Understanding tax bills

President Bola Tinubu’s submission of four bills aimed at overhauling Nigeria’s tax system to the National Assembly two weeks ago has sparked debate in politics over the purpose of the bills. Some have expressed concern that the bills may contain proposals to increase tax rates in a way that would further burden citizens. Some Nigerians received the news with mixed feelings, while others decided to wait for details before commenting on the development.

There is no reason to be apprehensive about these bills. Either way, Nigerians are going to commend President Tinubu for focusing on laying a solid foundation that will ensure the country’s financial stability. When Nigerians get to know the details in the documents, they will realize that the president is really working to make things easier for them and their businesses.

The four executive bills aim to streamline the country’s fiscal policy and legislative environment. These are: the Nigeria Taxation Bill, the Nigeria Revenue Administration Bill, the Nigeria Revenue Service (Establishment) Bill and the Joint Board of Revenue (Establishment) Bill. These bills aim to translate the recommendations of the Presidential Committee on Fiscal Policy and Tax Reforms chaired by Taiwo Oyedele into a valid legislative framework for the benefit of Nigerians.

It is common knowledge that one of the factors that has continued to hamper the effectiveness of Nigeria’s tax system and adversely affect revenue is the large number of taxes. President Tinubu, in his inauguration speech, promised to solve the problem of multiple taxation and remove all obstacles to investment in the country. Multiplicity of taxes is one of the problems that Nigeria’s tax bill seeks to address. This will certainly bring relief to corporate Nigeria. The imposition of taxes by multiple institutions or levels of government is without a doubt a hindrance to business, especially micro and small businesses, as well as individuals.

How will this bill regulate the multiplicity of taxes? In Nigeria today, laws relating to various aspects of taxation are scattered across different legislations. Some of these laws are: Corporate Income Tax Act, Personal Income Tax Act, Capital Gains Tax Act, Value Added Tax Act, Stamp Duty Act, Petroleum Revenue Act, Higher Education Fund Act , the Law on the Oil Industry, etc. Apart from tax laws, there are many tax provisions in non-tax laws such as NLNG Act, Higher Education Trust Fund Act, NASENI Act, Lottery Act, Companies and Allied Matters Act etc. endless.

Unintended multiple taxation occurs when these disparate tax provisions are applied, and that is one of the things that the bill aims to address. The Nigerian Taxation Bill seeks to codify all taxation provisions into a single document to be known as the Nigeria Taxation Act upon enactment. In the draft law, sections are devoted to various types of taxes in a simplified form. The proposed tax law is also written in plain language that anyone with a basic literary education can read and understand. For example, the complexity of the existing law is such that it will be quite difficult for a mathematics professor to calculate personal income tax on his own because of all the interrelated provisions that will confuse him about what income is taxable. or what deduction is allowable. All these complications and complexities are eliminated in the new proposals.

In the proposed law, companies doing business within the country were reclassified into two: small and large. This is done in accordance with the respective turnover thresholds of the companies. A company will be considered small if its annual turnover is 50 million euros or less. Under current law, any company with a turnover of €25 million or less is not required to pay corporate income tax (CIT). In the new tax bill, companies with an annual turnover of up to 50 million euros will not pay income tax. As for large companies, that is, those with a turnover threshold of more than 50 million euros, the draft law proposes to provide them with certain relaxations. The purpose of this assistance to such companies is in line with President Tinubu’s public commitment to protect small businesses and remove barriers that adversely affect entrepreneurship in the country.

Perhaps the cardinal point among the several pleasant provisions of this document is what the bill provides for VAT. This speaks volumes to the fact that President Tinubu has listened and heeded the grievances of Nigerians, especially ordinary Nigerians who are bearing the brunt of the initial pain of the government’s economic reform policies. In the proposed law, VAT will not be charged on all goods that have a direct vital impact on people. Goods such as food, medicine, education, transport business and agriculture are not subject to VAT. For example, tuition or rent paid by owners or purchases made by school owners for the purpose of educating Nigerians are not subject to VAT. It is the same for hospital owners, those involved in agricultural businesses, and those who purchase vehicles for transportation. These are the areas where the lives of ordinary people will be significantly positively affected, especially given the temporary morbidity of the current reforms.

– Adekanmbi is the Special Media Adviser to the FIRS Chairman.

In addition, it is now possible to claim certain input VAT that was previously unclaimable under current law. Another relief that the president introduced in the bill is that VAT refunds will be made within 30 days after the completion of paperwork by such companies or organizations. VAT is no longer charged on diesel and gasoline. In July of this year, the president ordered the suspension of duties, tariffs and taxes on food imports as part of measures to stem the rising cost of living.

Many may be interested to know that the VAT rate of 7.5% currently charged in Nigeria is the lowest on the continent and one of the lowest in the world. In 2022, Madagascar and Morocco levied VAT at a rate of 20%, and Cameroon at 19.25%. Many countries around the world, realizing the importance of tax revenues in the provision of public services, this year have revised VAT upwards. One of the most striking examples is Saudi Arabia, which raised the rate from 5% to 15% in July.

In addition to Nigeria’s tax bill, the table of personal tax rates has been restructured to give low income earners a huge break. It is worth noting that the Federal Inland Revenue Service (FIRS) does not collect taxes from individuals. Collection of such income tax from individuals is within the jurisdiction of state tax authorities. The only group of persons who pay personal income tax to FIRS are members of the armed forces, members of the diplomatic corps and foreigners earning income in Nigeria. Under the new bill, people with an annual income of €800,000 after deduction of pension and deductible items will not have to pay personal income tax (PAYEE). However, the elite who earn the fat every year will pay more. This is in line with the global principle of progressive taxation, which levies higher taxes on high-income earners and slightly lower taxes on middle-income earners, while low-income earners pay very little. Mr. President promises that his administration’s fiscal policy will tax prosperity, not poverty.

The second bill, the Nigerian Tax Administration Bill, is mainly aimed at consolidating the administrative provisions for all taxes. This draft law harmonizes all tax administration issues such as registration, filing returns, payment, dispute resolution, etc. for all types of taxes and tax authorities. It also clearly defines the roles and objectives of all tax authorities in the country and their respective jurisdictions. The purpose of this draft law is to facilitate tax administration, reduce the tax compliance burden for citizens, and improve the ease of doing business in the country.

As for the proposed Joint Tax Board (Establishment) Bill, it aims to replace the Joint Tax Board (JTB), which has been shaky since its inception as it was built on quicksand. The proposed replacement not only addresses the glaring deficiencies of the JTB but also preserves joint federal and state government control over the body. It also seeks to establish a tax ombudsman’s office to deal with all complaints that may arise out of the activities of the JRB.

Today, we cannot escape from the cryptocurrency ecosystem because it is the essence. But in today’s situation, there is no law in Nigeria that regulates cryptocurrency transactions. One of the key points of Nigeria’s tax bill is that it aims to enact legislation to regulate the digital currency market, which is said to be worth $1 trillion worldwide. The bill, when passed, will cap the revenue the country has lost in the sector. We will remind you that some managers of one of the largest cryptocurrency platforms, Binance, appeared in court for non-payment of taxes, among other things.

The Nigerian Inland Revenue Service Bill primarily proposes to change the name of the Federal Inland Revenue Service (FIRS) to the Nigerian Inland Revenue Service. This bill seeks to correct the mistake of 2007 when Nigeria’s highest revenue agency, the FIRS, became autonomous as an operational arm of the Federal Bureau of Inland Revenue (FBIR). The mandate of the FIRS is to apply the tax laws for the assessment, collection and accounting of revenues accrued by the federation and not by the federal government. Especially when considering the current formula for sharing VAT revenues, only 15% goes to the federal government. The remaining 85% is shared between states and local governments.

Today, tax revenue from FIRS is the main reason why 36 states and local government councils smile at the banks every month during the Federation Accounts Allocation Committee (FAAC) meeting. From January to July of this year, 17.8 trillion euros were accumulated on the account of the Federation. FIRS tax receipts alone amounted to N11.7 trillion, which is 65.8 percent of the total amount disbursed to federal, state and local government councils to meet their needs.

Giving such a critical agency a name that suggests it collects taxes solely for the federal government is wrong and must be corrected. Another mistake in the current name is the word “Inland”, which limits the agency to collecting taxes in the interior of the country. Nigeria has huge revenue from offshore operations and only the repeal of the FIRS (Establishment) Act 2007 to pave the way for the Nigeria Revenue Service (Establishment) Act can do this. Those who assume that the proposed name change will result in other tax agencies being incorporated or merged with the NRS should obtain copies of the bill to dispel their doubts.

The general principle of the four tax bills is not only to modernize the tax system in the country but also to ensure that benefits are created for ordinary Nigerians and businesses. And so, from protecting the poor from paying VAT by exempting goods and services that directly affect their lives, to making VAT neutral for businesses through deductibility of input tax from external VAT, President Tinubu has shown his commitment about the fact that public policy should let the poor breathe and not suffocate. Tinubu deserves applause as a leader who listens to the aspirations of the citizens.