Tax Reform Bills: Nigerians Earning Below ₦1 Million Annually Exempted From Income Tax

The Senate is set to pass the contentious Tax Reform Bills today, with provisions exempting Nigerians earning below ₦1 million annually from personal income tax.

Naija News gathered that after initial resistance, most senators have shifted their stance following explanations from key government officials, including the Director-General of the Budget Office, Tanimu Yakubu; FIRS Executive Chairman, Zacch Adedeji; and the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele.

The officials clarified that the reforms aim to tax wealth, not poverty, ensuring that Nigerians earning less than ₦1 million annually are excluded. They also proposed a review of the VAT sharing formula to make it more equitable, addressing imbalances favoring certain states.

Deputy Senate President, Senator Barau Jibrin, confirmed during yesterday’s session that the debate on the bills would continue today, with the first and second readings to follow promptly.

Yesterday’s plenary was marked by heated arguments as the Tax Reform Bills, not listed on the Order Paper, were suddenly introduced.

This sparked outrage among lawmakers, particularly former Deputy Senate Leader Abdul Ningi and Senator Ali Ndume, who argued that established procedures were not followed.

Ndume insisted the matter was too significant to be rushed, emphasizing the need to respect Senate rules.

He said: “This is a very important matter. We should not in any way try to use the position of the Senate because the Order Paper is clear. I have no problem having them to come to explain whatsoever but we must follow known procedures.

“That is, if today it has to be taken, then there must be a supplementary Order Paper that will reflect this. It is not a matter that you will just come and tell us after we are doing business of the day.

“Mr President, you can have your way, but I will have my say. You can use your gavel and I will use my voice. Tax Reform Bill is very sensitive, our people have been agitated over this matter, When you say it is a matter of urgent national importance, yes, but even those matters are normally referred to another legislative day if there are so inconvenient.

“Please I beg you in the name of God, this matter is very important to not only us but also Nigerians that we represent and we swore by Bible and Holy Quran that we will represent the interest of the people. Nigerians have spoken, the Governors, the National Economic Council.”

Despite objections, Deputy Senate President Barau ruled them out of order, allowing the invited economic experts to address the chamber.

Experts’ Presentation

During their presentation, the experts clarified that the reforms aim to modernize Nigeria’s tax system, simplify processes, and protect low-income earners.

Highlights of the proposals include:
– Exempting Nigerians earning less than ₦1 million annually from personal income tax.
– Removing VAT on essential goods and services.
– Establishing a 15% effective tax rate for large corporations.
– Proposing a more balanced VAT revenue-sharing model based on state consumption.

Taiwo Oyedele emphasized that the reforms are pro-poor and designed to harmonize taxes while improving efficiency. He added that the proposed tax threshold is still lower than what is obtainable in many African countries.

He said : “The committee proposes four major bills aimed at overhauling the tax system. The Nigerian Tax Bill seeks to harmonize major taxes into one legislation, simplifies tax processes, and proposes exemptions for low-income earners.

“The Tax Administration Bill aims at establishing standards for tax administration, promotes the use of technology, and aims to streamline tax collection.

“Nigerian Revenue Service Establishment Bill proposes the establishment of a new revenue service to improve tax collection and coordination among agencies while the Joint Revenue Board Establishment Bill aims to enhance collaboration among tax authorities and create a Tax Ombudsman to protect small businesses.

“Key proposals of the tax reform bills are elimination of minimum tax for loss-making companies; Introduction of a 15% effective tax rate on profits for large companies; removal of VAT on essential goods and services; and increased tax thresholds for personal income tax to exempt low-income earners.”

On the contentious revenue sharing formula from VAT, Oyedele explained: “The current VAT sharing formula is deemed unfair, favouring states with major corporate headquarters. The proposal includes a more equitable distribution based on consumption within states as against current sharing formula which lopsidedly favours Lagos State, being host to headquarters of corporate organizations.”

Oyedele explained that the proposed tax reform bills aim to exempt Nigerians earning less than ₦1 million annually from paying personal income tax.

He noted, “Today, we are taxing people that earn ₦30,000 a month. That’s ₦1,000 a day. How can anybody survive earning ₦30,000 a month? Even if they live alone, they will do transport, they will buy food, they will pay rent, they will pay for electricity. They cannot survive. So we are proposing in the bill before you that anybody earning ₦800,000 naira a year, including an extra ₦200,000 for rent, about ₦1 million a year, should not pay personal income tax. By the way, this threshold is not even the highest in Africa. It’s still lower than many small African countries.”

The team informed federal lawmakers that the tax reform bills consist of four distinct pieces of legislation aimed at consolidating and streamlining all aspects of taxation and tax administration in Nigeria.

The proposed bills include the Nigeria Tax Bill, the Nigeria Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill.

They clarified that these bills encompass all major taxes levied on individuals and businesses, effectively serving as a comprehensive guide to taxation in Nigeria.

Contrary to misinformation, the team emphasized that the reforms are designed to modernize outdated tax laws, simplify Nigeria’s complex tax system, and significantly enhance efficiency.

Furthermore, the reforms are tailored to benefit low-income earners and small businesses by exempting them from income taxes, making the bills pro-poor, pro-growth, and efficiency-driven.

The senators were urged to support the reforms, which are positioned as crucial for Nigeria’s economic growth.

This reform, initiated by President Bola Tinubu and guided by the Presidential Committee on Fiscal Policy and Tax Reforms, aims to simplify Nigeria’s complex tax system while addressing inequities and fostering economic development.