NIGERIA: MAJOR TAX SYSTEM OVERHAUL PROPOSED
Nigeria Proposes Major Tax System Overhaul
The Presidential Fiscal Policy and Tax Reforms Committee, led by tax expert Taiwo Oyedele, has unveiled a bold plan to streamline Nigeria’s complex tax system.
Key Points:
- Reducing Tax Burden: The committee proposes a significant reduction in the number of taxes and levies businesses have to pay. The aim is to cut them by over 87%.
- Simplifying the System: Instead of the current system with over 60 taxes, the committee suggests consolidating them into just eight clearly defined categories. This will make tax compliance easier for both businesses and individuals.
- Balancing Revenue Needs: While simplifying the system, the committee acknowledges the need for government revenue. They propose retaining eight key taxes: income tax, value-added tax (VAT), property tax, customs duties, excise tax, stamp duties, a special levy, and a harmonized levy. Social security contributions will also remain.
- Implementation Timeline: The committee aims to complete the approval process for these changes by the end of the third quarter of 2024, with implementation expected to begin in January 2025.
- Increasing Tax-to-GDP Ratio: Nigeria currently has a low tax-to-GDP ratio (around 10%). The government aims to increase this to 18% by 2027.
- Targeted Tax Increases: The committee proposes raising VAT on non-essential items like mobile phones. This will provide additional revenue while protecting vulnerable Nigerians by reducing taxes on essential goods and services like food, housing, transportation, education, and healthcare.
Benefits:
- Simpler and easier-to-understand tax regime for businesses and individuals.
- Improved tax compliance, potentially leading to increased government revenue.
- Potential boost for economic activity.
- Protection for low-income earners through reduced taxes on essential goods and services.
Next Steps:
The government is currently reviewing the committee’s proposals. If approved, it will represent a significant shift towards a more efficient and equitable tax system in Nigeria.
