Aside easing pains of majority of Nigerians, freeing funds for enterprises to grow, stimulating jobs creation, and granting greater latitude for manufacturers, the Nigeria’s tax reform is designed to set the country as one of the lowest tax-to-GDP ratios in Africa.
The Independent Media and Policy Initiative (IMPI), a Think Tank, today at a press briefing said that the Tax reforms of the President Bola Tinubu administration was on the path of inclusive growth for the benefit of all Nigerians.
The Chairman of IMPI, Dr Omoniyi Akinsuji, said: “We see in the tax bills that the authors have provided circular money movements by allowing for more money to be domiciliated in the hands of ordinary citizens as reflected in the capital gain provision of the bills and exemption from personal income tax payment.
He commended the acknowledgement of the low purchasing power of the larger percentage of the estimated 220 million population of Nigeria.
“We see in the tax bill that the authors have provided circular money movements by allowing for more money to be domiciliated in the hands of ordinary citizens as reflected in the capital gain provision of the bills and exemption from personal income tax payment.
“In addition, the gains accruing to an individual are exempt from tax in respect of the disposal of, or an interest in — a dwelling-house or part of such dwelling-house; and land, other than land used for commercial purposes, immediately adjoining the dwelling house up to a maximum of one acre.
“In addition, a gain accruing on the disposal of an asset, which is tangible movable property being personal chattels of an individual shall not be a
chargeable gain if the total amount or value of the consideration for the disposal does not in a period of assessment exceed N50,000,000 or three times the annual national minimum wage, whichever is higher.’’
He explained that this section of the tax bills is an enabler of increased disposable income and that rather than the government taking a share of the money or assets sold, the government allows the citizen to spend his or her money the best way he or she so desires.
“When this is combined with the progressive personal income tax system and tax relief for low-income earners with the exemption of those earning incomes below N800,000.00 from personal income tax,, we can safely assert that manufacturers of fast-moving consumer goods will see a huge difference in aggregate demand for their respective products.
“This has further positive implications for business expansion, job creation, and increased standard of living, ‘’ Akinsuji said.
He said that the the authors of the tax bills had the bouquet of challenges facing the manufacturing sector in mind in conceptualising the dimensions of the tax bills as forms of mitigations against reduced profits or losses.
He noted that the critical manufacturing sector has been described to be under siege as it endures a cruel combination of high energy costs, foreign exchange scarcity, rising inflation, insecurity, stratospheric interest rates, high logistics costs and unsold inventories amounting to N350 billion during the same period.
“The bottom line effect of these collections of challenges is the erosion of profit or, sometimes, actual losses on investment,’’ he explained.
He explained that companies operators or owners were now saved from paying on losses while small companies, defined as having annual gross turnover of less than N50 million, will now pay zero percent tax.
“About 43 million registered companies are said to fall into this category of small companies. The zero tax payment is the equivalent of a fiscal elixir that enables the companies to weather the inclement business environment while growing organically through reinvestment of income from their operations.
“This is usually the trajectory of small companies that soon become multinationals in business history.
“For other categories of companies, those with an annual turnover of more than N50 million, the tax bills configured are scheduled reduction of tax payment thresholds by reducing company income tax (CIT) payments from the current 30 per cent to 27.5 percent in the 2025 year of assessment and further reduction to 25 percent from the 2026 year of assessment.
“This graduated reduction in company income tax corresponds to a huge rebate on the operating costs of qualifying companies.
“This, ordinarily, is a loss of revenue to the government, but in the wisdom of the tax bill authors, the reduced CIT should be considered as a government payoff for the challenges encountered in the business process and to assuage profit that might have been lost. We qualify all these initiatives as enterprise development.’’
Referencing the gas tax credit granted by tax reforms, Akinsuji said that the submission regarding this tax credit is that the gas production sub-sector of the oil and gas sector of the economy will transform to a beehive of economic activity when the incentives are applied.
Commenting on the Value Added Tax (VAT) as captured in the bills, Akinsiju explained that a large chunk of the misgivings in some quarters stems from the proposed formula for sharing the 90 percent accruing to the sub-nationals from proceeds of Value Added Tax (VAT).
He explained that the sharing template of VAT based on population, equity and derivation as opportunity for state governments to activate value addition possibilities within the economy of their respective states.
“They should not allow any raw material, either of agricultural or solid minerals type, to leave their domain without any form of value addition, even if it is basic processing.
“This way, consumption is registered through value addition, and such states can lay claims to consumption-based derivation beside the general levels of consumption that may be ascribed to them.
“We are, therefore, of the view that states which are big on agriculture could do more to ensure that some value is added to their food products so that they can derive benefits from consumption tax, which essentially is what VAT is, and this is moreso that food items in their raw forms are not VATable or exempt from VAT.’’
Akinsiju explained that the misunderstanding here is based on the current tax regime where derivation is attributed to headquarters remittance.
But with the new Tax Administration Bills proposal, VAT would be attributed to the place of supply and consumption and not the place of remittance, which currently favours states where company headquarters are domiciled.
“In our analysis, we found that the ongoing controversy and contentions over the VAT derivation proposal are needless. We also believe that states that are not comfortable with the percentage allotted to derivation could table counter proposals at the forthcoming public hearing of the bills at the National Assembly.’’
He expressed dismay at the unwarranted controversy that had been spurned around the bills.
“We consider this a needless distraction from the economically redeeming attributes of the tax bills. ‘’
IMPI Press Confab Dec. 14
Text of Speech Delivered By Omoniyi Moses Akinsiju PhD, Chairman, Independent Media and Policy Initiative, At a Press Conference held on December 14, 2024, at the NICON Luxury Hotel, Abuja
Gentlemen of the Press, It is a great pleasure to have you here for our last press conference for the year 2024.
You will recall that in all our previous engagements with the media, we have always focused on ongoing economic reforms, and this one won’t be any different. It will centre largely on the tax reform bills presently before the National Assembly before delving into other remarkable developments in the outgoing year.
Tax Reforms
We have reviewed all four tax bills presently before the National Assembly, and after a historical and contextual analysis of the bills, we must admit our feeling of dismay at the unwarranted controversy that had been spurned around the bills.
We consider this a needless distraction away from the economically redeeming attributes of the tax bills. These reforms, as coded in the bills, are pivoted on three functional pillars of critical growth drivers. These are revenue generation, enterprise development, and enhancement of citizens’ purchasing power.
Indeed, this is the first time in the history of fiscal policy deployments in the country that the fiscal authorities will combine these three attributions in the tax law. Before now, tax laws were primarily focused on revenue generation without any consideration for enterprise development and citizens’ economic enablement through facilitating aggregate demand.
We are not, however, surprised by the furore generated over the proposed sharing formula for the proceeds of Value Added Tax (VAT) as contained in the bills, It is the typical expression of the hangover from the era of squabbling over who gets the lion’s share from revenue so generated when, indeed, all that is needed to be done is to innovate to create a symbiotic fiscal relationship between the state and the people in a win-win situation as captured in the bills.
As a matter of fact, so much has been said about the tax bills, but we have gone further to avail Nigerians of the detachment from the past and the economic forward movement that the tax reforms entail.
We note that Nigeria’s critical manufacturing sector has been described to be under siege as it endures a cruel combination of high energy costs, foreign exchange scarcity, rising inflation, insecurity, stratospheric interest rates, high logistics costs and unsold inventories amounting to N350 billion during the same period. The bottom line effect of these collections of challenges is the erosion of profit or, sometimes, actual losses on investment.
We nonetheless submit that the authors of the tax bills had this bouquet of challenges in mind in conceptualising the dimensions of the tax bills as forms of mitigations against reduced profits or losses. A bulwark in this regard is the rates of tax payments itemised for companies operating in Nigeria with the proviso in Part IX, sub-section 56, asserting that tax shall be levied for each year of assessment in respect of the total profits of every company. This in itself is a departure from current tax law requiring a company that had declared losses in its operations for the year to pay a minimum tax of 0.5 per cent of annual gross turnover; the implication is that before now, a company must pay tax either for profit or loss.
This is no longer the requirement in the new tax bill. Companies operators or owners are now saved from paying on losses while small companies, defined as having annual gross turnover of less than N50 million, will now pay zero percent tax. About 43 million registered companies are said to fall into this category of small companies. The zero tax payment is the equivalent of a fiscal elixir that enables the companies to weather the inclement business environment while growing organically through reinvestment of income from their operations. This is usually the trajectory of small companies that soon become multinationals in business history.
For other categories of companies, those with an annual turnover of more than N50 million, the tax bills configured are scheduled reduction of tax payment thresholds by reducing company income tax (CIT) payments from the current 30 per cent to 27.5 percent in the 2025 year of assessment and further reduction to 25 percent from the 2026 year of assessment. This graduated reduction in company income tax corresponds to a huge rebate on the operating costs of qualifying companies.
This, ordinarily, is a loss of revenue to the government, but in the wisdom of the tax bill authors, the reduced CIT should be considered as a government payoff for the challenges encountered in the business process and to assuage profit that might have been lost. We qualify all these initiatives as enterprise development.
This is more so when the basic quotient of taxation is clearly defined and updated away from the opaqueness of current tax laws. A determinant of taxable profit is the template for ascertaining the profit or loss from any trade, business, profession, or vocation itemised in the tax law. To ascertain this profit, a profile of all deductible expenses for that period wholly and exclusively incurred in the production of the income are listed. This includes, among others,
(a) any sum payable by way of interest on debt employed in generating the income of the trade, business, profession, or vocation, subject to the provisions of the Third Schedule to this Act;
(b) rent and premiums, incurred during that period, in respect of land or building occupied to generate the income;
(c) any outlay or expenses incurred in respect of—
(i) salary, wages, or other remuneration paid to employees, and
(ii) cost to the company of any benefit or allowance provided to its employees.
The itemisation of deductible expenses in the bill settles once and for all, the contentious points between tax authorities and taxpayers. The deductible expenses had always been the flashpoint in tax return filing. In addition, we observe that more expenses are now recognised for deduction than hitherto obtained. This adds to the enterprise growth value of the tax law that is still in the making.
We also commend the various grants and tax credits outlined for companies operating in different but critical areas of the economy like the oil and gas sector. For want of space and time, we can only reference the incentives available for companies operating in the gas exploration and production sub-sector concerning non-associated gas greenfield developments in onshore and shallow water terrains. The new tax law before the National Assembly notes that commencing from 1st January 2025, there shall be granted a gas production tax credit at the rate of US $1.00 per thousand cubic feet or 30% of the fiscal gas price whichever is lower and where the hydrocarbon liquids exceed 30 barrels per million standard cubic feet but do not exceed 100 barrels per million standard cubic feet, there shall be granted a gas production tax credit at the rate of US$0.50 per thousand cubic feet or 30% of the
fiscal gas price, whichever is lower. The gas tax credit granted by this section shall apply to Non-Associated Gas sales for 10 years only, beginning from the date of attaining first gas production.
Our submission regarding this tax credit is that the gas production sub-sector of the oil and gas sector of the economy will transform to a beehive of economic activity when the incentives are applied. This is another enterprise development attribution of the tax bills.
Furthermore, we commend the fact of the acknowledgement of the low purchasing power of the larger percentage of the estimated 220 million population of Nigeria. Indeed, over the years, the fact of the largest market in Africa has been ascribed to this large population but in a population that has more than 90 million living below the poverty line, the economic reality is that the population lacks the capacity for effective demands which, in turn, have multiplier effect on how quick goods and services move from inventories to the markets.
We see in the tax bill that the authors have provided circular money movements by allowing for more money to be domiciliated in the hands of ordinary citizens as reflected in the capital gain provision of the bills and exemption from personal income tax payment. The current capital gains tax is charged at a flat rate of 10% of chargeable gains of a value over N10,000,000. All chargeable assets are subject to Capital Gains Tax when disposed at a gain, except those specifically exempted by the Act. Chargeable assets include in current laws includes includes all forms of property, whether or not situated in Nigeria. Disposal of decorations awarded for valour and gallant conduct, life insurance policy, Nigerian government securities, stock and shares, etc.
It is commendable that the exempted assets have been increased in the tax bills, while the qualifying cash value has also been increased. Thus, while the limit is currently N10,000,000, capital gain tax can only now be charged on sums exceeding N50,000,000 obtained by way of compensation or damages for any wrong or injury suffered by an individual in his person or his profession or vocation, including compensation for loss of office or
employment, wrong or injury for libel, slander or enticement. Where the sum exceeds N50,000,000.00, only the excess amount shall constitute a chargeable gain.
In addition, the gains accruing to an individual are exempt from tax in respect of the disposal of, or an interest in — a dwelling-house or part of such dwelling-house; and land, other than land used for commercial purposes, immediately adjoining the dwelling house up to a maximum of one acre. In addition, a gain accruing on the disposal of an asset, which is tangible movable property being personal chattels of an individual shall not be a
chargeable gain if the total amount or value of the consideration for the disposal does not in a period of assessment exceed N50,000,000 or three times the annual national minimum wage, whichever is higher.
This section of the tax bill is an enabler of increased disposable income. Rather than the government taking a share of the money or assets sold, the government allows the citizen to spend his or her money the best way he or she so desires. When this is combined with the progressive personal income tax system and tax relief for low-income earners with the exemption of those earning incomes below N800,000.00 from personal income tax,, we can safely assert that manufacturers of fast-moving consumer goods will see a huge difference in aggregate demand for their respective products. This has further positive implications for business expansion, job creation, and increased standard of living.
For us, the bill is a true exemplification of the progressive tax system, which is reflected in the annual personal income tax rate, as outlined in the Fourth Schedule of the bill, as follows.
a. First N800k – 0%
b. Next N2.2m – 15%
c. Next N9m – 18%
d. Next N13m – 21%
e. Next N25m – 23% and
f. Above N50m – 25%
Before now, the personal income tax rates for different bands of annual income are as follows.
a. First N300k – 7%
b. Next N300k – 11%
c. Next N500k – 15%
d. Next N500k – 19%
e. Next N1.6m – 21%
f. Above N3.2m – 24%
Generally speaking, our stance on the Tax reforms of the President Bola Tinubu administration is that they are necessary to set a country with one of the lowest tax-to-GDP ratios in Africa at 10.86% on the path of inclusive growth for the benefit of all Nigerians.
Interestingly, all the exemptions highlighted here, including the many others not listed, do not detract from the strong revenue generation outlay of the tax bills. Our sequencing of the taxable segments of the economy as contained in the bills indicates a likelihood of driving the country’s tax-to-GDP ratio to a minimum of 16 per cent. By our rating, the revenue collection base is strengthened by the recognition and tax payment requirements on vessels and aircraft loading goods and passengers in the waters and air space of the country. This effectively covers the lucrative maritime sector, which had not been given much traction in the scheme of fiscal responsibilities before now.
We acknowledge that there has been some opposition to certain aspects of the bills, particularly the one on VAT reforms but we commend President Tinubu for standing firm in defence of democracy by urging everyone to take advantage of the public hearing at the National Assembly to ventilate their position as well as present alternative viewpoints rather than withdraw the bills. Indeed, we submit that there is no other place than the National Assembly that is suitable for public debates of the tax bills.
On the contentious VAT controversy- We recognize that a large chunk of the misgivings in some quarters stems from the proposed formula for sharing the 90 per cent accruing to the sub-nationals from proceeds of Value Added Tax (VAT) but as highlighted in our opening to this press conference, we consider the change of sharing template based on population, equity and derivation as an opportunity for state governments to activate value addition possibilities within the economy of their respective states.
They should not allow any raw material, either of agricultural or solid minerals type, to leave their domain without any form of value addition, even if it is basic processing. This way, consumption is registered through value addition, and such states can lay claims to consumption-based derivation beside the general levels of consumption that may be ascribed to them.
We are, therefore, of the view that states which are big on agriculture could do more to ensure that some value is added to their food products so that they can derive benefits from consumption tax, which essentially is what VAT is, and this is moreso that food items in their raw forms are not VATable or exempt from VAT.
It is clear to us that the motive and objective of that particular derivation clause is to encourage competitive value-added economic production among the subnationals.
The misunderstanding here is based on the current tax regime where derivation is attributed to headquarters remittance. But with the new Nigeria Tax Administration Bill proposal, VAT will be attributed to the place of supply and consumption and not the place of remittance, which currently favours states where company headquarters are domiciled.
In our analysis, we found that the ongoing controversy and contentions over the VAT derivation proposal are needless. We also believe that states that are not comfortable with the percentage allotted to derivation could table counter proposals at the forthcoming public hearing of the bills at the National Assembly
Police Recruitment
As we are hopeful of a surge in the National income of our country on the back of the passage and implementation of the tax bill, the federal government have started demonstrating signs of access to increased fiscal revenue. Among other social-based expenditures undertaken by the government, we are impressed by the presidential approval for the annual recruitment of 30,000 police officers and men for the next six years.
Indeed, we submit that the economic reforms in the last 17 months have enabled all major federal revenue-generating agencies to surpass their official targets for the year 2024, thereby enhancing the government’s financial capability to take more responsibility in both capital and recurrent expenditures, as evident in the rise of police recruitment.
This simply means that the country’s capacity to fight the prevailing insecurity is further boosted by the multiple inflows of revenue in the economy.
Process of Mechanisation of the Agriculture Sector
The commencement of the training of Nigerian youths as tractor operators and engineers is yet another sectoral achievement recorded under the ongoing economic reforms. We commend the wisdom and effort behind the formulation of the National Agricultural Mechanization Policy (NAMP) by this administration. We also align our thoughts with the principles and objectives of the policy, which is to transform the age-long farming concept from subsistence to mechanized farming. It is noteworthy that the first set of youth beneficiaries of this laudable scheme are 819 in number.
Presidential Metering Initiative
Meanwhile, the allocation of N700 billion under the Presidential Metering Initiative (PMI) for the free distribution of electricity meters to Nigerian households is an ample dividend of economic reforms. The challenge posed by the inadequacy of meters in the distribution of electricity in Nigeria is enormous. It is believed that this presidential intervention will go a long way to addressing the problems associated with metering. But we equally call on the power distribution companies (DISCOS) not to disavow their primary obligations to provide meters to electricity consumers, as such dereliction of responsibility could compromise the integrity of electricity bills presented to consumers.
We also laud the government’s economic reforms for the payment of N3.3 trillion legacy debt owed to gas production companies coupled with the completion and commissioning of the Zungeru power plant. These accomplishments have improved the supply of power to the national grid which triggered Nigeria’s power output to a three-year high of between 5,313 MW and 6000 MW of electricity generation in November 2024.
We are not happy, however, that the perennial collapse in the national grid on account of obsolete equipment in both the transmission and distribution units of the electricity supply system has continued to deprive Nigerians of the maximum pleasure of enjoying the deliverables attained in the improvement of electricity generation under this administration.
We also acknowledge that within this year, Nigeria’s capacity for local refining of petroleum products recorded a boost first, with the 650,000 barrels per day Dangote refinery coming on stream, followed by the completion of the first phase of the comprehensive rehabilitation of the old Port Harcourt refinery.
Available records show that the rehabilitation of the second Port Harcourt refinery is currently ongoing, while work is also going on on the Warri and Kaduna refineries simultaneously.
The multidimensional benefits of this new development in the downstream sector of Nigeria’s oil industry to the economy are not quantifiable. We are projecting that 2025 will be a good year for domestic refining for the country so much so that a huge chunk of foreign exchange would not only be saved but also earned from refined crude oil products
Gentlemen of the Press, I thank you for listening
Signed:
Omoniyi Moses Akinsiju PhD
Chairman,
Independent Media and Policy Initiatives (IMPI)
December 14, 2024
