The Nigerian House of Representatives has approved four tax reform bills proposed by President Bola Tinubu, aiming to overhaul the country's tax system. These bills are part of efforts to increase Nigeria's tax-to-GDP ratio, which currently stands at 10.8%, one of the lowest globally.
Key Aspects of the Approved Bills:
Value-Added Tax (VAT): The original proposal to raise VAT from 7.5% to 12.5% by 2026 was rejected. Lawmakers decided to maintain the current rate of 7.5%.
Income Tax Exemptions: To alleviate the tax burden on lower-income earners, individuals earning the minimum wage are exempted from income tax.
VAT Revenue Distribution: The initial proposal to allocate 60% of VAT revenue to high-revenue states was revised to a 30% cap, addressing concerns about regional inequalities. The
remaining 70% is distributed with 50% shared equally among all states and 20% based on population.
Petroleum Industry Taxation: The bills replace the 85% petroleum profit tax with a 30% corporate tax rate on gains from oil industry operations.
Global Minimum Tax: A global minimum tax is introduced for multinational companies with turnovers of at least $970.8 million.
Domestic Business Tax Threshold: The minimum tax threshold for domestic businesses has been increased to 50 billion naira (approximately $32.66 million).
VAT Sharing Formula:
50% to be distributed equally
20% to be distributed based on population
30% to be distributed based on consumption ((VAT collected per state)
The current 7.5% VAT rate was retained.
Inheritance funds cannot be taxed.
The VAT sharing formula aims for fairness but might still shortchange less consuming regions like the North.
It may boost revenue for high-activity states like Lagos, while reducing shares for populous but less active regions
These bills now await approval from the Senate and the President's assent to become law
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