FROM FIRS TO NRS: THE CHANGING TAX LANDSCAPE AND ITS IMPLICATIONS FOR BUSINESSES IN NIGERIA

INTRODUCTION

The importance of an effective tax administration system cannot be overemphasized. A country could have the best tax laws and still have a poor tax system if its tax administration system is poorly structured. A poor-quality tax administration may collect large amounts from easy-to-tax sectors, while being unable to enforce taxes on business enterprises and professionals.[1]

Nigeria’s tax administration system exemplifies these challenges. Despite having a legal framework for tax collection, inefficiencies in administration, enforcement gaps, and multiple taxation issues have undermined revenue generation and compliance. In response to these structural weaknesses, the Federal Government has introduced the Nigeria Tax Administration Bill 2024 (“NTAB”) to provide uniform procedures for the consistent and efficient administration of tax laws, with the aim of facilitating compliance and optimizing revenue. At the same time, the Nigeria Revenue Service (Establishment) Bill 2024 (the “NRS Bill”) seeks to establish the Nigeria Revenue Service (“NRS”) as a new central authority, which would also regulate the NTAB and administer taxes.  

This briefing note examines Nigeria’s current tax administration framework, the distinction between the proposed NRS and the existing Federal Inland Revenue Service (“FIRS”), and how these changes may impact tax compliance for businesses operating in Nigeria.

THE SHIFT FROM FIRS TO NRS: WHAT’S CHANGING?

Existing Framework Under FIRS

The FIRS, established by the Federal Inland Revenue Service (Establishment) Act, 2007 (the “FIRS Act”), is currently responsible for the assessment, collection, and enforcement of federal taxes, including the Companies Income Tax (CIT), the Petroleum Profits Tax (PPT), the Value Added Tax (VAT), the Capital Gains Tax (CGT), Education Tax and other levies.

While the FIRS has implemented digital tax filing and enforcement mechanisms, it continues to face significant structural inefficiencies, including overlapping tax jurisdictions and compliance burdens due to Nigeria’s decentralized tax system. The key challenges plaguing the Nigerian tax system include multiple taxation, bureaucratic bottlenecks, tax evasion, and inadequate taxpayer awareness, all of which hinder efficient tax administration.[2] The NTAB seeks to address these issues by attempting to facilitate tax compliance by taxpayers and optimizing tax revenue.

Key Provisions of the NTAB and NRS Bill

The NRS Bill repeals the FIRS Act and introduces the NRS as the centralized tax authority. This change from FIRS to NRS is driven by the need for a more accurate representation of its role. The name ‘FIRS’ implies a focus solely on the federal revenue, whereas, in reality, tax revenues are deposited into the federation account, making it the revenue agency of the entire federation. Therefore, the renaming aims to better reflect its functions and assign it the responsibility of administering various taxes, levies, and revenues for the government. The reform seeks to move away from a system where multiple agencies collect these taxes and levies. Some of the key provisions of the NRS and NTAB Bill are highlighted below:

i.       Exclusive Authority Over Tax Collection: The NRS will have full autonomy over tax administration of revenue accruable to the government of the federation, assuming all powers, rights, and responsibilities previously vested in the FIRS.[3]

ii.     Foreign Currency Tax Payments: Businesses can pay taxes and royalties either in the currency of assessment or in Naira at the official exchange rate. This flexibility allows companies earning in foreign currency to settle their tax obligations without mandatory conversion.[4]

iii.    Increased Compliance for Businesses: Financial institutions must report corporate entities with monthly transactions of ₦100,000,000 (One Hundred Million Naira) or more to the tax authorities, enhancing greater transparency and enforcement.[5]

iv.    Elimination of Multiple Revenue-Collecting Agencies: The NRS will be the sole agency responsible for collecting taxes and levies in Nigeria, effectively barring other agencies, such as the Nigeria Customs Service, the Nigerian Ports Authority, and over sixty (60) other revenue-collecting agencies from collecting revenue on behalf of the federal government.[6]

v.      Centralized Taxpayer Registration: The NTAB mandates that every individual and business register with the NRS and obtain a Taxpayer Identification (Tax ID) for better tracking and compliance.[7]

vi.    Standardized Filing and Reporting: Companies which have been in business for above eighteen months, must submit tax returns within six months of their financial year-end, with stricter penalties for non-compliance.[8]

vii.   Increased Liability for Businesses Engaging Unregistered Vendors: Statutory bodies or companies that award contracts to unregistered persons shall be liable to pay an administrative penalty of N5,000,000 (Five Million Naira).[9]

Sector-Specific Impacts

i.      Small and Medium Enterprises (SMEs): Increased tax enforcement may raise compliance costs, but could also level the playing field by reducing tax evasion among informal businesses.

ii.     Companies with a nationwide presence: The harmonization of tax administration could reduce jurisdictional disputes, streamlining operations for businesses with nationwide footprints.

iii.    Non-resident Shipping Companies and Airlines: The NTAB introduces monthly tax payments, requiring non-resident[10] shipping companies and airlines to file returns with evidence of payment by the 21st of the following month, improving compliance and tax collection.[11]

CONCLUSION

The introduction of the NTAB and NRS Bill represents a major shift in Nigeria’s tax administration landscape. While the goal is to enhance efficiency and compliance, businesses must proactively adapt to the evolving regulatory environment. Strategic tax planning, investment in compliance, and active engagement with tax authorities will be critical to navigating these reforms effectively.

As the legislative process unfolds, stakeholders should advocate for a balanced implementation approach that fosters revenue growth without imposing excessive burdens on taxpayers. The success of the NRS will ultimately depend on how well it harmonizes enforcement with the ease of doing business, ensuring that compliance reforms do not stifle economic activity.