The Nigerian government’s proposed Tax Reform Bill has sparked widespread conversations—and for good reason. These reforms aim to revamp the tax system, streamline collection, and increase government revenue. Whether you’re running a small enterprise or a large corporation, the changes could significantly impact your operations, costs, and compliance requirements.
We have reviewed the Tax Reform Bill and identified the key provisions that we believe every business owner should pay attention to. Here’s a summary:
VAT Is Set to Rise
Currently at 7.5%, the Value-Added Tax (VAT) will increase incrementally over the coming years. By 2025, it will rise to 10%, reaching 12.5% by 2029, and capping at 15% in 2030. This phased approach is intended to ease the transition for businesses and consumers alike. However, the ultimate effect will likely be felt in higher prices and potential changes in consumer behavior, particularly for non-essential goods and services.
Tax Exemptions for Small Businesses
In a move to support small enterprises, the bill exempts businesses with an annual turnover below ₦50 million from paying Corporate Income Tax (CIT). This measure provides much-needed relief for small and medium-sized enterprises (SMEs), allowing them to channel funds into expansion and operations rather than tax obligations.
Digital Transactions Are Not Left Out
One of the most discussed provisions is the taxation of digital transactions. Gains from digital assets, such as cryptocurrency, will attract a 10% Capital Gains Tax. As digital commerce becomes a staple for many businesses, this tax is a reminder that the digital space is no longer a tax-free zone. Businesses operating online or dealing in digital assets will need to account for this in their financial planning.
A New Development Levy
A development levy on assessable profits is introduced, starting at 4% in 2025 and gradually reducing to 2% by 2030. This levy is targeted at raising funds for public services, particularly education. For businesses, it represents an additional cost to factor into profit projections and operational expenses over the coming years.
Relief for Loss-Making Companies
Previously, companies reporting losses were still subject to a minimum tax. The proposed reforms eliminate this requirement, providing breathing room for struggling businesses. This provision is especially welcome for companies working to recover from economic downturns or industry-specific challenges.
Streamlined Tax Compliance
The bill introduces measures to simplify compliance, including a move towards electronic invoicing and digital tax administration. This aims to reduce administrative burdens and increase transparency in the tax process. While it simplifies compliance in the long term, businesses may need to invest in technology and training to meet these new requirements.
VAT Exemptions for Essential Goods
VAT exemptions remain in place for essential goods and services, such as food, education, healthcare, rent, transport, and electricity. Businesses in these sectors may not face direct cost increases due to VAT changes, although they could still be impacted by related economic shifts.
Rethinking Tax Revenue Sharing
The bill proposes a new VAT revenue-sharing formula, with 60% of revenues allocated based on derivation. This change could influence how states deploy resources and implement policies, indirectly affecting the business environment in different regions.
What’s Next for Businesses?
These changes present both challenges and opportunities for businesses across Nigeria. On one hand, reforms like tax relief for small businesses and the elimination of minimum taxes for loss-making companies offer some breathing room. On the other, rising VAT rates, new levies, and increased digital tax obligations will require businesses to rethink their financial strategies and pricing models.
Preparing for these reforms starts with understanding their implications. Review your current operations, plan for increased compliance needs, and seek expert advice to navigate the complexities of the evolving tax landscape.
