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The tax regime in Nigeria is made up of a complex web of disjointed tax laws which leave much to be desired in terms of efficiency and effectiveness both in administration and in achieving the nation’s fiscal policy goals. Sequel to this, President Bola Ahmed Tinubu GCFR established the Fiscal Policy and Tax Reforms Committee in August 2023 to address the pressing need for comprehensive tax reform in Nigeria.
The National Agency for Science and Engineering Infrastructure Act , paragraph b and b deleted).The National Lottery Act .The Nigeria Start-up Act , , and 29 deleted).The Federal Roads Maintenance Agency Act deleted).For the subsidiary legislations, the Value Added Tax Act Order 2021 will be revoked, while the Company Income Tax Order 2020 will be amended by deleting paragraph 2 even though the parent legislation, the Company Income Tax, would be repealed.
Also, the bill progressively redesigned the capital gains tax regime by exempting some forms of capital gains from taxation and, in other cases, raising the gain threshold before imposing a capital gains tax. For example, Section 51 of the bill exempts an individual from paying tax on the proceeds of the sale of his residential property or land adjoining his residential property up to a distance of 1 acre.
The bill went further in Section 59 to harmonise all the special deductions on companies’ profit into a single development levy that is expected to progressively decline from a rate of 4% in 2025 and 2026 assessment years to just 2% from 2030. The three direct annual deductions on companies’ profit consolidated into a one-off development levy by the bill include:
Nigerian Education Loan Fund’s primary funding source is through the deduction of 1% of all taxes, levies and duties collected by FIRS and not necessarily extra direct deductions from companies’ profits. c. The National Information Technology Development Fund will receive 20% of the development levy in 2025 and 2026 and 0% from 2027 onwards.
While this sharing formula represents fiscal federalism, it is noteworthy to state that the VAT derivation model pursuant to Section 77 which potentially redistributes revenues amongst state governments equitably, incurs significant losses to some state governments. Based on the 60% derivation model, states that contribute more in VAT revenue will earn more while states that contribute less might earn significantly less.
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