The Tax reform bills sent to the National Assembly by President Bola Tinubu have created divisions between the Federal Government and some State Governors, as well as legislators and stirred its own controversy. The bills include:
- Nigeria Tax Bill
- Nigeria Tax Administration Bill
- Nigeria Revenue Service (Establishment) Bill
- Joint Revenue Board of Nigeria (Establishment) Bill
The Nigeria Tax Bill seeks to repeal some existing laws on various taxes and provide a consolidated legal framework for income tax, including Company Income Tax (CIT), Personal Income Tax (PIT), Petroleum Profit Tax (PPT), Capital Gains Tax (CGT); Value Added Tax (VAT) and excise and stamp duties. Some of its proposals include the reduction of CIT rate from 30% to 25% over the next two years, introduction of electronic invoicing and making CGT to be taxable as part of income tax. Among others, the bill also proposes 0% VAT on food, education and healthcare, and extension of tax reliefs to entrepreneurs and self-employed individuals with regard to PIT.
The second bill, the Nigeria Tax Administration Bill aims to establish a streamlined system for the collection and administration of taxes, which is expected to reduce duplication and enhance efficiency in Nigeria’s taxation system. It includes the use of technology in tax administration. It also establishes State Inland Revenue Services with autonomy in their financial, technical and administrative affairs. The bill among other things, stipulates the provision of tax identification as a pre-requisite for individuals involved in banking, insurance and stockbroking to open new accounts or maintain existing accounts. In furtherance of this, it also grants tax authorities the power to automatically register and issue tax identification to taxable individuals who fail to apply for it, with the obligation to inform these individuals of their registration.
A key proposal of this bill is the distribution of VAT, for which the bill proposes as follows in clause 77:
“Notwithstanding any formula that may be prescribed by any other law, the net revenue accruing by virtue of the operation of chapter six of the Nigeria Tax Act shall be distributed as follows-
(a) 10% to the Federal Government;
(b) 55% to the State Governments and the Federal Capital Territory; and
(c) 35% to the Local Governments.
provided that 60% of the amount standing to the credit of states and local governments shall be distributed among them on the basis of derivation.”
The Nigeria Revenue Service Bill seeks to repeal the Federal Inland Revenue Service Act and establish the Nigeria Revenue Service, with the responsibility of assessing, collecting and accounting for federal revenues. The bill provides a framework for collaboration among revenue agencies across the three tiers of government including optional power to delegate tax collection functions among themselves. The bill establishes the Nigeria Revenue Service as the authority empowered to administer taxes and revenue under any law made by the National Assembly. In addition, it empowers the Accountant General of the Federation to deduct any unremitted revenue due from government or ministries, departments and agencies (MDAs) from the budgetary allocation or any other money accruing to such government or MDA and remit to the Nigeria Revenue Service Bill.
The Joint Revenue Board of Nigeria (Establishment) Bill establishes the Joint Revenue Board, the Tax Appeal Tribunal and the Office of Tax Ombud, for the harmonisation, coordination, promotion of the rights of taxpayers and tax dispute resolution. The Joint Revenue Board replaces the existing Joint Tax Board, with additional functions. The bill establishes the Tax Ombud as an independent arbiter to conduct enquiries and institute legal proceedings on behalf of taxpayers against arbitrary fiscal policies. The Tax Ombud may also report agencies which fail to implement its recommendations to the National Assembly or State House of Assembly, for oversight.
It appears that the tax reform bills are aimed at a holistic overhaul of the current tax system in the country While some stakeholders and observers have lauded it as welcome, others have expressed reservation for some of the proposals.
The House of Representatives held an interactive session on the tax reform bills on Monday, November 18. According to the Speaker of the House, Rt. Hon. Tajudeen Abbas, the session was designed to deepen our appreciation of the provisions, commence constructive dialogue on contentious or controversial areas, and build the consensus necessary to produce versions of the bills that align with the interests of the executive, the legislature, sub-national governments, and the Nigerian people.
The proposed derivation-based model for VAT distribution, which would allocate tax revenue to the States where goods and services are consumed, as opposed to where companies have their headquarters appears to be controversial. The Northern Governors’ Forum, rejected this proposal and the bills altogether, insisting that the contents of the bills did not align with the interests of the North and other subnational entities.
The National Economic Council chaired by Vice-President Kashim Shettima, recommended withdrawal of the bills to allow for broader consultations and consensus-building.
However, some members of the National Assembly who expressed opinions on the bills, stated that the proposals have the potential to address longstanding challenges in Nigeria’s tax regime, while others have assured that the bills will be considered in the light of public input.
Some tax experts and other stakeholders have expressed the view that the proposed reforms will further burden Nigerians with additional taxes, thereby defeating the pronounced purpose of the bills and worsening the hardship in the country.