New Tax Regime in Nigeria
Nigeria is on the verge of a new tax regime, as President Bola Tinubu is expected to sign four tax bills into law at any moment. The bills, recently passed by the National Assembly, include the Nigeria Tax Bill, the Nigeria Tax Administration Bill, the Nigeria Revenue Service (Establishment) Bill, and the Joint Revenue Board (Establishment) Bill.
Challenges Facing Nigeria’s Tax System
Nigeria’s tax system has been plagued by numerous challenges, including the multiplicity of taxes, corruption, and poor administration. There are over 60 official taxes and levies collectable by federal, state, and local governments, but unofficially, the number exceeds 200. This complexity has led to tax evasion and tax avoidance, resulting in low revenue generation. The country’s tax-to-GDP ratio is a mere 10%, the lowest in the world.
Consequences of Low Revenue Generation
The consequences of low revenue generation have been dire. Nigeria has had to rely heavily on borrowing, which has resulted in a ballooning debt profile. According to the Central Bank of Nigeria, the Federal Government spent $15.55 billion on debt servicing between 2019 and 2024. In 2020, the country spent 97% of its total revenue on debt servicing. The debt service-to-revenue ratio reached 144% in January 2025, indicating that debt service obligations exceeded the government’s retained revenue for the period.
Presidential Committee on Fiscal Policy and Tax Reforms
In response to these challenges, President Tinubu inaugurated the Presidential Committee on Fiscal Policy and Tax Reforms in August 2023. The committee’s mandate was to reform Nigeria’s tax and fiscal landscape, raise the tax-to-GDP ratio to 18% within three years, and make the business environment more attractive. The committee’s work resulted in the tax reform bills sent to the National Assembly, which have now been transmitted to the President for signing.
Key Provisions of the New Tax Laws
The new tax laws are expected to significantly improve the efficiency and fairness of Nigeria’s tax system. One of the key provisions is the exemption of individuals earning less than N800,000 annually from income tax and small businesses with turnovers below N50 million from corporate tax. This is intended to reduce the financial burden on vulnerable groups and enable small enterprises to reinvest in growth. The Nigeria Revenue Service (Establishment) Bill 2025 also establishes a single revenue collection agency, the Nigeria Revenue Service (NRS), to improve revenue collection and reduce the cost of revenue collection.
Revenue-Sharing Formula
The new tax laws also introduce a new revenue-sharing formula, which has been a subject of controversy. Under the new model, the distribution of value-added tax (VAT) revenue will shift to 10% for the Federal Government, 55% for states, and 35% for local government areas. The states will retain 60% of the VAT revenue collected within their borders, while 20% will be distributed based on population, and the remaining 20% will be shared equally among all states.
Experts’ Views on the New Tax Laws
Experts have welcomed the new tax laws, but caution that there is still much work to be done. According to Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, the new tax laws do not provide all the answers to taxation challenges facing the country. He advocates for a downward review of corporate tax rates to attract new investments and stimulate economic expansion. Barr. Eze Onyekpere, Lead Director of the Centre for Social Justice, emphasizes the need for transparency and accountability in tax collection and remittance to the treasury.
Conclusion
The new tax regime in Nigeria has the potential to address various economic challenges and enhance revenue generation. While there are still concerns and controversies surrounding the new tax laws, experts agree that they are a step in the right direction. As Nigeria embarks on this new tax regime, it is essential to ensure that the laws are implemented effectively and that the government continues to work towards creating a more favorable business environment. With careful consideration and proactive measures, the new tax laws can help stimulate economic growth, reduce poverty, and improve the living standards of Nigerians.
