₦airaland Forum

President Bola Tinubu signed four major tax reform bills into law on Thursday. The bills were introduced in 2024 by the Presidential Committee on Fiscal Policy and Tax Reforms.

The content and implication of these launched months of debate involving governors, lawmakers and policy experts. Key controversies included the sharing formula for Value Added Tax (VAT), company income tax and the taxation of inherited assets.

The result of all the resolutions and compromises is contained in the bill that the President signed on Thursday.

FIJ examined the possible implications of the bill, in its raw form, for Nigerians, subnationals and corporate entities.

But with more certainty on details, here is what the new tax bills will mean for everyday Nigerians.

MORE NIGERIANS WILL PAY LESS TAX

The new laws will lower the tax burden for low-income earners. Under the former tax regime, anyone earning less than N300,000 annually was not taxed.

But once income reached N300,000, a 7% rate kicked in, resulting in a N21,000 tax. Higher income brackets attracted steeper rates, reaching as high as 24% for those who earned above N3.2 million.

Under the new structure, the tax-exempt threshold has been raised to N800,000 per year. Anyone earning that amount and below will pay no income tax.

For those earning between N800,000 and N3 million, the first N800,000 remains tax-free, while the next N2.2 million is taxed at 15%. That amounts to N330,000, at the upper limit.

For incomes between N3 million and N12 million, the first N3 million is taxed at N330,000, and the next N9 million is taxed at 18%. The 18% translates to an additional N1,620,000. By implication, those at the upper limits of that tax bracket will pay N1,950,000 in total.

For those who earn between N12 million and N25 million, the first N12 million is taxed at N1,950,000, and the next N13 million is taxed at 21%. This adds N2,730,000 and brings the total tax to N4,680,000.

For those earning between N25 million and N50 million, the first N25 million is taxed at N4,680,000, and the next N25 million is taxed at 23%. The 23% adds N5,750,000 and brings the total to N10,430,000.

Finally, anyone earning above N50 million pays N10,430,000 on the first N50 million and 25% on anything above that.

In 2023, Intelpoint, a research and analytics company, found that only 10% of Nigerians earned above N100,000 monthly. As a result, more Nigerians would be automatically exempt from paying personal income tax.

Furthermore, the bills proposed that Nigerians pay 0% VAT on essential items such as food, healthcare and education. Public transport, house rent and renewable energy products are also exempted.

These items make up the bulk of spending for most Nigerians and were spared to ease the cost of living. Lawmakers retained this proposition.

EMPLOYEES MUST NOW DECLARE ALL INCOME

Perhaps one of the most far-reaching changes is the new filing requirement for employees. Previously, workers had their taxes deducted under the Pay-As-You-Earn (PAYE) system.

The original system only requires employees to declare their employment (salary) income. The new tax laws change that. Every employee, regardless of income type, must now file an annual tax return that covers all earnings, not just their salary.

This means individuals must also declare income from freelance jobs, rental property, side hustles, dividends and any other form of non-employment earnings.

TAX ID IS NOW MANDATORY FOR ALL WHO USE BANKING SERVICES

By interpretation, the tax reform bills mandate all Nigerians to have a tax identification profile. According to the bill, tax identification will be a precondition for many routine transactions.

To open or operate a bank account, sign a contract with a government agency, or access financial services like insurance and stock trading, a tax ID must be provided.

Tax authorities are also empowered to assign tax IDs automatically to eligible individuals who fail to register on their own, effectively ending the possibility of staying off the tax radar.

GOVT CAN NOW MONITOR YOUR MONEY FLOW BETTER

To help track taxable income, financial institutions must now submit quarterly reports to tax authorities. Banks have to report any individual whose total bank transactions reach N50 million or more in a single month. For companies, the reporting threshold is N250 million.

The original bill had proposed a N25 million threshold for individuals and a N250 million threshold for companies. These limits were increased by lawmakers.

Failure to register attracts an administrative penalty of N50,000 in the first month, and N25,000 for each subsequent month of non-compliance. Additionally, any company that awards a contract to an unregistered person will be fined N5 million.


NIGERIANS TO PAY TAXES ON CRYPTO

The new laws bring Nigeria in line with modern financial realities by including digital assets in the tax net. Crypto assets, non-fungible tokens (NFTs), and other digital representations of value are now classified as taxable property.

This applies to both residents and non-residents who make gains from selling or exchanging digital assets in Nigeria. While the 2023 Finance Act had already recognised digital assets as chargeable, this new law strengthens enforcement and ensures that tax applies to all qualifying digital transactions.


MAJOR ADJUSTMENTS MADE BY LAWMAKERS

While the VAT rate remains at 7.5%, lawmakers significantly changed how the money will be shared.

The Senate proposed giving 10% to the federal government, 55% to states, and 35% to local governments. The House suggested an equal sharing formula — 70% equally among states and local governments, and 30% based on population.

Both chambers agreed to adopt the “place-of-consumption” rule, meaning VAT revenue will go to the location where goods or services are used, rather than where the seller is registered.

Lawmakers retained statutory funding for key agencies such as TETFUND, NASENI and NITDA that the original draft had proscribed. They also expanded the existing 4% national development levy to cover critical sectors like education, security and sports.

More importantly, they placed limits on the president’s power to grant tax waivers, included in the original draft. They also made adjusted the bill to mandate tax authorities to seek court orders before they can seize movable assets from taxpayers.

Finally, lawmakers retained corporate taxes at 30% instead of the gradual reduction proposed in the original draft of the bill. However, the definition of small companies was expanded to cater to annual turnovers of N50 million.

IMAliyu2:
Do you have a bank account?
If so you're within the rader.

Edoreborn:
Bet9a.. if i win money for game,,will i be taxed?? I wan know something oo

Under the former tax regime, anyone earning less than N300,000 annually was not taxed.

But once income reached N300,000, a 7% rate kicked in, resulting in a N21,000 tax.

Yadaddy:
Law makers where fast to object and push for readjustment when it concerns them. They know they earn more than N25m in a month so they pushed for it to be upscaled to N50m for individuals.