Nigeria’s House of Representatives Approves President Tinubu’s Landmark Tax Reform Bills

The House of Representatives has ratified a sweeping set of tax reform bills championed by President Bola Tinubu, marking a decisive shift in Nigeria’s economic policy. These reforms are designed to modernize the nation’s tax system, enhance revenue generation, and promote equitable wealth distribution. This legislative milestone signals a bold move toward fiscal stability, attracting investment while alleviating the tax burden on vulnerable citizens.

---

Key Highlights of the Approved Tax Reforms

1. VAT Retention at 7.5%—Balancing Growth and Consumer Protection

Despite earlier proposals advocating a gradual increase in the Value-Added Tax (VAT) rate to 12.5% by 2026, lawmakers have opted to keep it at 7.5%. This decision strikes a crucial balance between boosting government revenue and safeguarding consumer purchasing power. The move reassures businesses and maintains affordability for Nigerian households while ensuring the government retains steady fiscal inflows.

2. Personal Income Tax Exemptions for Minimum Wage Earners

To support the lower-income segment of the population, individuals earning the minimum wage will now be exempt from paying personal income tax. This strategic exemption serves as a direct economic relief measure, ensuring that Nigeria’s most vulnerable workers retain more of their earnings. This policy is expected to stimulate consumer spending and bolster grassroots economic activities.

3. Revised VAT Revenue Allocation—A More Equitable Distribution

The House has restructured VAT distribution to address fiscal disparities among states, creating a more inclusive economic framework:

• 30% allocated based on each state's revenue generation capacity.
• 50% distributed equally among all states.
• 20% apportioned based on population size.

This progressive revenue-sharing model ensures that economically weaker states receive equitable support, fostering national economic unity.

4. Reshaping the Petroleum Sector’s Tax Structure

A monumental shift in oil industry taxation is underway. The previous 85% Petroleum Profit Tax has been scrapped in favor of a 30% corporate tax on profits from oil operations. This overhaul aims to:

✔ Attract fresh investments into Nigeria’s oil sector.
✔ Encourage greater transparency and accountability.
✔ Align with global best practices in petroleum taxation.

By modernizing tax structures in the oil sector, the government hopes to revitalize Nigeria’s energy economy while maintaining a competitive edge in the global market.

5. Global Minimum Tax for Multinational Corporations

To curb tax evasion by multinational corporations, Nigeria is now implementing a global minimum tax for companies with annual revenues exceeding $970.8 million. This policy aligns with international tax reform efforts and prevents profit shifting to offshore tax havens.

This strategic measure aims to:
✔ Ensure multinational corporations pay their fair share of taxes.
✔ Strengthen Nigeria’s revenue base from foreign investments.
✔ Discourage tax avoidance strategies used by global corporations.

6. Higher Minimum Tax Threshold for Domestic Businesses

The minimum tax threshold for domestic businesses has been increased to ₦50 billion ($32.66 million). This measure provides relief to small and medium-sized enterprises (SMEs), allowing them to reinvest in growth rather than being overburdened by tax obligations.

This change is expected to:
✔ Encourage entrepreneurship and business expansion.
✔ Reduce administrative burdens on smaller companies.
✔ Foster a more vibrant private sector.

---

The Broad Economic Impact of These Reforms

✔ Stimulating Economic Growth

By ensuring a business-friendly tax environment, these reforms are set to attract both local and international investors, fueling economic expansion and job creation.

✔ Enhancing Fiscal Responsibility

Nigeria is now positioning itself as a financially responsible nation by adopting transparent tax structures and aligning with global tax compliance standards.

✔ Promoting Social Equity

The exemption of minimum wage earners from income tax and a revised VAT allocation ensure that economic prosperity benefits all Nigerians, not just the elite.

✔ Strengthening Nigeria’s Global Tax Standing

The introduction of a global minimum tax policy ensures Nigeria remains competitive in international finance, fostering confidence among foreign investors and global financial institutions.

With the House of Representatives’ approval secured, the tax reform bills will now proceed to the Senate for final review. If endorsed, the bills will be sent to President Tinubu for assent, after which they will become law, officially reshaping Nigeria’s tax landscape.

The approval of these sweeping tax reforms marks a turning point in Nigeria’s economic trajectory. By modernizing tax laws, the government is strengthening revenue collection while ensuring fairness and economic inclusivity. As these policies take effect, Nigeria is set to attract higher investment, foster economic stability, and promote shared prosperity for all citizens.