EXPLAINER: What to know about Tinubu’s fiscal reform laws

President Bola Tinubu has signed four finance bills into law, aiming to restructure Nigeria’s tax system and boost revenue generation.

The fiscal reform laws are expected to simplify revenue collection, reduce tax burdens on low-income earners and small businesses, and increase government revenue.

In this article, TRIBUNE ONLINE explained Nigeria’s major tax overhaul with keen emphasis on its impacts on Nigerians.

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The Four Fiscal Reform Laws:

1. Nigeria Tax Act: Consolidates tax laws into a single code, eliminating over 50 small, overlapping taxes to enhance ease of doing business.
2. Tax Administration Act: Establishes uniform rules for tax collection across federal, state, and local governments.
3. Nigeria Revenue Service Act: Replaces the Federal Inland Revenue Service (FIRS) with the Nigeria Revenue Service (NRS), a more autonomous and performance-driven national revenue agency.
4. Joint Revenue Board Act: Improves coordination between levels of government and creates a Tax Ombudsman and Tax Appeal Tribunal to resolve disputes.

Impact on Nigerians:

• Low-Income Earners: Individuals earning up to 1 million naira ($650) per year will no longer pay income tax, thanks to a 200,000 naira ($130) rent relief.
• Small Businesses: Businesses with annual turnover below 50 million naira ($32,400) will be exempt from company income tax and allowed to file simpler returns.
• Essential Goods and Services: Sellers of essential goods and services like food, healthcare, and education will no longer charge Value Added Tax (VAT), making basic needs more affordable.
• Large Businesses: Corporate tax rates will drop from 30% to 27.5% in 2025 and 25% in subsequent years, with tax credits available for VAT paid on expenses and assets.

Who will benefit the most?

Low-income households stand to benefit the most, as many will no longer have to pay income tax while also enjoying price relief on essentials. Small businesses should also see positive changes through more streamlined bureaucracy, which could help boost compliance and encourage informal traders to enter the tax system.

Challenges and Concerns:

• Implementation: Small business owners are wary of how the reforms will be enforced in practice, with concerns about potential new levies or harassment by tax officials.
• Enforcement Practices: Economist Emmanuel Idenyi warns that overzealous implementation by tax authorities could undermine the government’s good intentions.

Aim

The government aims to grow Nigeria’s tax-to-GDP ratio to 18% by 2026 without raising taxes on basic goods or overburdening struggling citizens. By simplifying tax rules and encouraging voluntary compliance, officials hope to raise more money for funding infrastructure and public services, such as healthcare and education, as well as reduce the reliance on borrowing money.