The 2025 Tax Reform Bills substantially overhauls Nigeria's fiscal policy framework. The bills aim to modernize tax administration, enhance revenue collection, and ensure a more equitable distribution of proceeds from tax to all tiers of government - federal, state, and local.
Below are the key Provisions of the recently passed Tax Bills 2025:
1) Benefits to Workers to enhance Disposable Income
a) Full PAYE tax exemption for workers (in private and public sectors) earning ₦800,000 or less per annum.
b) Reduced PAYE tax for workers earning above ₦20 million per annum.
c) Full exemption from PAYE tax for members of the armed forces.
2) Measures to reduce Cost of Essential Commodities
a) Zero VAT (0%) on food, healthcare, and education.
b) VAT exemption on rent, transportation, renewable energy, CNG, baby products, sanitary towels, and fuel products.
c) VAT exemption on rent and acquisition of real estate property
d) Exemption from stamp duties on rent below ₦1 million.
3) Corporate Incentives to Stimulate Employment
a) Tax incentives for employers to hire more workers.
b) Friendly tax rules to attract international remote work opportunities.
c) Full tax exemption for SMEs with annual turnover of ₦50m or less.
d) Reduced corporate tax (Company Income Tax) for large businesses.
4) Establishment of the Nigeria Revenue Service (NRS)
The Federal Inland Revenue Service (FIRS) will be replaced by the Nigeria Revenue Service (NRS), which will serve as the central authority for federal tax collection.
The Nigeria Revenue Service (NRS) will be governed by a board comprising a chairperson, an executive vice-chairperson, six executive directors representing each of the six geopolitical zones, and representatives from strategic economic ministries.
5) Value Added Tax (VAT) Distribution Adjustments
The VAT collection rate remains at 7.5%.
The VAT distribution formula is revised as follows:
Federal Government share is reduced from 15% to 10%
States Governments share is increased from 50% to 55%
Local Governments share remains unchanged at 35%
6) VAT Disbursement
The 55% VAT allocation to states will be shared as follows:
50% shared equally among all states
20% shared based on population
30% shared based on consumption
The 35% VAT allocation to local governments will be shared as follows:
70% shared equally among all local governments
30% shared based on population of local government
7) Introduction of a 4% Development Levy
A new 4% development levy is introduced to help funding of key national agencies, as follows:
Tertiary Education Trust Fund (TETFUND) – 50%
Nigerian Education Loan Fund (NELFUND) – 15%
National Information Technology Development Agency (NITDA) – 10%
National Agency for Science and Engineering Infrastructure (NASENI) – 10%
National Cyber-security Fund – 5%
Defence Security Fund – 10%
8) Establishment of the Tax Appeal Tribunal and Tax Ombudsman Office
A Tax Appeal Tribunal will be established to handle disputes related to federal and state tax laws, aiming to enhance efficiency and credibility in tax dispute resolution.
An Office of the Tax Ombudsman will be created to address taxpayer grievances and promote fairness in tax administration.
Enhanced Penalties for Non-Compliance
Stricter penalties are introduced for tax non-compliance, as follows:
Failure to register: ₦100,000 in the first month, and ₦50,000 for each subsequent month.
Failure to file returns: ₦200,000 in the first month, and ₦50,000 for each subsequent month.
Failure to keep books: ₦10,000 for individuals, and ₦100,000 for companies.
Failure to remit tax deducted at source: Up to three years imprisonment upon conviction.
Conclusion
On welfare, it is easy to see that some key provisions of the tax bills are targeted at improving the welfare of workers through enhanced disposable incomes, reduction in cost of essential items, promoting affordable housing, and stimulating employment through tax exemptions for Micro, Small and Medium Enterprises (MSMEs).
Administratively, the establishment of the Nigeria Revenue Service (NRS), the Single Tax Window, the Tax Appeal Tribunal, and the Tax Ombudsman Office, signifies a more comprehensive approach to modernize tax collection, administration and dispute resolution apparatuses in Nigeria.
Fiscally, the introduction of a 4% development levy to fund critical national agencies, and the adjustment of the VAT sharing formula in favour of state governments, are significant positive policies that will promote greater fiscal federalism in Nigeria.
Overall, these Tax Reforms indicate a significant shift in Nigeria's tax policy and administration landscape aimed at promoting equity, fairness and greater economic growth.
Related: Corporate Tax Mistakes You Must Avoid!
© Jay Onwukwe
