The Federal Government is embarking on a comprehensive tax system overhaul, with the aim of redistributing the tax burden to wealthier citizens while reducing corporate taxes.
This initiative, part of President Bola Tinubu’s economic reforms, seeks to increase the country’s tax revenue to 18 percent of Gross Domestic Product (GDP) within the next three years, up from the current 11 percent, as reported by Bloomberg.
The proposed reforms also include considering a tax amnesty program to encourage tax compliance.
Taiwo Oyedele, leading a panel appointed by President Tinubu to drive these changes, explained the objectives as follows: “We aim to make the rich pay their fair share, while also protecting the economically disadvantaged.”
Oyedele mentioned plans to reduce the corporate income tax rate, which currently exceeds an effective rate of 40 percent, to support business growth.
This new rate would be benchmarked against similar economies in Africa.
Nigeria’s current tax system exhibits signs of widespread tax evasion, particularly in a nation where a small minority holds significant wealth while the majority lives in extreme poverty.
Nigeria’s tax revenue, as a percentage of GDP, is significantly lower than the 34 percent average for countries in the Organisation for Economic Co-operation and Development (OECD).
Out of the four million registered firms in Nigeria, fewer than 250,000 actively pay taxes, and less than a quarter of the 41 million registered individuals pay income tax.
The complexity of the tax system, with nearly 70 different taxes, and the presence of overlapping local, state, and federal jurisdictions exacerbate the situation.
To address these challenges, Oyedele stated, “We will create structures and systems for tax imposition, collection, authorization, and accountability.
The objective is to streamline the number of taxes to single digits.” He added, “We have identified the top eight taxes that contribute 99 percent of revenue, and we will retain those while eliminating the rest.”