A dummy’s guide to the controversial tax reform bills

However, the bills have received stiff opposition from
northern elites under the umbrella of the Northern States Governors Forum
(NSGF) — with the national economic council (NEC) asking Tinubu to withdraw
them for further consultation.

The president has refused to withdraw the bills which have
now scaled through the second reading at the national assemby.

With convictions, uncertainties, and questions spilling from
various camps, Nigerians are torn apart on the provisions of the bills and
their impact on the country’s economy.

WHY THE TAX BILLS?

The federal government wants to streamline tax processes and
block leakages, thereby introducing ease, transparency, and accountability into
the system.

The government also wants a harmonised tax system which
would cut the total number of taxes across all levels of government to eight
rather than the current 60 officially approved taxes and levies.

Oyedele had said the tax reform bills would remove nuisance
taxes that have very low revenue yields, high collection costs, and are
burdensome on the poor and small businesses.

The bills focus on high revenue-yielding taxes “that are
broad-based and relatively easy to collect” while taxes and levies that are
imposed on the same or similar tax base will be merged.

A tax base means the total assets or income of a business
that the government can tax.

WHAT ARE THE SCOPE OF
THE TAX BILLS?

As stated earlier, there are four tax bills. But the most
controversial are the ‘Nigeria tax bill’ and the ‘Nigeria tax administration
bill’, due to certain proposals.

The tax bill’s proposals cover income tax which includes
personal income tax (PIT), company income tax (CIT), petroleum profit tax
(PPT), and capital gains tax (CGT).

The bill also addresses issues on value-added tax (VAT),
excise tax stamp duties, and development levy (tertiary education tax (TET),
NITDA etc).

Customs duties, property tax (state and local government),
and the harmonised levy (local government) are under the Nigeria tax bill.

WHAT ARE THE KEY
STIPULATIONS IN THE NIGERIA TAX BILL?

The bill proposes a zero percent VAT on food, education, and
healthcare. Rent, transport, and electricity are also exempted from the
consumption tax.

According to the document, the VAT rate on non-essential
items (jewellery, electronics, and others) will be increased partly to offset
the reduction on essential items which also include water, drugs, and others.

The bill says VAT will increase from the current 7.5 percent
in 2024 to 10 percent by 2025.

“VAT shall be charged on the value of all taxable supplies
at the following rates (a) 2025 year of assessment 10%; (b) 2026, 2027 2028 and
2029 years of assessment 12.5% (c) 2030 year of assessment and thereafter 15%,”
the document reads.

The proposed legislation said other consumption taxes would
be discontinued, leaving only VAT charges where applicable.

It said businesses can recover VAT on their assets and
services, thereby lowering their overall costs and reducing inflation. However,
small businesses would have a zero percent VAT charge on their profits.

The bill is also seeking an increase in the annual tax
threshold for small businesses from N25 million to N50 million, proposing a
reduction in the CIT to 27.5 percent by 2025 — down from 30 percent — and a
further cut to 25 percent by 2026.

“Tax shall be levied, for each year of assessment in respect
of total profits of every company, in the case of; (a) a small company, at zero
percent; and (b) any other company, at the rate of-(i) 27.5% in 2025 year of
assessment, and(ii) 25% from 2026 year of assessment,” the document added.

“Notwithstanding any provision of this Act or any other
enactment, where, in any year of assessment, the effective tax rate of a
company is less than 15%, such company shall recompute and pay an additional
tax that makes its effective tax rate equal to 15%.”

“The provisions of this section shall apply to (a) a company
that is a constituent entity of an MNE group; and (b) any other company with an
aggregate turnover of N20,000,000,000.00 and above in the relevant year of
assessment.”

The tax bill also recommended the elimination of minimum tax
on loss-making companies and introduced a top-up tax of up to 15 percent for
multinationals and large domestic companies.

A top-up tax is an additional amount of tax paid by companies
(or individuals) that have already reached a certain tax threshold or limit.

More so, the legislation proposes tax exemption for minimum
wage earners, lower taxes for other low-income earners, and higher taxes for
high-income earners.

In addition, the export of services and intellectual
properties will attract zero percent VAT to facilitate export growth,
introducing fiscalisation, electronic invoicing, and non-deductibility for
income taxes.

Other provisions include the introduction of a 4 percent
development levy, 5 percent tax on telecommunications services, and 5 percent
excise duty on lottery and gaming income.

WHAT IS THE GROUSE OF
THE NORTH

The ferocious opposition of the NSGF — a group of governors
representing 19 northern states — was triggered by the revenue-sharing formula
proposed in the Nigeria tax administration bill as it relates to VAT.

In the current VAT revenue-sharing formula, the federal
government takes 15 percent, states get 50 percent while 35 percent goes to the
local governments.

States normally use the 50:30:20 sharing ratio — 50 percent
for equality, 30 percent for population, and 20 percent for derivation.

However, the bill proposes a different sharing formula that
states thus:

“Notwithstanding any formula that may be prescribed by any
other law, the net revenue accruing by virtue of the operation of chapter six
of the Nigeria Tax Act shall be distributed as follows: (a) 10% to the Federal
Government; (b) 55% to the State Governments and the Federal Capital Territory;
and (c) 35% to the Local Governments. Provided that 60% of the amount standing
to the credit of states and local governments shall be distributed among them
on the basis of derivation,” the bill reads.

This section of the bill raises the VAT derivation from 20
percent to 60 percent as it intends to make more money available to states
“fairly and equitably”.

Under this proposal, according to Oyedele during a
stakeholders engagement session with chief financial officers (CFOs), states
will use the sharing ratio of 20:20:60 — equality, population, and derivation —
if the bill is passed.

WHAT IS NSGF’S
POSITION?

The northern Nigeria leaders had argued the proposals would
impoverish the region by transferring its wealth to economic hubs like Lagos
and Rivers — two major states already benefitting from the current VAT
distribution regime according to the tax committee.

Babagana Zulum, governor of Borno, on November 29, said he
would rally lawmakers from the north to reject the tax bills. He believes the
reforms would lead to poverty, hunger, and hardship in the north.

Abdullahi Sule, governor of Nasarawa, said the northern
governors were only against the removal of VAT from the federation account
allocation committee (FAAC).

Sule they were concerned that the 60 percent formula would
not work if the VAT is calculated based on the derivation and not consumption.

In response to the concerns, Oyedele, during a Channel
Television’s town hall, clarified that the 60 percent VAT derivation would be
distributed based on consumption as against the current system which mostly
favours states with the headquarters of companies.

WHAT ARE THE KEY
PROVISIONS OF OTHER BILLS?

The tax administration bill seeks the introduction of VAT
fiscalisation system, which is essentially the deployment of technology for the
real-time filing of returns.

It mandates all taxable persons to submit annual tax
incentives returns covering income tax and “any incentive not generally
available to all taxpayers”.

The said tax refund should be made within 90 days of
“decision post audit with the option of set-off against any tax liability of
the taxpayer”.

If passed into law, the accountant-general of the federation
will be expected to open dedicated accounts for each tax type to pay money for
tax refunds based on estimates provided by relevant tax authorities.

Agencies such as tertiary education trust fund (TETFUND),
National Information Technology Development Agency (NITDA) and National Agency for
Science and Engineering Infrastructure (NASENI) will be funded from budgetary
allocations and no longer rely on taxes.

The administration tax bill makes provision for the creation
of a state inland revenue service (IRS) that would be autonomous in its
financial, technical, professional, and administrative affairs.

Meanwhile, the Nigeria revenue service establishment bill
seeks to create the Nigeria Revenue Service (NRS), repealing the Federal Inland
Revenue Service (FIRS).

The last bill intends to establish the Joint Revenue Board
to streamline tax administration. The board would be responsible for
maintaining the database of taxpayers’ identities in collaboration with NRS,
states’ IRS, and LG revenue committee.

It would also guide the accreditation of tax agents,
establish a tax appeal tribunal with jurisdiction to settle tax disputes
arising from any tax laws made by the national assembly or house of assembly of
a state.

Culled: TheCable