 13 January 2020. While banks are required to report quarterly transactions above a threshold under the new tax laws, it is not true that inflows into bank accounts will be automatically taxed.
- Informal Sector: The new tax laws offer major reliefs to small business. The new tax structure us designed to encourage formalization by exempting small companies with annual turnover of 100m or less from corporate income tax. In addition, these small businesses are exempted from charging VAT or accounting for withholding tax on their transactions. The goal is to reduce on nano, micro and small business who constitute the largest share of employment and GDP.
- Tax Harmonization: There is an ongoing process to reduce over 60 different taxes and levies to fewer than 10, easing compliance and curbing proliferation of multiple charges. C0ontraty to the misconception about imposing a higher tax burden or introducing new taxes, the current administration is reducing both the number or taxes and the burden on citizens and businesses. Some taxes which were introduced by the previous administration have in fact been reversed or suspended including the 5% levy on airtime and data, cybersecurity levy on bank transfers, carbon tax on single used plastics, excise tax on vehicles and so on.
- No imposition of tax on individuals who were mot previously taxable. Online content creators, influences, income from virtual assets and other income generating activities have always been subject to tax under the old Personal Income Tax Act. The new tax laws only provide clarity, and ensure fairness by allowing deductions for losses where applicable. Income earned by way of a gift rather than payment for a transaction is not taxable.
The ongoing tax reform is raising public awareness which sometimes leads to the wrong impression that a requirement is new. The Committee stressed that the reforms are aimed at fairness, efficiency, and simplicity- ensuring that the tax system supports investment, job creation, and sustainable growth.
The committee clarifies that:
- The poor are not being taxed under the new laws, and the average citizen will pay less, not more taxes.
- Business will save costs through harmonization, enhanced input credits, faster tax refunds, lower withholding tax rates, and planned reduction in corporate tax rate.
- Small companies are exempted from cooperate income tax, charging VAT on their transactions and withholding tax. The informal sector will benefit from incentives to join the formal economy rather than being penalized thereby enhancing their opportunity for growth.
- These reforms are not about raising taxes arbitrarily, but about making the system simpler, fairer, pro-people and pro-growth. The measures designed to curb tax evasion are necessary to provide a level playing filed for honest and patriotic taxpays.
Mr. Oyedele called on Nigerians to seek credible information and engage constructively. “These reforms are designed to benefit all Nigerians. Let us work together to ensure effective implementation and position ourselves foe the better days ahead of us”, he said.
Next Steps
The Committee assured stakeholders of working with relevant implementing agencies for a robust and transparent implementation process, with continuous engagement to seek feedback, address concerns and ensure smooth transition.