11.07.2024

Nigeria: Considerations from Nigeria’s Tax Reform Efforts

As we noted in our 2024 Tax Outlook, following the establishment of the Presidential Committee on Fiscal Policy and Tax Reforms (the Committee), the Nigerian Tax system is currently undergoing significant reviews with the aim of improving the system. In this article, we identify some of the notable proposals and updates in the tax reform process.

1. The Committee is proposing reforms aimed at providing tax relief to small businesses in various sectors of the economy. It noted that Businesses earning below N25,000,000 (approximately $16,700) would be granted exemptions from various taxes which have previously stifled productivity.

2. The Committee is also proposing reforms to Nigeria’s VAT regime with the aim of establishing a simplified and effective VAT system. It is proposing the following VAT reforms:

a. Grant of full input VAT credit for businesses to reduce business cost/cost of production while easing the strain on cash flows.
b. Expanding the list of basic food items, educational and healthcare items exempted from VAT with a view to protecting the lower-class.
c. Harmonization of all consumption taxes and adjust the revenue sharing formula as an incentive in favor of sub-national units to address multiplicity of taxes.
d. Removal of VAT on export of service and intellectual property to promote non-oil exports.
e. Increasing the VAT exemption threshold for small businesses.
f. Enhancing and simplifying the VAT refund process to reduce the strain on working capital of businesses.
g. Introduction of VAT fiscalization and electronic invoicing.
h. Upward adjustment to the VAT rate on items not exempted to avoid a significant drop in revenue.

3. Further, Nigeria is set to launch its first Tax Inspectors Without Borders – Criminal Tax Investigations Program (the Program) in conjunction with the United Nations Development Program (UNDP) and the Organization for Economic Cooperation and Development (OECD). The Program is aimed at combating tax evasion, curbing illicit financial flows and entrenching tax transparency in the Nigerian fiscal regime. The objectives of the Program in developing jurisdictions are to:
i. Build Capacity of tax crime investigators.
ii. Facilitate knowledge sharing and skill development among tax authorities
iii. Strengthen tax crime enforcement frameworks for the effective resolution of disputes.

Ultimately, Nigeria aims to improve tax collection process and safeguard government income by combating tax evasion.

4. The Federal Inland Revenue Service (FIRS) has directed banks to apply, deduct and remit stamp duties at the rate of 0.375% on all facilities backed by legal mortgages, shares, debentures, or bonds. The charge would be applied on the value of the security while the deduction is to be made on the value of the facility.

5. The Federal Government released a new Deduction of Tax at Source (Withholding) Regulations 2024 which is to commence from 1st July 2024 which amongst other things widens the tax net, introduce new categories of transactions subject to WHT; provisions for exemption from WHT for manufacturers and other entities and provisions for ease of claim of tax credits.

If you wish to discuss these topics, please contact:

WTS Blackwoodstone

Author

Oluwatobiloba Adekoya

Senior Associate

Nigeria

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Article published in WTS Africa Quarterly Newsletter #3/2024

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