In A Bid to Boost Economic Growth And Increase Revenue, The Nigerian Government Has Introduced A New Tax Reform.

The reform brings about significant changes to the country's tax landscape.

One of the key highlights is the unchanged Value-Added Tax (VAT) rate of 7.5%.

This means that consumers will not experience any immediate increase in the cost of goods and services.

The corporate income tax rate for companies remains at 30%.

This stability is expected to encourage businesses to continue investing in Nigeria.

A major shift in the reform is the revised revenue-sharing formula. The Federal Government will now receive 10% of VAT revenue, down from 15%, while states will get 55%, up from 50%. Local governments will retain 35%.

The new VAT sharing formula prioritizes equality (50%), consumption (30%), and population (20%).

For local governments, the formula is based on equality (70%) and population (30%).

To fund key initiatives, a 4% Development Levy will be imposed.

The levy will allocate funds to various sectors, including education (TETFUND and NELFUND), digital economy development (NITDA), innovation and entrepreneurship (NASENI), cybersecurity (National Cybersecurity Fund), and defense (Defence Security Fund).

Certain sectors, such as telecoms, gaming, and lottery, will now pay a surcharge, exceeding the standard tax rate. Limited Liability Partnerships (LLPs) will be taxed similarly to regular companies, with the business and its managers or partners recognized as responsible for tax matters.

The reform also introduces several benefits for businesses.

There will be no more reasonability/necessity tests to approve business expenses, making tax compliance easier. Lottery and gaming will be taxed at a 30% corporate rate as specialized sectors.

Nigeria's adoption of OECD Global Tax Rules for companies earning under N20 billion aims to promote transparency and fairness in taxation. Economic incentives have been introduced to reward higher productivity, encouraging businesses to invest in growth and development.

The Tax Bill provides for dispute resolution mechanisms, advance rulings, mandatory disclosure, tax planning, and accreditation of tax agents. These provisions aim to reduce tax controversies and provide certainty for businesses.

Overall, the new tax reform is expected to promote economic growth, increase revenue, and improve the business environment in Nigeria.

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Highlights from Nigeria’s new tax reform

1. The VAT rate remains unchanged at 7.5%.

2. Corporate income tax for companies stays at 30%.

3. Revenue sharing revised: FG now gets 10% (down from 15%), states 55% (up from 50%), and LGs remain at 35%.

4. New VAT sharing formula: Equality (50%), Consumption (30%), Population (20%) (For LGs: Equality (70%), Population (30%))

5. 4% Development Levy to fund: TETFUND (50%), NELFUND (15%), NITDA (10%), NASENI (10%), National Cybersecurity Fund (5%), Defence Security Fund (10%)

6. Telecoms, gaming, and lottery sectors will now pay a surcharge (more than the standard tax).

7. Limited Liability Partnerships (LLPs) will now be taxed like regular companies. The law now recognises the business and its managers or partners as responsible for tax matters.

8. No more reasonability/necessity tests to approve business expenses.

9. Lottery and gaming are taxed at a 30% corporate rate as specialised sectors.

10. Nigeria adopts OECD Global Tax Rules for companies earning under N20 billion.

11. Economic Incentives were introduced to reward higher productivity.

12. The Tax Bill also provides for: Dispute resolution, Advance rulings, Mandatory disclosure, Tax planning, and Accreditation of tax agents