In a significant move to streamline Nigeria’s tax system, the Federal Government has announced plans to eliminate over 50 ‘nuisance taxes’ that have long burdened businesses and individuals alike. This initiative is part of a broader effort to simplify the tax landscape, promote economic growth, and enhance transparency in revenue collection.
Understanding ‘Nuisance Taxes’
‘Nuisance taxes’ refer to minor levies and charges that often complicate the tax system without generating substantial revenue. These include various fees and taxes imposed by different levels of government, which can be cumbersome for taxpayers and deter business operations.
Key Components of the Tax Reform Bills
The proposed tax reform bills encompass several critical measures aimed at overhauling the current tax framework:
Simplification of Tax Structure: The reforms aim to consolidate multiple taxes into a more cohesive system, reducing the number of taxes from over 60 to just 8.
Creation of a Central Tax Agency: The establishment of the Nigerian Revenue Service is proposed to centralize tax collection, replacing over 100 different collection agencies at federal, state, and municipal levels.
Support for Small Businesses: Small companies with an annual turnover of N50 million or less would be exempt from paying income tax, a move expected to benefit up to 90% of businesses in Nigeria.
Reduction of Company Income Tax: The company income tax rate is set to decrease from 30% to 25% in 2026 for medium and large companies, aiming to stimulate business growth and investment.
Harmonization of Levies: The reforms propose merging the 2.5% education tax, 1% NITDA tax, and 0.25% NASENI tax into a single development levy of 2%, which will be used exclusively to fund student loans from 2030.
Rationale Behind the Reforms
The primary goal of these reforms is to create a more efficient and business-friendly tax environment. By eliminating redundant taxes and simplifying the tax code, the government aims to:
Encourage Investment: A streamlined tax system is expected to attract both local and foreign investors, fostering economic development.
Enhance Compliance: Simplifying tax obligations can lead to better compliance rates among taxpayers, increasing overall revenue.
Reduce Corruption: Centralizing tax collection and reducing the number of taxes can minimize opportunities for corruption and leakage in the system.
Stakeholder Reactions
The proposed reforms have elicited varied responses from different quarters:
Support from Business Communities: Organizations like the Association of Small Business Owners of Nigeria (ASBON) have expressed support, noting that the reforms are small-business friendly.
Concerns from State Governments: Some state governments have raised concerns about the potential impact on their revenue streams, leading to calls for further consultations and adjustments.
Calls for Public Engagement: Political figures, including former Vice President Atiku Abubakar and Labour Party presidential candidate Peter Obi, have urged the government to hold public hearings to ensure transparency and inclusivity in the reform process.
Next Steps
The Federal Government is engaging with stakeholders, including state governments and the National Assembly, to refine the proposed bills. Public hearings and consultations are expected to take place to address concerns and incorporate feedback, ensuring that the reforms serve the best interests of all Nigerians.
By addressing the complexities and inefficiencies of the current tax system, these reforms hold the promise of fostering a more conducive environment for economic growth and development in Nigeria.
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