TAX reform has been a pivotal subject in Nigeria’s economic discourse, as successive administrations grapple with boosting revenue and ensuring fiscal sustainability.
The latest effort in this regard is the proposed Tax Reform Bill, a significant legislative initiative designed to streamline tax administration, improve compliance, and create a fairer tax environment which was proposed in 2024.
This proposed legislation aims to overhaul the country’s tax collection and administration systems, presenting an opportunity to create a more equitable and efficient taxation model. At the heart of the bill are transformative provisions, such as revisions to the Value Added Tax (VAT) revenue-sharing formula and exemptions for small businesses and the average Nigerians.
While these changes could potentially revitalise Nigeria’s economy, they also expose critical issues within the country’s federal structure, particularly the economic imbalances among regions (States and Local Governments).
Tax reforms involve intentional and ongoing efforts by the government and its agencies to modify existing tax laws and policies. These changes aim to improve tax administration and collection processes efficiently and cost-effectively. The primary goal of tax reforms is to enhance revenue generation by enacting laws that address gaps and weaknesses in current tax regulations.
Below are some of Nigeria’s previous tax reforms, focusing on the proposed Tax Reform Bill and its potential effects on businesses, individuals, and the economy.
Value Added Tax – 1993
Value Added Tax (VAT) was introduced in Nigeria in 1993 under the VAT Act No. 102, replacing the Sales Tax system established by Decree No. 7 of 1986.
The idea originated from a Federal Government Study Group in 1991, which reviewed the tax system and recommended VAT. A feasibility study followed, leading to the government’s decision to implement VAT in mid-1993. However, its introduction was deferred to September 1, 1993, to finalise legislation and preparations.
The shift from Sales Tax to VAT was driven by several factors, including the narrow scope of Sales Tax, which only covered nine categories of goods and services, primarily targeting locally manufactured products. VAT, by contrast, applies broadly, including imported goods, ensuring neutrality and generating higher revenue. The Federal Inland Revenue Service (FIRS) administers VAT in Nigeria.
Tax Identification Number – 2008
The Taxpayer Identification Number (TIN) is a unique, sequential identifier issued by the Federal Inland Revenue Service (FIRS) or State Board of Internal Revenue (SBIR).
It was introduced in Nigeria in 2008 to enhance tax administration and revenue collection. The nationwide electronic system registers and tracks individuals and entities, helping to broaden the tax base, reduce tax evasion, and align with global best practices.
Implemented as part of the 2012 National Tax Policy, TIN aims to modernise Nigeria’s tax system, integrate more taxpayers from both formal and informal sectors, and boost government revenue.
Companies Income Tax ACT- 1961
The Companies Income Tax Act (CITA), enacted in 1961, governs corporate taxation in Nigeria and is administered by the Federal Inland Revenue Service (FIRS). It imposes taxes on company profits after allowable deductions, including expenses and applicable reliefs. Over the years, CITA has undergone significant reforms, notably in 1979, 1990, and 2007.
The 2007 amendment introduced key changes, such as specific provisions for taxing insurance companies, revised procedures for tax exemptions in Export Processing Zones, and extended the carry-forward period for losses indefinitely. It also allowed capital donations to universities and research institutions while abolishing investment tax credits for firms using locally fabricated plants.
Company income tax applies to various income streams, including trade profits, rent, premiums, investment income, dividends, interest, royalties, fees earned in Nigeria, and income brought into the country. These reforms aim to enhance the efficiency and equity of Nigeria’s corporate tax system.
Personal Income Tax Act – 1993
The Personal Income Tax Act (PITA) of 1993 imposes income tax on individuals, communities, families, executors, and trustees, outlining provisions for assessment, collection, and administration.
Personal income includes all earnings or revenue an individual generates from various sources during a financial year, encompassing employment-related income, investments, rental earnings, and business profits.
In Nigeria, all residents aged 18 and above earning income from Nigerian sources must file personal income tax returns. This requirement applies to salaried employees, self-employed individuals, and those with other income sources. Members of the armed forces receiving employment income are also mandated to file annual returns. Additionally, non-residents earning Nigerian-sourced income must comply with tax filing obligations.
Petroleum Profit Tax
The Petroleum Profit Tax (PPT) is a specialised tax in Nigeria targeting companies involved in upstream petroleum activities, such as exploration, production, and the initial sale of crude oil and natural gas. Governed by the Petroleum Profit Tax Act (PPTA) of 1959, it applies solely to profits from these operations and is distinct from other taxes like the Companies Income Tax.
The PPT ensures the Nigerian government secures a significant share of revenue from the oil and gas sector, contributing about 95% of foreign exchange earnings and 70% of government revenue. It also encompasses taxation on rents, royalties, and profit-sharing tied to oil mining, prospecting, and exploration leases. While complemented by contractual agreements not fully covered under tax laws, PPT remains a cornerstone of Nigeria’s fiscal framework in the oil and gas industry.
Education Tax – 1993
The Education Tax, introduced in 1993 under the Education Tax Act No. 7, imposes a 2 per cent levy on the assessable profits of Nigerian companies. It was designed to address the financial crisis in the education sector, providing critical funding for its renewal and survival. The tax is calculated on net profits before tax and is not subject to company income tax.
Currently governed by the Tertiary Education Trust Fund (Establishment, Etc.) Act 2011, the tax applies to all registered companies in Nigeria, with filing deadlines aligning with those for Companies Income Tax (CIT) and Petroleum Profits Tax (PPT).
Proceeds from the tax are managed by the Tertiary Education Trust Fund (TETFund) and allocated for the rehabilitation, restoration, and consolidation of tertiary education. Distribution of funds is in the ratio of 2:1:1 among universities, polytechnics, and colleges of education, respectively.
Fatimah Quadri is a Journalist and a Fact-checker at The ICIR. She has written news articles, fact-checks, explainers, and media literacy in an effort to combat information disorder.
She can be reached at sunmibola_q on X or fquadri@icirnigeria.org