The Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) has unveiled an ambitious plan to harmonize the multitude of taxes and levies collected by Nigeria’s three tiers of government into eight simplified categories.
This reform aims to modernize tax administration, streamline processes, and boost economic growth, particularly benefiting small and medium enterprises (SMEs) which are currently overburdened by multiple taxation.
At a public consultation workshop held in Lagos, PFPTRC Chairman Taiwo Oyedele outlined the proposed changes. He said that the streamlining effort seeks to make tax administration modern, simple, and adaptive, thereby transforming it into a catalyst for growth.
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“We are focusing on high revenue-yielding taxes that are broad-based and relatively easy to collect by merging taxes and levies imposed on similar tax bases, keeping the total number of taxes across all levels of government to a single digit,” Oyedele explained.
Proposed Harmonized Taxes
The committee’s proposal consolidates numerous taxes into eight main categories:
- Income Tax – Encompassing Company Income Tax (CIT), Withholding Tax (WHT), Capital Gains Tax (CGT), and others.
- Property Tax
- Value Added Tax (VAT)
- Customs Duties
- Excise Tax
- Stamp Duties
- Special Levy – Merging education and police taxes under one rate.
- Harmonized Levy – Including road and market taxes for local governments.
Exchange Rate Adjustment for Customs Import Duty
Addressing the volatility of the foreign exchange (FX) market, Oyedele proposed the federal government adopt a fixed exchange rate of N800 per dollar for customs import duties until the end of the year. This measure aims to stabilize business planning and mitigate the impact of fluctuating exchange rates.
“When we did the budget, we said the naira to dollar would be N800; now it is 1,000 something. People need to plan,” Oyedele noted, urging the government to sign an order to fix the rate for import duties.
Simplifying Taxation for SMEs
A significant part of the reform focuses on reducing the tax burden on small and medium enterprises (SMEs). The committee advocates for withholding tax exemptions for small businesses with annual revenues up to N50 million, recognizing their limited capacity to comply with complex tax regulations.
Also, the committee stresses the importance of institutionalizing these reforms to ensure their sustainability. The proposed Harmonised Tax Levy (HTL) is designed to simplify local government taxes, while also integrating income tax collection at various government levels to ensure automatic distribution of revenues.
Oyedele highlighted that under the new regime, income tax would now include CIT, WHT, CGT, and other taxes, while VAT would be the sole consumption tax, eliminating the need for separate state-level consumption taxes.
The committee’s recommendations also include using extra government revenue to pay down the Central Bank of Nigeria’s (CBN) Ways and Means borrowing. Additionally, they propose leveraging portions of banks’ Cash Reserve Ratio (CRR) to offer concessionary interest rates to manufacturers, fostering industrial growth.
Impact of Multiple Taxation on Businesses
Multiple taxation has long been a significant challenge for businesses in Nigeria, particularly for SMEs. The complex web of taxes levied by federal, state, and local governments often results in excessive compliance costs and financial strain on small businesses. This situation stifles growth and innovation, making it difficult for SMEs to thrive in a competitive market.
“The principles that we are working with is to do away with nuisance taxes with very low revenue yield, high cost of collection and ultimate burden on the poor and small businesses,” Oyedele stated. He added, “Our objective is to simplify the tax system to reduce the burden on businesses, particularly SMEs.”
Oyedele emphasized the reform’s focus on protecting poor and vulnerable businesses from tax burdens. He debunked the common belief that significant revenue lies in the informal sector, clarifying that the middle, upper, and elite classes hold the majority of taxable wealth.
“Our analysis shows that 95 percent of the informal sector will not bear any tax burden in any form. The money we are looking for is in the middle, upper, and elite classes,” he stated.
Oyedele also revealed that the committee’s reform of the withholding tax, which he described as the most difficult and complex tax to comply with in Nigeria, had been approved.
“The good news is that it has moved from proposal to approval because it has been signed, waiting to be gazetted,” he said.
“We want to promote competitiveness, prevent tax avoidance, detect tax evasion and close the tax gap that reflects what is happening globally,” he added.