Toba Owojaiye reporting
Abuja, Nigeria
In a paradigm shift aimed at overhauling Nigeria’s tax structure, the Senate yesterday passed the Tax Reform Bills for a second reading. The proposed laws, which include four distinct legislative initiatives, seek to redefine the fiscal landscape by increasing the states’ share of Value-Added Tax (VAT) revenue to 55%, while reducing the Federal Government’s share to 10%.
Truth Live News gathered that the legislative package also includes provisions for zero VAT on exports and essential goods, as well as a reduction in company income tax from 30% to 25%, among other reforms. The bills have now been referred to the Senate Committee on Finance, which has been directed to engage stakeholders in a public hearing and report back within six weeks.
Leading the debate, Senate Leader Senator Opeyemi Bamidele outlined the broad objectives of the bills, which are aimed at simplifying tax processes, easing the burden on small businesses, and addressing issues of multiple taxation.
VAT Sharing Formula: States to receive 55% of VAT revenues (up from 15%), while the Federal Government’s share drops to 10%. Local governments’ share remains unchanged.
Tax Reductions: Company income tax to drop from 30% to 25% for at least two years.
Tax Exemptions: Nigerians earning below the minimum wage are exempt from PAYE (Pay As You Earn). Small businesses with annual turnovers below ₦50 million are exempt from taxes.
Consolidated Taxes: Multiple tax heads, such as the 2.5% education tax and 0.25% NASENI tax, are merged into a 2% development levy to fund student loans by 2030.
Bamidele emphasized that the reforms are designed to reduce the economic burden on citizens, promote job creation, and encourage investments. He highlighted the exemption of basic items like food, pharmaceuticals, and electricity from VAT as a critical pro-poor initiative.
The bills sparked significant debate among senators, with arguments reflecting the diverse economic and cultural contexts of their constituencies.
Former Senate Chief Whip, Senator Ali Ndume (APC, Borno South), called for the withdrawal of the bills, citing inadequate consultation and concerns over timing. He argued that the Constitution must first be amended to accommodate the reforms, adding that governors, traditional rulers, and the National Economic Council (NEC) should be consulted to build consensus.
“We should not throw away the baby with the bathwater,” Ndume said, suggesting that amendments be made before reintroducing the bills for expedited passage.
In contrast, Senator Mohammed Monguno (APC, Borno North) disagreed, emphasizing that legislative procedures allow for public input during committee deliberations. He urged the Senate to move forward with the bills to address the pressing need for tax reforms.
Similarly, Senator Seriake Dickson (PDP, Bayelsa West), while acknowledging the need for broader consultations, supported the bills. He highlighted the importance of derivation-based taxation to incentivize states to increase productivity, particularly in oil-producing regions.
“As a former governor, I understand the concerns raised by some governors. However, these bills aim to address key fiscal challenges and encourage states to be more economically productive,” Dickson said.
The reforms, spearheaded by the Federal Executive Council (FEC), are part of broader efforts to mitigate the effects of recent economic adjustments, including the removal of fuel subsidies and cost-reflective electricity tariffs. Stakeholders such as the Presidential Fiscal Policy and Tax Reforms Committee and the Federal Inland Revenue Service are expected to play critical roles in the upcoming consultations.
While the Tax Reform Bills mark a significant step toward addressing Nigeria’s fiscal challenges, their passage will require navigating diverse regional interests and building consensus among key stakeholders. With public hearings on the horizon, the proposals face rigorous scrutiny as lawmakers aim to balance national development with regional equity.
The proposed changes could empower states with greater fiscal autonomy, a move likely to resonate with sub-national governments. However, concerns over timing, consultation, and derivation-related disparities may present hurdles. Public sentiment will likely hinge on how effectively the reforms address economic hardship while ensuring fairness and inclusivity.