By Charles Maduka
President Bola Tinubu has signed four significant tax reform bills into law, marking a major shift in Nigeria’s fiscal landscape. These laws, which stemmed from the recommendations of the Presidential Committee on Fiscal Policy and Tax Reforms, aim to restructure how Nigerians are taxed and how government revenue is generated and shared.
The bills were introduced in 2024 and sparked months of debate over controversial provisions, particularly around value-added tax (VAT) distribution, company income tax, and the taxation of inherited wealth. Now that they’ve been signed, the laws will impact individuals, businesses, and state governments in profound ways.
Lower Tax Burden for Low-Income Earners
Under the previous tax system, only those earning less than N300,000 annually were exempt from income tax. A 7% rate was charged once earnings crossed that threshold.
The new tax regime has raised the exemption to N800,000, meaning more Nigerians, especially low-income earners, will no longer pay personal income tax. For those earning above N800,000, taxes will be charged progressively across various income brackets.
Here’s a breakdown:
- Income up to N800,000: 0% tax
- N800,001 to N3 million: 15% on income above N800,000 (up to N330,000 tax)
- N3.1 million to N12 million: Additional 18% on the next N9 million (total tax up to N1.95 million)
- N12.1 million to N25 million: Additional 21% on N13 million (total tax up to N4.68 million)
- N25.1 million to N50 million: Additional 23% on N25 million (total tax up to N10.43 million)
- Above N50 million: 25% on any income above that
In 2023, only 10% of Nigerians earned above N100,000 monthly. This means a significant portion of the population will now be exempt from paying personal income tax.
Additionally, essential items such as food, healthcare, education, public transport, and house rent will remain VAT-free to ease the cost of living.
All Income Must Now Be Declared
A major change in the new law is the requirement for all employees to file annual tax returns, regardless of how their income is earned. Previously, only salary income through the Pay-As-You-Earn (PAYE) system was considered.
Now, workers must declare all income sources, including freelance work, side businesses, rent, dividends, and other non-salary earnings.
Tax ID Now Required for Banking and Contracts
The new laws also make having a Tax Identification Number (TIN) compulsory for everyday activities such as opening bank accounts, accessing financial services, or signing government contracts.
Failure to register for a TIN will attract penalties—N50,000 in the first month and N25,000 for each month thereafter. Companies that engage unregistered contractors will also be fined N5 million.
Banks Will Report Large Transactions
To enhance monitoring, banks are now required to report any individual who moves N50 million or more in a month to tax authorities. For businesses, the threshold is N250 million. Lawmakers had earlier proposed a lower limit of N25 million for individuals but later increased it.
Digital Assets Are Now Taxable
For the first time, the laws explicitly bring cryptocurrencies, NFTs, and other digital assets into Nigeria’s tax net. Profits from selling or exchanging these assets will now be taxed, whether earned by residents or foreigners.
Adjustments by the National Assembly
Lawmakers made several changes to the original bill, including:
- Keeping the VAT rate at 7.5%
- Adopting a “place-of-consumption” rule for VAT distribution
- Retaining corporate tax at 30% instead of reducing it
- Expanding national development levies to cover education, security, and sports
- Requiring court orders before tax authorities can seize personal assets
- Limiting the president’s power to issue tax waivers
- Broadening the definition of “small companies” to include those with up to N50 million in annual turnover
The overall aim of these reforms is to improve Nigeria’s tax compliance, close loopholes, and ensure a more equitable distribution of tax responsibilities across income levels and sectors.
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