Did you know that Nigeria has one of the lowest tax collection rates in the world with a tax-to- GDP ratio of 10.8 per cent compared to an average of 16 per cent in Africa and 33.9 per cent in OECD countries?
Currently, individual residents in Nigeria are liable to pay income taxes on their worldwide income, non-resident persons are liable to pay income taxes if their duties of employment are wholly or partly performed in Nigeria subject to certain exceptions, and foreign individuals making business profits in Nigerians are taxed under Section 6 of the PITA (Personal Income Tax (Amendment) Act, 2011) once a fixed base/taxable presence is created.
Resident companies in Nigeria are required to pay their share of the Corporate Income Tax (CIT) on their worldwide income while non-resident companies are subject to CIT on their income sourced from Nigeria.
The CIT rate in Nigeria for large companies (100 Million + turnover) is 30 per cent, for medium companies (N25million+ turnover) is 20 per cent, and for small companies (less than N25million turnover) is 0 per cent.
In comparison to these, Ghana, Egypt, and even the US have a similar structure, where residents are taxed on their worldwide income; therefore, their foreign-sourced income is taxable. More so, nonresidents are taxed on their income derived from these countries respectively.
In Ghana, the general corporate income tax rate (CIT) is 25 per cent. In Egypt, the CIT is 22.5per cent of the net
taxable profits of a company. In the US, the CIT rate is 21 per cent.
These all average close to the Nigerian rates. However, the problem in Nigeria is that the tax collection rate is very low compared to these countries (Ghana – 13.8 per cent, Egypt – 14.2 per cent and 25.2per cent in the US).
According to the latest statistics, Nigeria collected a total tax revenue of 10 trillion naira ($13billion) in 2022. However, although this may sound enormous, this amount is insufficient to cover government expenditures, resulting in government borrowing.
For a more sustained approach, the Nigerian government has seen a need for increasing its tax base, improving collection efficiency, and augmenting its tax revenue.
The new tax reform bills sent by President Bola Tinubu on October 3, 2024, that is, the Nigerian Tax Bill; Nigeria Tax Administration Bill; Joint Revenue Board Bill; and Nigeria Revenue Service Bill, aim to transform and simplify tax administration and revenue generation in Nigeria .
On the new bill, Personal income tax would see a progressive reduction in rates, with lower-income
earners being exempt from paying PIT or paying reduced rates compared to the current rates. For instance, under the proposed system, individuals earning income up to N800,000 will pay 0 per cent taxes. Earlier they were paying up to 21 per cent taxes.
The bill exempts small businesses with an annual turnover below N25 million from paying income tax.
And with about 90 per of businesses in Nigeria falling into this category, the majority of businesses in the country will be exempt from paying income tax under the bill.
The bill also progressively lowers the top income tax rate for larger companies from 30 per cent to 25 per cent,
which reduces the tax burden on larger businesses, freeing up more resources for expansion and job creation.
Amongst the profuse updates from this new bill, the proposed changes to bring down tax rates is expected to improve efficiency, increase tax compliance and increase government revenue. This is a positive outlook in comparison to the current loopholes and inefficiencies in the Nigerian taxation system. Therefore, this new bill creates a win-win situation for the law-abiding citizens, businesses and the government combined, which exemplifies a promising tax system.
Adaeze Obi-Umeofia @ThisDay
.Adaeze, an accounting and finance expert with Techno Oil Limited and an ex-PwC Senior Consultant.
