Nigeria’s lower house of parliament has approved four tax reform bills proposed by President Bola Tinubu, marking a step forward in the administration’s push to revamp the country’s tax system. However, several key proposals were modified before passage.
With a tax-to-GDP ratio of just 10.8%, one of the lowest in the world, Nigeria has long struggled with revenue generation, relying heavily on borrowing to fund its budget. After eliminating costly fuel subsidies and twice devaluing the naira since taking office, Tinubu has now shifted focus to tax reforms aimed at boosting revenue and improving efficiency.
Key Changes to Tax Reforms
The proposed reforms initially sought to increase the value-added tax (VAT) rate to 12.5% by 2026, streamline tax collection, and adjust revenue-sharing between federal and state governments. However, lawmakers rejected the VAT hike, keeping the rate at 7.5%, and excluded minimum wage earners from income tax to reduce the burden on lower-income groups.
A controversial proposal to allocate 60% of VAT revenue to high-revenue states was also revised. Instead, lawmakers set a 30% cap, with the remaining 70% distributed—50% equally among all states and 20% based on population.
In the oil sector, the original 85% petroleum profit tax was replaced with a 30% corporate tax rate on oil industry gains. The reforms also introduce a global minimum tax for multinational corporations with annual revenue exceeding $970.8 million and raise the minimum tax threshold for domestic businesses to 50 billion naira ($32.66 million).
Next Steps
Companies operating in free zones that export at least 75% of their goods and services will be exempt from the minimum tax.
The bills now move to the upper house of parliament, where they are expected to be approved next week before being signed into law by President Tinubu.