- The administration of President Bola Tinubu has introduced a number of tax reforms
- Plans for higher excise duties on local products have been stopped to aid industries.
- A newly introduced tax on a common product has been temporarily removed.
- The start dates for various new taxes have been pushed back.
The Bola Tinubu administration in Nigeria has since 2023 embarked on a transformative journey to overhaul the country's tax regime. With a focus on simplifying and harmonising tax policies, these reforms aim to alleviate the tax burden on businesses and individuals, promote economic growth, and create a more business-friendly environment.
Upon assuming office, President Bola Tinubu inherited a complex and often criticised tax system. Nigeria had over 62 different taxes, including Company Income Tax (CIT), Personal Income Tax (PIT), Value Added Tax (VAT), Withholding Tax (WHT), Petroleum Profit Tax (PPT), and various other levies and duties. This multitude of taxes created a cumbersome environment for businesses, often stifling economic growth and discouraging investment.
In response, the Tinubu administration prioritised tax reforms as a critical component of its economic agenda. The goal is to reduce the number of taxes from 62 to 9, thereby simplifying the tax code and making it easier for businesses to operate and thrive in Nigeria.
To this effect, President Tinubu signed four Executive Orders deferring and suspending the commencement of certain taxes paid by individuals and companies in the country.
Key tax reforms introduced that affects every Nigerian
The administration's tax reforms have been implemented through a series of executive orders and legislative changes. Here are the key reforms introduced:
1. Suspension of the 5% Excise Tax on telecommunication services: One of the most controversial taxes, the 5% excise tax on telecommunication services, was suspended. This tax had generated significant debate and was seen as a burden on both telecom operators and consumers. The suspension aims to support the telecom industry, which is critical for Nigeria's digital economy.
2. Suspension of Excise Duties escalation on locally manufactured products: To support local industries, the administration suspended the planned increase in excise duties on locally manufactured products. This move is intended to reduce the cost of production and make local products more competitive.
3. Suspension of the Green Tax on single-use plastics: The administration suspended the newly introduced excise tax on single-use plastics, including plastic containers and bottles. This decision was made to mitigate the economic impact on consumers and businesses, particularly in the manufacturing and retail sectors.
4. Suspension of the Import Adjustment Tax (IAT) on certain vehicles: The Import Adjustment Tax, which added significant costs to imported vehicles, was also suspended. This measure is expected to lower the overall cost of vehicles in Nigeria, making them more affordable for consumers and reducing the financial burden on car importers and dealers.
5. Deferment of tax commencement dates: The Finance Act (Effective Date Variation) Order, 2023, and the Customs, Excise Tariff (Variation) Amendment Order, 2023, deferred the commencement dates for various tax changes. This deferment is in line with the 2017 National Tax Policy, which requires a minimum of 90 days' notice before implementing new tax measures. The deferment aims to give businesses adequate time to comply with the new regulations and adjust their operations accordingly.
6. An executive order to introduce zero tariffs, excise duties and value added tax (VAT) on imported pharmaceutical inputs: Muhammad Ali Pate, coordinating minister of health and social welfare said the order is crucial to the success of the initiative for unlocking the health care value chain (PVAC_NG), which was approved in October 2023 by the president.
7. Suspension of duties, tariffs, and taxes on some essential food items: imported through land and sea borders. Abubakar Kyari, the Minister of Agriculture and Food Security said:
“150-Day Duty-Free Import Window for Food Commodities, suspension of duties, tariffs and taxes for the importation of certain food commodities (through land and sea borders).
“These commodities include maize, husked brown rice, wheat and cowpeas.
“Under this arrangement, imported food commodities will be subjected to a Recommended Retail Price (RRP).”
Objectives and implications of the reforms
The primary objective of these tax reforms is to create a more conducive environment for business operations in Nigeria. By reducing the number of taxes and simplifying the tax code, the Tinubu administration aims to achieve the following:
1. Stimulate economic growth: Simplifying the tax system is expected to encourage investment and business expansion, leading to higher economic growth. A more straightforward tax regime reduces compliance costs and administrative burdens, making it easier for businesses to thrive.
2. Support local industries: The suspension of excise duties on locally manufactured products and single-use plastics is intended to support local industries. By reducing production costs, these measures make local products more competitive, fostering industrial growth and job creation.
3. Enhance digital economy: The suspension of the excise tax on telecommunication services supports the growth of Nigeria's digital economy. The telecom sector is vital for digital transformation, and reducing the tax burden on this industry is expected to promote innovation and connectivity.
4. Reduce financial burden on consumers: By suspending the Import Adjustment Tax on certain vehicles, the administration aims to make cars more affordable for Nigerian consumers. This measure is particularly significant in a country where transportation is a critical component of daily life.
5. Improve business environment: Overall, the tax reforms are designed to create a more business-friendly environment. By reducing the number of taxes and providing clear and consistent tax policies, the administration aims to attract both local and foreign investment, driving economic development.
Challenges and criticisms
While the tax reforms have been broadly welcomed by the business community, there are several challenges and criticisms that need to be addressed:
1. Implementation and enforcement: Ensuring that the new tax policies are effectively implemented and enforced is a significant challenge. The success of these reforms depends on the ability of tax authorities to manage the transition and provide clear guidance to businesses.
2. Revenue implications: Reducing the number of taxes and suspending certain excise duties may have short-term revenue implications for the government. Balancing the need for revenue generation with the goal of supporting economic growth is a delicate task.
3. Public awareness and compliance: Educating businesses and the public about the new tax policies is crucial for compliance. Effective communication and outreach efforts are needed to ensure that taxpayers understand their obligations and the benefits of the reforms.
4. Addressing multiple taxation issues: While the reforms aim to reduce the number of taxes, multiple taxation remains a concern. The administration must work to harmonise tax policies across different levels of government to prevent overlapping taxes and reduce the overall tax burden.
Ultimately, the success of these reforms will depend on effective implementation, enforcement, and ongoing dialogue with stakeholders to address emerging issues and ensure that the objectives of the reforms are achieved.
There are still multiple taxes. For instance, the Nigeria Police Force (NPF) has given vehicle owners in Nigeria until July 29 to register for the digitised Central Motor Registry (e-CMR), which costs 5,375 naira per vehicle. This is besides fees paid to Vehicle Inspection Service, insurance companies and Federal Road Safety Corps - simply because you own a car.