The Federal Government of Nigeria, as part of President Bola Tinubu’s ambitious economic reforms, is gearing up for a comprehensive overhaul of the nation’s tax system. The plan aims to redistribute the tax burden, placing more responsibility on wealthy citizens while concurrently reducing corporate taxes. The objective is to raise the country’s tax revenue to 18% of Gross Domestic Product (GDP) within three years, up from the current 11%, according to a report by Bloomberg.
In an effort to encourage compliance, the government is contemplating a tax amnesty. Taiwo Oyedele, leading a panel appointed by President Tinubu to drive these changes, emphasized the goal of making the tax system more equitable: “The plan is to make ‘the rich pay what is fair and those who are too poor can be protected.'”
The proposed reforms also include a reduction in the corporate income tax rate, currently at an effective rate of over 40%, with the aim of stimulating business growth. Oyedele stressed the importance of benchmarking the new rate against Nigeria’s peers.
Nigeria faces a challenge of widespread tax evasion, with tax revenue as a share of GDP significantly lower than the average for members of the Organisation for Economic Co-operation and Development (OECD). Among four million registered firms, less than 250,000 actively pay taxes, and less than a quarter of the 41 million registered individuals pay income tax.
The complexity of Nigeria’s tax system, with almost 70 different taxes and overlapping local, state, and federal jurisdictions, allows the wealthy to navigate through loopholes. The reform plan aims to streamline the tax structure, reducing the number of taxes to single digits. Oyedele stated, “We just identified the top eight giving us 99% of the taxes, so we keep them and the rest we get rid of.”
Enhancing tax collection is crucial for Nigeria, a nation with substantial oil wealth that has resorted to heavy borrowing to bridge the gap between government spending and revenue shortfalls. The public debt has surged almost eight-fold since 2015, reaching 87.4 trillion naira ($112.6 billion), with debt servicing consuming a significant portion of government revenue.
To ease the transition and encourage compliance, a tax amnesty is being considered. Oyedele explained, “If people know that the government knows their income, where they are; if they haven’t been paying their taxes, if we declare an amnesty, they will show up.” The tax reforms aim to create a more robust and equitable fiscal environment, addressing economic challenges and promoting sustainable growth.
