A Comprehensive Review of the New Tax Law and Taxation Policies Proposed by Tinubu's Administration in Nigeria

The administration of President Bola Ahmed Tinubu in Nigeria has initiated a bold approach to tax reforms as part of its economic recovery agenda. With the aim of revitalizing the economy, boosting government revenue, and creating a fairer taxation framework, the government has introduced measures designed to streamline tax collection, broaden the tax base, and foster a business-friendly environment. However, these proposals have sparked diverse opinions among economic analysts, businesses, and ordinary Nigerians.

This article examines the key features of the proposed tax law under Tinubu’s administration, evaluates its potential impacts on the economy, and addresses the criticisms and opportunities it presents.

Background of Nigeria's Tax System

Nigeria has long struggled with low tax-to-GDP ratios, with figures hovering around 6–8%, significantly below the 15% threshold recommended by the World Bank for developing countries. The country's over-reliance on crude oil revenues has exposed the economy to volatility from fluctuating global oil prices. This vulnerability underscores the urgency for comprehensive tax reforms to enhance non-oil revenue streams.

Tinubu’s administration, which took office in May 2023, has set its sights on restructuring the tax system to meet growing fiscal demands and stimulate economic growth. Building on the Finance Act 2021 and the Finance Act 2022, which introduced modest adjustments, Tinubu's government is taking a more aggressive stance to maximize internal revenue generation.

 

Key Provisions of the Proposed Tax Law

1.      Unified Tax Authority and Streamlined Processes
Tinubu’s administration plans to establish a unified tax authority aimed at reducing redundancies among federal, state, and local tax-collection agencies. This will not only enhance efficiency but also minimize bureaucratic bottlenecks that discourage compliance.

2.      Digital Taxation
The new tax law proposes the introduction of a digital tax framework targeting e-commerce and digital services platforms such as Amazon, Netflix, and other global tech companies operating in Nigeria. This move aligns with global trends in taxing the digital economy and could generate significant revenue.

3.      Luxury Taxation
The administration plans to impose higher taxes on luxury goods, targeting high-net-worth individuals and businesses. Products such as private jets, yachts, and high-end vehicles will be subject to increased excise duties, reflecting a push for progressive taxation.

4.      Reduction in Corporate Income Tax
To attract foreign direct investment and support local businesses, the government has proposed a reduction in corporate income tax for small and medium enterprises (SMEs). This measure is expected to incentivize growth and job creation in critical sectors.

5.      Broadened Value Added Tax (VAT) Scope
The proposed reforms expand the VAT base by including previously exempt goods and services. However, essential commodities such as food and pharmaceuticals remain exempt to cushion the impact on low-income earners.

6.      Property Tax Reforms
Property owners in urban areas are expected to pay higher taxes as part of the reforms. This aims to curb urban sprawl, ensure proper urban planning, and generate revenue from under-taxed real estate assets.

7.      Tax Incentives for Key Sectors
To encourage investment in agriculture, technology, and renewable energy, the administration is introducing targeted tax incentives, including tax holidays and duty waivers.

 

Potential Impacts of the Tax Reforms

1. Boosting Government Revenue

The proposed measures are expected to significantly increase Nigeria’s tax-to-GDP ratio. By broadening the tax base and plugging revenue leakages, the government aims to generate funds for critical infrastructure projects, healthcare, and education.

2. Economic Diversification

Reducing reliance on oil revenues through robust taxation policies could accelerate Nigeria’s economic diversification. The tax incentives for key sectors such as agriculture and technology align with this objective.

3. Promoting Equity and Fairness

The introduction of luxury taxes and progressive measures could help address income inequality by ensuring that high-income earners contribute more to national development.

4. Encouraging Business Growth

By reducing corporate taxes for SMEs and introducing incentives for investors, the administration seeks to create a business-friendly environment that fosters innovation and entrepreneurship.

 

Challenges and Criticisms

Despite the potential benefits, Tinubu’s tax reforms face several criticisms and implementation challenges:

1.      Regressive VAT Expansion
While the government promises to exempt essential goods from VAT, there are concerns that expanding the VAT base could disproportionately affect middle-income earners, potentially leading to inflationary pressures.

2.      Digital Tax Enforcement
Effective enforcement of digital taxes poses significant challenges, especially in tracking revenue streams from international tech giants. This could lead to disputes and strained relationships with global companies.

3.      Resistance from the Elite
The proposed luxury taxes and property tax reforms are likely to face stiff resistance from wealthy individuals and influential businesses, potentially delaying implementation.

4.      Corruption and Leakages
The success of these reforms hinges on addressing systemic corruption and inefficiencies within Nigeria’s tax-collection system. Without transparent mechanisms, the expected revenue gains could be undermined.

5.      Economic Impacts on Households
Higher taxes on property and goods might lead to increased living costs, further burdening already strained households. Critics argue that the timing of such reforms, amidst economic uncertainties, could exacerbate social discontent.

 

Opportunities for Improvement

1.      Public Awareness Campaigns
Effective communication about the goals and benefits of the tax reforms can foster public buy-in. Educating citizens on how tax revenues are used to improve infrastructure and services will encourage compliance.

2.      Leveraging Technology
The government can leverage technology to enhance tax administration and curb evasion. Digital platforms for filing and payment, as well as data analytics, can improve efficiency and transparency.

3.      Strengthening Anti-Corruption Efforts
Strengthened anti-corruption measures are critical to ensuring that revenue generated from these reforms is utilized effectively. Instituting stricter penalties for corruption within tax agencies will enhance credibility.

4.      Phased Implementation
Introducing reforms in phases will help minimize disruptions to businesses and households. For instance, VAT expansion could be implemented gradually to allow businesses time to adjust.

 

International Comparisons and Lessons

Nigeria’s approach under Tinubu mirrors efforts in other developing economies, such as Kenya and Ghana, which have also undertaken tax reforms to boost revenues. For instance, Kenya’s adoption of digital taxation has provided valuable lessons in enforcement strategies and public engagement.

Similarly, Nigeria can draw lessons from advanced economies where tax compliance is bolstered through a culture of transparency, accountability, and efficient service delivery. Tinubu’s administration must prioritize building trust in the system to ensure long-term success.

 

Conclusion

The new tax law proposed by President Tinubu’s administration represents a bold step toward reshaping Nigeria’s fiscal landscape. By addressing structural weaknesses, broadening the tax base, and promoting progressive taxation, the government seeks to build a more sustainable revenue framework.

However, the success of these reforms will depend on transparent implementation, robust enforcement mechanisms, and effective communication with stakeholders. While challenges remain, these measures have the potential to transform Nigeria’s economy, reduce its reliance on oil revenues, and lay the foundation for inclusive growth.

As Tinubu’s administration rolls out these reforms, it will need to strike a delicate balance between generating revenue and safeguarding the welfare of citizens. If executed effectively, the proposed tax law could mark a turning point in Nigeria’s economic development journey.Bottom of Form