Tinubu’s Tax Reform: How it will affect you

Taxation has long been a sensitive issue in Nigeria. With a system that’s often criticised as complex, inefficient, inequitable and has left many citizens feeling burdened and frustrated.

Widespread tax evasion, poor compliance, and a general lack of trust in the system have only deepened the divide between the government and the people.

But President Bola Tinubu is looking to change that. Two months ago, he introduced four tax reform bills to the National Assembly: the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill.

The goal of these reforms, as Segun Onagoruwa, Managing Partner at Vertex Consulting Limited, explains, is to create a tax system that works for everyone.

According to Onagoruwa, “The new tax reforms represent a bold and comprehensive step toward creating a system that works for everyone. From individuals who benefit from higher allowances and lower tax burdens to businesses that receive support for growth and from the federal government’s potential to increase revenue to regions and local governments that are incentivised to develop economically, these reforms promise a more inclusive and progressive future.”

But as the bills make their way through the National Assembly, one question persists: Who will win, who could lose, and how will this affect the average Nigerian? To answer these questions, we spoke with Onagoruwa, a tax policy expert with over 17 years of experience, who explained the proposed changes and what they mean for individuals and businesses across the country.

So, How Will These Reforms Affect the Average Nigerian?

Onagoruwa explains that these reforms offer real benefits to everyday Nigerians. The most significant change for many people will be the reduction in Personal Income Tax (PIT), which applies to salaries, wages, and rental income.

By raising the tax-free threshold, more people will be exempted from paying PIT altogether, putting more money in their pockets.

For example, if you earn below a certain threshold—say, N30,000 per month—you will no longer pay PIT. This means less money is taken out of your salary, leaving more to spend on daily expenses or save for the future.

“The reforms propose raising this threshold, allowing more low-income workers to fall within the tax-exempt category. Everyday workers earning below the new threshold will retain more of their earnings. It will reduce financial stress on low-income earners, increasing disposable income for essential needs.”

In addition to this, the new reforms will simplify the tax bands, making the system more progressive. This means that high-income earners will pay a higher share of taxes, while middle- and low-income earners will pay less.

Onagoruwa adds: “Nigeria’s tax bands include rates ranging from 7% to 24% for different income brackets. The reforms propose fewer, clearer tax bands with adjusted rates to ensure higher earners pay more while middle- and low-income earners face lower rates.”

While many Nigerians will see their tax burdens ease, high-income earners may not fare as well. The new progressive taxation system means that wealthier individuals will contribute a larger share. However, low- and middle-income earners stand to gain the most.

“The tax reforms aim to alleviate the burden on low and middle-income earners by raising the tax threshold and introducing progressive income tax rates. With the introduction of a new tax band and increased personal allowances, more Nigerians will be taxed less or not at all, leading to greater disposable income and financial relief,” says Onagoruwa.

Lowering the Cost of Living

Onagoruwa also pointed out that the proposed tax reform bill could help reduce the everyday costs for average Nigerians. One of the main changes is that more essential items will be exempt from VAT (Value Added Tax). This is a major win for families, especially those on low budgets.

“Everyday items such as rice, beans, garri, and basic healthcare products may become cheaper as VAT is no longer applied. Families with tight budgets will benefit from reduced costs for essentials, improving their overall standard of living,” Onagoruwa explains.

Currently, VAT is charged at 7.5% on most goods and services, with only a few essentials being exempt. The new tax bill will expand the list of VAT-exempt items, which could make basic goods and medicines more affordable for Nigerians.

“Locally made goods may become more affordable due to tax reliefs, encouraging citizens to buy Nigerian products. A boost in local production can stabilize prices, reduce import dependency, and support job creation, indirectly benefiting households.”

More Support for Local Goods and Businesses

The reforms also aim to support local businesses. By offering tax breaks on locally produced products, the government hopes to encourage Nigerians to buy more local goods. This could help boost local industries, reduce reliance on imports, and create jobs.

“Locally made goods may become more affordable due to tax reliefs, encouraging citizens to buy Nigerian products. A boost in local production can stabilize prices, reduce import dependency, and support job creation, indirectly benefiting households,” says Onagoruwa.

The VAT rate itself will remain unchanged, which means there won’t be any immediate price hikes for everyday goods. Instead, the government plans to target luxury goods and non-essential items to raise revenue. This ensures that low-income earners won’t face higher prices for basic goods.

“The stability in the VAT rate ensures no immediate increase in the cost of goods and services for the average citizen. The government’s focus on widening the tax base (e.g., taxing more luxury goods) rather than raising rates protects low-income earners from additional financial burdens,” Onagoruwa adds.

How Will Businesses Be Affected?

The reforms also bring good news for small and medium-sized businesses (SMEs). A key part of the reforms is the increase in the turnover threshold for Corporate Income Tax (CIT) exemptions. Businesses with turnovers below ?50 million (up from ?25 million) will be exempt from CIT.

“This change is expected to free up resources for smaller businesses, enabling them to reinvest in growth,” Onagoruwa says.

Medium-sized businesses (those with turnovers between ?25 million and ?100 million) will also benefit from reduced CIT rates, making it easier for them to expand operations. Larger businesses will see a gradual reduction in CIT rates from 30% to 25% over the next two years.

“The revised tax rates in the new bill aim to strike a balance between revenue generation and economic growth. For individuals, the changes reduce the burden on low- and middle-income earners while promoting equity through progressive taxation.

“For companies, lower CIT rates encourage investment and compliance, particularly in strategic sectors. These reforms create a tax environment that is fairer, more efficient, and supportive of Nigeria’s economic development goals.”

Will the Reforms Solve Nigeria’s Problems?

While the proposed tax reforms offer potential benefits, Onagoruwa cautions that their success will depend heavily on how effectively they are implemented. He notes that the reforms could improve everyday life for Nigerians if they lead to increased government revenue, which is then properly allocated.

“If the tax reforms lead to increased government revenue and these funds are efficiently allocated, they can improve infrastructure, healthcare, and education, reducing out-of-pocket expenses for citizens,” Onagoruwa said.

However, he also points out that there are risks associated with the reforms, particularly when it comes to businesses. For instance, he explains that new taxes or higher rates—such as those on VAT or excise duties—might cause businesses to pass those costs onto consumers, ultimately raising the prices of goods and services.

“The extent to which the reforms alleviate or exacerbate the rising cost of living depends on their design, implementation, and the government’s commitment to addressing systemic inefficiencies,” Onagoruwa explained.

“If well-executed, the reforms could lay a foundation for long-term economic stability and reduced costs. However, without mitigating measures, they risk exacerbating financial pressures on Nigerians, particularly the poor and middle class.”

Another concern Onagoruwa raises is the potential impact of digital services taxes, which could make online subscriptions, e-commerce, and other digital services more expensive for Nigerians. As many people rely on these services for everyday needs, any increase in cost could put additional strain on household budgets.

Onagoruwa also observes that Nigeria’s tax reforms are largely in line with global and African trends, particularly in expanding the tax base and targeting the digital economy. However, he stresses that there are areas where the reforms could be improved.

“Nigeria’s tax reforms align broadly with global and African trends, particularly in expanding the tax base and targeting the digital economy. However, there are areas where it could improve, such as ensuring equity, simplifying tax compliance, and providing adequate social protections,” he noted.

Onagoruwa suggests that lessons could be drawn from countries like Rwanda, South Africa, and India, which have made strides in technology adoption, equity in taxation, and simplifying tax compliance, respectively. He believes these lessons could make the reforms more effective and increase public acceptance.

As the bills continue to be debated, there are calls for broader consultations with various stakeholders. Will Tinubu’s tax reform bill live up to its promise? Like Onagoruwa said, only time and execution will tell.

But for now, he did advise Nigerians to prepare for the changes ahead, stating, “Preparation for the Nigerian Tax Bill, 2024, requires proactive education, planning, and adaptation by both citizens and businesses.”.

“By leveraging available resources, staying compliant, and advocating for transparency, individuals and organisations can not only mitigate the impact of the reforms but also position themselves to take advantage of opportunities the changes might create.

(The Guardian)