Federal Government plans new tax reforms aimed at reducing the burden on the poor and businesses.
The Federal Government of Nigeria is pushing for sweeping tax reforms, aiming to reduce the financial strain on Nigerians, particularly the poor and small businesses.
Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr. Taiwo Oyedele, announced these changes on Monday during an interactive session on the proposed Nigeria Tax Bill, 2024, at the House of Representatives in Abuja.
The new tax reforms are designed to overhaul the country’s tax system and ease the economic pressures on citizens, who face rising inflation and high unemployment.
“This reform will provide relief to the poor and businesses struggling with multiple taxes,” Oyedele said. “We are focused on cutting down unnecessary taxes and focusing on those that can bring in substantial revenue for the government.”
Zero Percent VAT on Essentials
One of the most significant aspects of the proposed reforms is the introduction of a zero percent Value Added Tax (VAT) on essential items like food, education, and healthcare.
“We want to exempt these critical sectors from VAT to lower costs for everyday Nigerians,” Oyedele explained.
The plan also proposes to exempt rent and transportation from VAT, two areas that directly impact the cost of living for many Nigerians.
Non-essential goods would see an increase in VAT rates to help offset the reduction in VAT from these essential items. The goal is to make taxes more efficient and avoid overburdening businesses and consumers.
“We are aiming for a system that allows businesses to recover VAT on their purchases, which will ultimately lower their costs,” Oyedele added.
This is expected to reduce inflation and support small businesses that are struggling to keep their prices competitive.
Striving for Fair Taxation
The proposed reform seeks to make taxes more straightforward and reduce the number of taxes across Nigeria’s government systems.
Oyedele highlighted that, currently, VAT revenue is split among the federal, state, and local governments, with the federal government taking 15 percent, the states 50 percent, and the local governments 35 percent.
The reform proposes to make the tax system more transparent and easier to manage, especially for small businesses. According to Oyedele, over 97 percent of Small and Medium Enterprises (SMEs) in Nigeria will be exempted from charging VAT on their sales.
The Burden on the Poor
Oyedele’s comments come at a time when Nigeria is grappling with severe poverty. The country has over 95 million people living in monetary poverty, and an alarming 133 million people are experiencing multidimensional poverty, which includes lack of access to education, healthcare, and clean water.
With the country facing inflation rates above 33 percent, many Nigerians are struggling to make ends meet.
“The purpose of this tax reform is to help reduce the ultimate burden on the poor and small businesses,” Oyedele emphasized. “We need a tax system that works for everyone, especially those who need it most.”
Reducing the Tax-to-GDP Gap
Speaker of the House of Representatives, Honourable Tajudeen Abbas, also spoke about the importance of these reforms. He explained that Nigeria’s tax-to-GDP ratio is only six percent, which is well below the global average. The World Bank’s minimum benchmark for sustainable development is 15 percent.
“This is a major challenge that must be addressed,” Abbas said. “If we do not diversify our revenue base and improve compliance, we risk further fiscal instability.”
Abbas emphasized the importance of these reforms in reducing Nigeria’s reliance on debt financing, which has been a growing issue for the government. He acknowledged the need for the country to generate more revenue domestically to meet its growing needs.
“We must ensure that these reforms are fair, transparent, and equitable,” Abbas added. “The tax system should support sustainable development and not burden citizens unnecessarily.”
Oyedele’s team is pushing for a tax system that will ensure fairness and increase compliance, while expanding the tax base. The proposed reforms are aimed at improving Nigeria’s revenue-generating capabilities and supporting the country’s economic development.
Dr. Zacch Adedeji, Chairman of the Federal Inland Revenue Service (FIRS), supported the proposed reforms, stating that the FIRS would implement whatever decisions the National Assembly makes.
The reforms, however, are not without controversy. The proposals have sparked debates in the media, civil society, and among governance stakeholders. Critics have raised concerns about how these changes will affect different segments of society.
Despite this, Abbas welcomed the debates, calling them an important part of the democratic process.
“Healthy debates around these bills are necessary. They will help us improve the proposed legislation and ensure that it is in the best interest of Nigerians,” he said.