By 
By A. Edwards
Taxation has been a cornerstone of organized societies since ancient civilizations. Early forms emerged in Mesopotamia around 3000 BCE, where grain and livestock were taxed. In ancient Egypt, taxes supported the pharaoh’s rule, while in Greece and Rome, they funded armies, public works, and social programs. During the Middle Ages, feudal lords-imposed taxes on peasants, often through labour or produce. As societies evolved, monetary taxation systems developed, financing defence, administration, and social services—a purpose that remains unchanged today.
The Need for Reform in Nigeria
Nigeria’s tax system has faced significant challenges: low compliance, multiple taxation layers, and an underperforming tax-to-GDP ratio. To address these, the Federal Government appointed the Tayo Oyedele-led Tax Reform Committee. Its primary goal is to modernize fiscal policies, enhance revenue generation, and foster economic growth while reducing the burden on businesses and individuals.
Key committee objectives include:
- Simplifying tax processes and harmonizing multiple taxes.
- Boosting efficiency and transparency in tax collection.
- Raising Nigeria’s tax-to-GDP ratio to 18% without stifling economic activity.
- Creating a fairer, investment-friendly tax environment.
Core Features of the Tax Reform Bill
The Tax Reform Bill aims to simplify and modernize Nigeria’s tax system with the following key components:
Corporate Income Tax (CIT):
- Small businesses with annual turnovers below ₦50 million will be exempt.
- Larger corporations will face a CIT rate of 25%-27.5%, gradually decreasing from 2026.
Personal Income Tax (PIT):
- Progressive tax rates will exempt earnings up to ₦800,000.
- Higher income brackets will see rates ranging from 15% to 25%.
Value-Added Tax (VAT):
- The VAT rate will increase gradually from 10% in 2025 to 15% by 2030.
Digital Economy Taxation:
- Digital assets and online services will be subject to a 10% capital gains tax, ensuring the sector contributes to national revenue.
Consolidation of Tax Laws:
- Various tax regulations will merge into a unified framework, simplifying compliance and enhancing transparency.
Revenue Distribution Framework
The bill also revises how tax revenues are distributed:
- Federal Government: Receives 10% of total tax revenue.
- State Governments: Allocated 55%, enhancing their capacity for local development.
- Local Governments: Receive 35%, supporting community-level projects.
This decentralized structure aims to empower states and localities financially, promoting balanced regional development.
VAT Distribution Based on Consumption
A significant change involves distributing VAT revenue based on consumption within each state rather than where companies are headquartered. This approach ensures that regions benefit proportionally from economic activities within their borders. It aims to reduce disparities between wealthier states (like Lagos and Rivers) and less-industrialized areas, potentially boosting infrastructure investment in underserved regions.
Conclusion
The Nigerian Tax Reform Bill represents a comprehensive effort to overhaul the country’s fiscal landscape. By addressing structural inefficiencies and promoting equitable resource distribution, the reforms seek to foster sustainable economic growth, support public services, and create a fairer, more transparent tax system. While the proposals face mixed reactions due to economic challenges, they signal a significant step toward achieving long-term fiscal stability and national development.
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