HIGHLIGHTS OF THE NIGERIA TAX REFORM BILLS

INTRODUCTION

v  In October 2024, President Tinubu transmitted four Tax Reform Bills to the National Assembly for consideration namely: the Nigeria Tax Bill 2024, the Nigeria Tax Administration Bill, the Nigeria Revenue Service (Establishment) Bill, and the Joint Revenue Board (Establishment) Bill.

v  The Tax Reform Bills are recommended by the Presidential Committee on Fiscal Policy and Tax Reforms for the overhauling of the nation’s tax system because the existing tax framework has become:

a.    Complex and ambiguous;

b.    Multiple and superfluous; and

c.     Burdensome on individuals and business.

v  Consequently, the Tax Reform Bills have been introduced to consolidate the tax framework, reduce the tax burden on individuals and businesses, promote ease of compliance, generate more revenue for the government, and facilitate sustainable economic growth.

UNIFIED FISCAL LEGISLATION

v  Section 1 and 2 of the Nigeria Tax Bill (hereinafter “NTB”) explicitly spells out the objective of the bill to be the unification of the fiscal legislation governing taxation in Nigeria with applicability throughout the Federation of Nigeria.

v  As such sections 197 & 199 of the NTB repeal amongst others, the following:

a.    Capital Gains Tax Act, Cap. C1, LFN, 2004;

b.    Companies Income Tax Act, Cap. C21, LFN, 2004;

c.     Deep offshore and Inland Basin Act, Cap. D3, 2004;

d.    Industrial Development (Income Tax Relief) Act, Cap. I17, LFN, 2004;

e.     Personal Income Tax Act, Cap. P8, LFN, 2004;

f.      Petroleum Profits Tax Act, Cap. P13, 2004;

g.    Stamp Duties Act, Cap. S8, LFN, 2004;

h.    Value Added Tax Act, Cap. V1, LFN, 2004;

i.      The Value Added Tax Act (Modification) Order 2021;

j.      Paragraph 2 of the Companies Income Tax (Significant Economic Presence) Order 2020 ; and

k.     Regulations 60B, 60C, 61(1),(2),(4) and 62 of the Petroleum (Drilling and Production) Regulations 1969.

v  Furthermore, section 198 amends amongst others, the following by:

a.    Deleting in the Petroleum Industry Act, part I to part X of Chapter 4- (Petroleum Industry Fiscal Framework); 5th Schedule (Capital Allowances); and other provisions concerning royalties contained in paragraphs 6,9,10,11 and 12 and sub-paragraph 6 of Paragraph 14 of the Seventh Schedule to the Petroleum Industry Act;

b.    Deleting sections 8 and 18(1)(a) of the Nigeria Export Processing Zones Act, Cap. N107, LFN 2004 and the Oil and Gas Free Trade Zone Act, Cap. O5, LFN 2004 respectively which guarantee the tax-exemption Status of Approved Enterprises operating within an Export Free Zone;

c.     Deleting section 11(1) of the Export (Incentives and Miscellaneous Provisions) Act, Cap.E19 LFN 2004 on the applicability of the Industrial Development (Income Tax Relief) Act with respect to pioneer status to any manufacturing exporter who exports at least fifty per cent of his annual turnover;

d.    Deleting sections 12(2)(a),16, and the Third Schedule of the National Information Technology Development Agency Act, No. 60, 2007;

e.     Deleting sections 1, 2, and 3(3) of the Tertiary Education Trust Fund (Establishment, Etc.) Act, 2011;

f.      Deleting section 20(2), paragraphs (b)(i) and (b)(ii) of the National Agency for Science and Engineering Infrastructure (Establishment) Act, Cap. N3 LFN, 2004; and

g.    Deleting section 21(2) of the Customs, Excise Tariffs, Etc. (Consolidation) Act Cap. 49 LFN 2004.

v  Nevertheless, section 200 contains saving provisions for all actions, and enactments and notices lawfully executed prior to the amendments/repeals under sections 197-199, and then Section 202 of the NTB once more reinforces the supremacy of the NTB and renders any tax law inconsistent with the NTB void to the extent of its inconsistency.

AMENDMENT OF CORPORATE INCOME TAX

v  Recategorisation of Small Companies: section 143 of the Nigeria Tax Administration Bill (hereinafter ”NTAB”) expands the definition of a small business (or company) from the existing threshold of N25Million to be a company with a turnover of not more than N50Million, and a total fixed assets less than a N100Million.

v  Minimum Tax:

a.    Minimum tax does not generally apply however there is a minimum effective tax rate of 15% where:

                                I.         a Nigerian Company is a constituent entity of an MNE group or;

                              II.         a Company has a turnover of N20 billion and above.

b.    Effective Tax Rate = Aggregate Tax Paid/Qualifying profits before tax

v  Gradual reduction of the Company Income Tax: section 56 of the NTB proposes taxation to Companies except small companies at the rate of

a.    27.5% in the 2025 year of assessment, and

b.    25% from 2026 year of assessment.

v  Development Levy: Having repealed the sections of the Tertiary Education Trust Fund (Establishment, Etc.) Act; The National Agency for Science and Engineering Infrastructure (Establishment) Act; and the National Information Technology Development Agency Act that imposed tax on companies, section 59 of the NTB introduces and imposes on all Nigerian companies (except small companies, and explicitly non-resident companies) a Development Levy of:

a.    4% in the 2025 and 2026 years of assessment;

b.    3% in the 2027 to 2029 year of assessment; and

c.      2% in the 2030 and subsequent years of assessment.

v  This Development Levy is expected to replace the Tertiary Education Tax of 3% of assessable profits of Nigerian companies.

v  However, section 59(5) exempts from the imposition of this Development Levy, all assessable profits computed for the purposes of hydrocarbon tax.

v  The revenue accruing from the Development Levy shall be distributed as follows-

a)    Tertiary Education Trust Fund—

                       i.         50% in 2025 and 2026 years of assessment,

                      ii.         66⅔% in 2027, 2028 and 2029 years of assessment,

                     iii.         0% in 2030 year of assessment and thereafter.

b)    Student Education Loan Fund—

                       i.         25% in 2025 and 2026 years of assessment,

                      ii.         33⅓% in 2027, 2028 and 2029 years of assessment,

                     iii.         and 100% in 2030 year of assessment and thereafter.

c)     (National Information Technology Development Fund—

                       i.         20% in 2025 and 2026 years of assessment, and

                      ii.         0% in 2027 and thereafter.

d)    National Agency for Science and Engineering Infrastructure-

                       i.         5% in 2025 and 2026 years of assessment, and

                      ii.         0% in 2027 year of assessment and thereafter.

v  Limited Liability Partnership: In addition to companies controlled by not more than five individuals (as this is the current position under section 21 of the extant Companies Income Tax Act), section 10(5) of the NTB deems as distributed all the profits of a Limited Liability Partnership, whether or not such profits are actually distributed in a given year, and considers it taxable income, proportionately, in the hands of the respective partners of the Limited Liability Partnership.

v  Chargeable gains: In addition to the amendment of section 30 of the Capital Gains Tax Act by section 2 of the Finance Act 2021, which rendered the disposal of shares taxable subject to exemptions stated therein, section 47 of the NTB proposes to render taxable, gains resulting from the disposal of shares by a non-resident where such disposal results either in:

a.    a change in the ownership structure or group membership of any Nigerian company; or

b.    a change in the ownership of, title in, or interest in any asset located in Nigeria.

AMENDMENT OF PERSONAL INCOME TAX

AMENDMENT OF VALUE ADDED TAX (VAT)

v  Zero tax rate: section 146 of the NTB places a zero-tax rate on all basic items. These basic items are explained by section 188 of the NTB to be:  basic food items; all medical and pharmaceutical products including medicinal herbal products; educational books and materials; fertilizers; locally produced agricultural chemicals; locally produced veterinary medicine; locally produced animal feeds; agricultural seeds and seedlings; Electricity generated by generation companies (GENCOs) and supplied to National Grid or Nigeria Bulk Electricity Trading Company (NBET); medical services; tuition relating to nursery, primary, secondary or tertiary education; exported goods excluding oil and gas; exported services; exported incorporeal property; and medical equipment.

v  Total exemption from VAT: section 187 of the NTB fully exempts certain items from the imposition of VAT. They include: oil and gas exports; crude petroleum oil and feed gas for all processed gas;  goods purchased for use in humanitarian donor funded projects; baby products; locally manufactured sanitary towels, pads or tampons; military hardware, arms, ammunitions and locally manufactured uniforms supplied to armed forces, para-military and other security agencies of a Nigerian government; shared passenger road-transport service; land or building including interest in land or building; and money or securities including interest in money or securities; Government licences etc.

v  Relatedly section 189 of the NTB fully exempts from the imposition of VAT, supplies made exemptible by virtue of an Order made by the President and published in the Official Gazette exempting supplies required for the provision of developmental financing for any project in Nigeria where a bilateral agreement provides for the exemption of supplies made for such project from VAT.

v  Adjustment to the VAT rate: VAT is proposed on all taxable supplies in the following manner:

a.    10% from January 1, 2025, to December 31, 2025;

b.    12.5% from January 1, 2026, to December 31, 2029; and

c.     15% effective January 1, 2030.

v  New Revenue Sharing Formula: Section 77 of the NTAB proposes a new VAT revenue-sharing formula amongst the federating units thus:

a.    10% to the Federal Government;

b.    55% to State Governments and the Federal Capital Territory (FCT); and

c.     35% to Local Governments.

v  This revenue sharing formula contrasts with Section 40 of the extant VAT Act, which allocates 15% to the Federal Government, 50% to State Governments, and 35% to Local Governments.

v  Furthermore, as regards the revenue sharing formula amongst states which is set by section 40 of the extant VAT to be based on 50% equality, 30% population, and 20% derivation, the proviso to section 77(c)  of the NTAB increases the derivation percentage from 20% to 60%.

E. DEDUCTION OF TAX AT SOURCE (WITHOLDING TAX)

v  Deduction of Tax at Source (Withholding) Regulations: section 50 (1) of NTAB states that Withholding Tax rates will be as prescribed by regulations.

v  Final Tax for Non-Residents: Section 50 (2) of the NTAB states that in the case of dividend, interest, rent, royalty, directors’ fee and payment to entertainers and sportspersons, the tax, when paid over to the relevant tax authority, shall be the final tax due from a non-resident recipient of the payment.

v  Franked Investment Income now applicable to Individuals: presently, the concept of franked investment income is only applicable to companies under section 80(3) of the extant Companies Income Tax Act (as amended). However, section 50 (3) of the NTAB provides that dividend distributed by a Nigerian company and received by a person after deduction of the tax in accordance with the Regulations, shall be regarded as the franked investment income of the person receiving the dividend and shall not be charged to further tax.

F. AMENDMENT TO THE STAMP DUTIES ACT

v  Instruments liable to stamp duties: in a structured and simplified manner, Section 123 of the NTB, subject to the exemptions outlined in Part III of its Chapter 8, and consistent with the rates specified in the Ninth Schedule to the NTB, categorizes the instruments liable to stamp duties to be:

a.    Instruments which, not having been previously executed by any person, are executed in Nigeria;

b.    Instruments executed outside Nigeria, that relates to property situated, or to any matter or thing done or to be done, in Nigeria.

v  New Stamp duties rates: different from what is obtainable under the extant Stamp Duties Act (“SDA”), the Ninth Schedule to the NTB provides a more comprehensible and self-explanatory outline of the applicable rates for various instruments. Some significant amendments introduced by the NTB in this regard are:

                       i.         Loan Instruments: Departing from the customary 0.125% ad valorem rate applied to all types of unsecured loans under the SDA, item 9 of the Ninth Schedule to the Bill exempts overdrafts at banks and short-term loans (loans raised for a period not exceeding 12 months) from this rate.

                      ii.         Loan Capital: unlike Section 103 of the SDA which provides an incentive for companies in the form of reimbursement of duty paid on loan capital wholly or partially applied for the conversion or consolidation of existing loan capital, Item 10 of the Ninth Schedule to the Bill specifies a reduced ad valorem rate of 0.1% for such loan capital.

                     iii.         Mortgages: The NTB retains the stamp duty rate for mortgages at 0.375% as contained in the SDA, however, it exempts mortgages relating to property of less than N10 million from the payment of stamp duty.

                     iv.         Leases: Item 22 of the Ninth Schedule to the NTB adjusts the rates applicable to leases as follows:

                                       a.         0.78% for leases with terms between 0–7 years; and

                                       b.         3% for leases exceeding 7 years.

Additionally, it excludes properties with an annual value less than ₦1million or 10 times the annual minimum wage (whichever is higher).

                    v.         Conveyance or Transfer on Sale: Whilst the rate remains at 1.5%, the Ninth Schedule to the Bill exempts transactions where:

                                    a.         The property value is ₦10million or less; or

                                    b.         The transfer occurs between associated companies holding at least 90% shareholding in each other (directly or through a third party), provided that the instrument had been stamped upon initial purchase.

v  Liability for Stamp Duty: One of the most noteworthy reforms in the Bill is the clarification provided in Section 125(2)5 and the Ninth Schedule regarding the party liable to pay stamp duty. For instance:

a.    For loans, the lender is liable;

b.    For leases, the lessee is liable;

c.     For transfers of property, the transferee is liable; and

d.    For guarantees, the guarantor is liable.

These provisions resolve longstanding uncertainties concerning liability for stamp duty, thereby fostering greater clarity and compliance for contracting parties.

v  Uniform Time for Stamping Instruments: Section 125(1) of the NTB, now provides a uniform timeframe for stamping instruments. Under the new provision, instruments must be stamped no later than 30 days after their execution by the person liable to pay the appropriate duty. This simplification ensures clarity and eliminates the needless permutations that have characterized the computation of time for stamping of documents under the SDA.

v  Admissibility of unstamped documents in evidence: under section 22(4) of the SDA, an unstamped document remains admissible in criminal proceedings. This position is retained in Section 126(2) of the NTB. However, the NTB introduces a significant change regarding the admissibility of unstamped documents in civil proceedings. Under Section 22(1) of the SDA, an unstamped document can be made admissible in civil proceedings, arbitration, or before a referee by the “on-the-spot” imposition of stamp duty and any applicable penalty. By  contrast, Section 126(1) of the NTB takes a stricter approach, rendering unstamped documents absolutely inadmissible in any court, judicial, or arbitration proceedings, without any provision for the on-the-spot remediation. This marks a departure from the current practice under the SDA and underscores the need for strict compliance with stamping requirements.

v  Exempted Items: Part III of Chapter 8 of the NTB provides a list of items that are exempted from the payment of stamp duties, and they include: transfer of shares in Government or legislative stocks or funds of Nigeria; any instrument for sale, transfer or other disposition, either absolutely or by way of mortgage, or otherwise, of any ship or vessel or any part, interest, share or property of or in any ship or vessel; any instrument on which the duty would be payable by a Nigerian Government or any of its ministries, departments or agencies; any instrument in which the duty would be payable by any consular officer arising out of his official functions provided the foreign government he represents grants similar exemption to Nigerian consular officers; any instrument executed by or on behalf of a co-operative society registered under any Act or law etc.

G. ADMINISTRATIVE BODY UNDER THE TAX REFORM BILLS

v  Nigeria Revenue Service: Section 40 of the Nigeria Revenue Service (Establishment) Bill (hereinafter the “NRS Bill”) repeals the Federal Inland Revenue Service (Establishment) Act No. 13, 2007  and consequently the Federal Inland Revenue Service. Section 3 of the NRS Bill then establishes the NRS to be a body corporate with perpetual succession, and to have a legal personality.

v  Jurisdiction of the Tax Bodies: same section 3 (1) of the NTAB spells out the

a.    exclusive jurisdiction of the NRS to encompass:

                       i.         Companies;

                      ii.         Persons  employed in the Nigerian Army, the Nigerian Navy, the Nigerian Air Force, the Nigeria Police Force, other than in a civilian capacity;

                     iii.         Officers  of the Nigerian Foreign Service;

                     iv.         non-resident  persons who derive profit or income from Nigeria or any income derived from employment in Nigeria by a person, not being a resident of any State in Nigeria; and

                      v.         Taxes contained in parts III (Taxation of Non-resident Persons); part X (Development Levy); part XI (Specialised Trade or Business) of Chapter Two, Chapter Three (Taxation of Income from Petroleum Operations), Chapter Six (Value Added Tax), Chapter Seven (Excise Duty on Services), and Chapter Eight (Tax Incentives) of the Nigeria Tax Bill.

b.    And the other jurisdictions of the NRS to cover:

                       i.         all taxes contained in chapters two, three, five, six, seven, and eight of the NTB; and

                      ii.         such other powers and functions conferred on it by the NTAB, the NRS Bill, and any other law as may be enacted by the National Assembly.

v  Jurisdiction of the Tax Bodies: section 3 (2) of the NTAB states that pursuant to First schedule to the NTAB (Determination of Residence)the jurisdiction of the relevant tax authority in a State or the Federal Capital Territory shall cover:

a.    the administration of taxes contained in part I (Imposition of Tax on Income, Profits or Gains), part II (Taxation of Resident Persons), part IV (Ascertainment of Profits And Income), part V (Ascertainment of Assessable Profits and Income), part VI (Ascertainment of Total Profits of  Companies), part VII (Ascertainment of Total Income of an Individual), part VIII (Ascertainment of Chargeable Gains), part IX (Rates of Tax ) of Chapter Two, Chapter Five (Taxation of Dutiable Instruments); and parts I (Income Tax Exemptions); and parts III (Exemption from Stamp Duties) of  Chapter Eight of the Nigeria Tax Bill on individual resident in such state or the Federal Capital Territory, subject to the exclusive jurisdiction of the NRS; and

b.    such other powers and functions conferred on it under any tax law enacted by the National Assembly.

v  Better collaboration between Tax Authorities: The NRS Bill maps out a collaborative framework with the tax authorities of the  State and Local Governments. For instance: Section 5(1) of the NRS Bill only empowers the NRS to administer a state Tax where a Nigerian State or Local Government requests the Service to Collect or administer the tax. 5(3) further instructs that the revenue collected on behalf of the requesting State or Local Government, or another tax authority, should be remitted directly to that State or Local Government, or relevant tax authority as may be agreed by the parties.

H. DISPUTE RESOLUTION UNDER THE TAX REFORM BILLS

v  Establishment of the Joint Revenue Board: The functions of the Joint Revenue Board are stated in section 5 of the Joint Revenue Board (Establishment) Bill (hereinafter “JRB Bill”) to include:

a.    the integration and maintenance of the database of Taxpayer Identification Numbers for every taxable person in Nigeria in collaboration with the Nigeria Revenue Service, State Internal Revenue Service, Local Government Revenue Committee and other relevant Government agencies;

b.    resolution of disputes between various tax authorities including disputes bordering on the issue of determination of residency;

c.     advice on double taxation matters within Nigeria;

d.    Maintenance of  a platform for revenue data collection, integration, and exchange of information among the various tax authorities in Nigeria; and

e.     Promotion of the  harmonisation of taxes, levies, rates, charges and other payments and ensure uniformity in revenue administration across Nigeria. Etc.

v  Establishment of the Tax Appeal Tribunal: Unlike the extant FIRS Act that establishes the Tax Appeal Tribunal, a different enactment being the JRB Bill establishes the Tax Appeal Tribunal. Section 23(1) of the JRB Bill establishes the Tax Appeal Tribunal and empowers it with jurisdiction over any tax dispute and controversy arising from the administration of the NTB; the NTAB; or any other tax laws made or to be made from time to time by the National Assembly. Section 23(2) of the JRB Bill further empowers the Minister in charge of Finance to by virtue of a Federal Gazette specify the number of zones, matters and places in relation to which the Tribunal may exercise jurisdiction.

v  Furthermore, a joint reading of Paragraphs 2(1) and 2(2) of the Second Schedule to the JRB Bill empowers any taxable person aggrieved by an assessment, demand notice, action, decision of the tax authority, or a dispute as to residency under the provisions of the tax laws, to appeal against such decision or assessment within 30 days to the Tax Appeal Tribunal.

v  In like manner, Paragraph 3 of the Second Schedule empowers a relevant tax authority aggrieved by the non-compliance by a taxable person in respect of any provision of the tax laws or in respect of any assessment, demand notice, action or decision to appeal to the Tax Appeal Tribunal in the zone where the taxable person is resident.

v  Office of the Tax Ombud: Section 35 of the JRB Bill establishes the Office of the Tax Ombud and section 40 confers upon it its powers and functions, some of which include:

a.    being an independent and impartial arbiter that reviews and resolve complaints relating to tax, levy, regulatory fee and charges, customs duty or excise matters;

b.    reviewing of complaints against tax officials and authorities and resolving it through mediation or conciliation by adopting informal, fair and cost-effective procedures; and

c.     receiving and investigating complaints lodged by taxpayers regarding the actions or decisions of the tax authorities, agencies or their officials.

v  Therefore, the office of the tax ombudsman is to check administrative excesses and protect vulnerable taxpayers.

v  Authority of the Office of the Tax Ombud: Section 42 however places a limit on the authority/jurisdiction of the Office of the Tax Ombud. It excludes from the jurisdiction of the Office of the Tax Ombud:

a.    The interpretation of tax legislations other than to the extent that it relates to operational, procedural or administrative issues arising from the application of the provisions of the relevant tax law;

b.    The review or determination of  issues that are already causes of actions before a court of competent jurisdiction or tribunal on the date of the receipt of a complaint;

c.     The determination of any tax liability or duty or issuance of  tax assessment; and

d.    The review of any complaint by or on behalf of a tax official concerning matters relating to the relevant tax authority in respect of any personal grievance relating to the office.

v  Relatedly, Paragraph 1(2) of the Third Schedule to the JRB bars a complainant from approaching the Tax Ombud where such the complaint has not first been referred to and resolved by the relevant agency.

v  In summary, the JRB Bill establishes the Joint Revenue Board, the Tax Appeal Tribunal and the Office of the Tax Ombud to harmonise, coordinate and settle disputes arising from revenue administration in Nigeria.