Fed Gov’t’s New Tax Reform Targets Wealthy Nigerians

The Federal Government is set to implement a comprehensive overhaul of the nation’s tax system with the aim of shifting more of the tax burden onto affluent citizens while reducing corporate taxes.

This initiative is a pivotal component of President Bola Tinubu’s comprehensive economic reforms designed to rejuvenate the struggling economy. The primary objective is to increase the country’s tax revenue to 18 percent of Gross Domestic Product (GDP) within the next three years, a significant uptick from the current 11 percent, as reported by Bloomberg.

In addition to this tax reform, there is also contemplation of a tax amnesty program to encourage tax compliance.

Taiwo Oyedele, who leads a panel appointed by President Tinubu to spearhead these reforms, stated, “Our goal is to ensure that the wealthy contribute their fair share, while providing protection for those who are economically disadvantaged.”

Oyedele also expressed the intention to decrease the corporate income tax rate, currently exceeding an effective rate of 40 percent. The new rate would be benchmarked against Nigeria’s global peers to stimulate business growth.

In Nigeria, a nation with stark income inequality, where a small minority possesses substantial wealth while the majority grapples with extreme poverty, there are indications of widespread tax evasion.

Nigeria’s tax revenue as a percentage of GDP stands at a mere third of the 34 percent average seen among members of the Organisation for Economic Co-operation and Development (OECD).

Among the four million registered firms in the country, fewer than 250,000 actively fulfill their tax obligations. Furthermore, less than a quarter of the 41 million registered individuals contribute to income tax, according to Oyedele.

The complexity of Nigeria’s tax system is compounded by overlapping tax jurisdictions at the local, state, and federal levels, allowing the affluent to exploit these gaps. Moreover, the proliferation of various taxes, numbering almost 70, further complicates the situation.

Oyedele stated, “Our strategy involves establishing effective structures and systems for imposing, collecting, and accounting for taxes. Our objective is to streamline the multitude of taxes down to single digits.”

He added, “We have already identified the top eight taxes that contribute 99 percent of the revenue, which we intend to retain, while eliminating the rest.”

Enhancing tax collection is paramount for Nigeria, a country blessed with significant oil wealth but forced to resort to substantial borrowing to bridge the gap between government expenditure and revenue shortfalls.

Since 2015, the nation’s public debt has surged nearly eight-fold to 87.4 trillion naira ($112.6 billion), according to data from the debt management agency. In 2022, debt servicing consumed a staggering 96 percent of government revenue.

To facilitate this tax overhaul and encourage compliance, a tax amnesty program will be introduced to provide relief for past debts and prepare citizens for future tax obligations.

Oyedele emphasized, “If people are aware that the government has knowledge of their income and whereabouts, and if they haven’t been meeting their tax obligations, the prospect of declaring an amnesty will likely encourage them to come forward.”