Senate Passes Tax Reform Bills for Second Reading

By MUHAMMED DANBABA

The Nigerian Senate has advanced the Tax Reform Bills to the second reading stage, a significant move aimed at overhauling the nation’s tax system. The four bills propose major adjustments, including increased revenue allocation to states, reduced company income tax, and VAT exemptions for essential goods and exports.

Key Provisions in the Tax Reform Bills

1. VAT Redistribution:
   • Increase in states’ share of Value Added Tax (VAT) from 15% to 55%.
   • Federal Government’s share reduced by 10%, while local governments’ share remains unchanged.
2. Tax Relief Measures:
   • Exemption of individuals earning below the minimum wage from Pay-As-You-Earn (PAYE) tax.
   • Zero VAT on essential commodities, including food, electricity, and medical services.
3. Corporate Tax Reductions:
   • Reduction of company income tax from 30% to 25% for two years.
   • Simplification of tax regimes by consolidating multiple levies (e.g., education tax, NASENI tax) into a 2% development levy.
4. Encouragement of Economic Activities:
   • Tax exemptions for small businesses with annual turnover below ₦50 million.
   • Support for transparency in VAT distribution to ensure revenue benefits states where consumption occurs.
5. Revenue Use:
   • Harmonized taxes to fund initiatives like the Student Loan Scheme, set to expand access to higher education.

Senate Debates: Diverging Opinions

Support for the Bills:

• Senate Leader Opeyemi Bamidele emphasized the bills’ potential to simplify the tax structure, ease the burden on small businesses, and enhance state revenues.
• Senator Seriake Dickson supported VAT redistribution, stressing the importance of allocating revenues to states where goods and services are consumed.
• Chief Whip Mohammed Monguno argued that concerns, such as derivation and timing, could be addressed during public hearings.

Opposition to the Bills:

• Senator Ali Ndume questioned the timing and constitutional alignment of the bills. He called for broader consultations, particularly with governors and traditional rulers, before proceeding.

Next Steps

The Senate referred the bills to the Committee on Finance, led by Senator Sani Musa, for further legislative scrutiny. The committee will:

• Hold public hearings to gather input from stakeholders, including the Nigeria Governors Forum and traditional rulers.
• Report back to the Senate within six weeks with recommendations.

Senate President Godswill Akpabio assured Nigerians that the process would yield reforms benefiting citizens and the country.

Implications of the Reforms

1. For State Governments:
   • Enhanced VAT revenue allocation may boost financial autonomy and development initiatives.
2. For Businesses:
   • Reduced corporate tax rates and exemptions for small businesses aim to foster economic growth.
3. For Citizens:
   • VAT exemptions on basic commodities are expected to alleviate economic pressures amid subsidy removal and rising co
4. For Governance:
   • The bills reflect the Federal Government’s commitment to fiscal reforms while raising questions about implementation timelines and constitutional amendments.