The Nigerian Tax Reform Act 2
1. PREFACE & INTRODUCTION: The New Tax Bill represents a comprehensive reform of Nigeria’s tax framework, aimed at repealing outdated tax laws and consolidating the taxation of income, transactions, and instruments into a unified legal structure. The Bill, which is expected to take effect from 1st January 2025, addresses contemporary economic realities, including the rise of digital assets and online transactions. It simplifies the tax administration process, enhances compliance, and ensures the fair distribution of tax liabilities.
This Bill introduces reforms to modernize Nigeria’s tax system, making it easier for individuals and businesses to understand and comply with their tax obligations. It aims to create a more robust and transparent tax environment that aligns with global best practices, ultimately fostering economic growth and development.
2. OBJECTIVES: The New Tax Bill seeks to achieve several overarching objectives:
Consolidation and Simplification: By combining multiple tax laws into a single act, the Bill simplifies compliance for businesses and individuals, reducing administrative burdens.
Revenue Optimisation: It broadens the tax base to include modern economic activities like digital transactions, thereby increasing the government’s ability to generate revenue.
Modernisation: The Bill updates Nigeria’s tax laws to reflect current global economic trends, particularly in digital assets, online services, and technology-driven industries.
Equity and Fairness: It ensures that taxes are fairly imposed on individuals and businesses based on their income, profits, and economic activities, promoting social equity.
Ease of Compliance and Enforcement: The Bill introduces provisions that simplify tax calculations and collections, making it easier for taxpayers to fulfil their obligations and for the government to enforce compliance.
3. TAX REGIMES COVERED: The New Tax Bill addresses several key tax regimes:
Income Tax: Applied to the income, profits, and gains of individuals, corporations, trustees, and estates.
Corporate Income Tax (CIT): Imposed on the profits of Nigerian and non-resident companies operating in Nigeria.
Withholding Tax (WHT): Deducted at source from payments such as dividends, rents, and royalties.
Capital Gains Tax (CGT): Levied on the gains from the disposal of chargeable assets, including real estate, shares, and digital assets.
Value Added Tax (VAT): Applied on goods and services, with specific exclusions for rent-related transactions as per the Finance Act.
Digital Assets and Transactions:
Introduced taxation for profits derived from digital and online transactions.
4. TAX RATES & BASIS:
Corporate Income Tax (CIT):
Small companies (annual turnover below ₦25 million): Exempt from CIT.
Other companies:
For the year of assessment 2025: 27.5% of taxable profits.
From 2026 onwards: 25%.
Personal Income Tax (PIT):
First ₦800,000: 0%.
Next ₦2,200,000: 15%.
Next ₦9,000,000: 18%.
Next ₦13,000,000: 21%.
Next ₦25,000,000: 23%.
Above ₦50,000,000: 25%.
Withholding Tax (WHT):
As contained in the earlier gazetted WHT REGULATIONS, 2024
Capital Gains Tax (CGT):
10% on gains arising from the disposal of chargeable assets, including real estate and shares.
Value Added Tax (VAT):
The VAT rate specified in the New Tax Bill is as follows:
For the year 2025, VAT is set at 10%.
For the years 2026, 2027, 2028, and 2029, VAT is set at 12.5%.
From 2030 onwards, VAT will be set at 15%.
These progressive rates reflect a strategic approach to increase VAT over time, aligning with the government’s revenue optimisation goals.
Digital Assets and Transactions:
Taxed similarly to financial instruments, with gains subject to Capital Gains Tax at 10%.
5. KEY HIGHLIGHTS:
Digital Economy Inclusion: The Bill recognises and introduces taxation for digital assets, online services, and fintech activities, bringing the Nigerian tax system in line with international standards.
Consolidation of Tax Laws: By merging various tax regulations into a single legal framework, the Bill simplifies tax administration and compliance, reducing complexity for taxpayers.
Tax Incentives and Reliefs: The Bill includes provisions for small businesses, exempting those with an annual turnover below ₦25 million from Corporate Income Tax, encouraging entrepreneurship and small-scale enterprise growth.
Withholding Tax (WHT) Adjustments: The Bill streamlines WHT rates for various transactions, ensuring taxes are deducted at source, reducing the likelihood of tax evasion.
Removal of VAT on Rent: In line with the Finance Act, VAT is no longer applicable to rent-related transactions, reducing the financial burden on businesses and individuals who lease properties.
*_Taxation of Gains from Digital Assets:_* Gains from digital transactions are now clearly subject to Capital Gains Tax, reflecting the growing importance of the digital economy.
6. CONCLUSION:
The New Tax Bill marks a major reform in Nigeria’s tax system, offering a comprehensive, unified, and modern framework for taxation. By broadening the tax base, simplifying compliance, and recognising emerging sectors such as the digital economy, it positions Nigeria to enhance revenue generation while promoting fairness and equity. As the Bill takes effect from 2025, it is expected to streamline tax administration, support business growth, and encourage compliance, all while fostering a tax system that is responsive to the needs of a rapidly evolving economy.
*_Courtesy: FinPolNomics Green Finance_*
