Tinubu Grapples With The Politics Of Nigerian Tax Reforms

One of the major challenges that Nigerian President Bola Tinubu took upon himself on assuming office was to reform the country's tax system. With more than 60 applicable taxes in the country, navigating them is often the investor's nightmare.

Tinubu's stated aim was to pare down their number to single digits. This would make the taxes simpler to understand and easier to pay. With improved ease of doing business, more companies would be expected to open up, growing tax revenue in the long run. It is a strategy that worked for Tinubu morethan two decades ago while he was the governor of Lagos State, which includes Nigeria's sprawling metropolis of more than 15m people. Improved tax revenue became the foundation for bond issues that helped fund the city's metro project.

For decades, oil has been Nigeria's leading export, accounting for most government revenue. But with declining oil revenues the government is increasingly looking to tax to fund its activities. Oil production totalled an average of 1.3m barrels per day between 2021 and 2024, compared with peak outputs of 2.5m barrels per day two decades ago.

Four bills sent by Tinubu to lawmakers last year capture the size and scope of the intended reforms. They include an umbrella Nigeria Tax Bill that consolidates the tax laws, a Nigerian Tax Administration Bill, a bill establishing the Nigerian Revenue Service to replace the existing Federal Inland Revenue Service FIRS, and legislation to create a Joint Revenue Board to enable the federal and state governments to jointly oversee taxes.

The Nigeria Tax Bill brings under one roof an assortment of 11 previous laws that will then be repealed. It raises the cut-off mark for low-income earners who should be exempt from tax to 800,000 naira per year. The threshold below which low tax rates apply was extended to 50m naira from the previous limit of 3.2m naira a 25 rate will now apply to those with income above this new threshold.