The Impact of Tax Reforms on Businesses and Individuals in Nigeria

Introduction

Taxation is a critical tool for economic development, providing the government with revenue to fund infrastructure, social programs, and public services. In Nigeria, tax reforms have been a central focus for policymakers seeking to expand the tax base, reduce reliance on oil revenue, and improve compliance. However, these reforms have had mixed effects on businesses and individuals, with both positive and negative implications.

Overview of Tax Reforms in Nigeria

Over the years, the Nigerian government has introduced various tax reforms to improve revenue generation and ease the tax burden on businesses and individuals. One of the most significant recent reforms is the Finance Act, which has been updated annually since 2019 to address gaps in tax laws and introduce new provisions that align with global best practices.

Other key tax-related laws include:

• The Companies Income Tax Act (CITA) – Regulates corporate taxation.
• The Value Added Tax (VAT) Act – Governs the taxation of goods and services.
• The Personal Income Tax Act (PITA) – Determines how individuals are taxed.
• The Petroleum Industry Act (PIA) – Regulates taxation in the oil and gas sector.

Impact on Businesses

1. Increased Tax Burden on SMEs

One of the major concerns for businesses, especially small and medium-sized enterprises (SMEs), is the rise in taxes such as VAT, which was increased from 5% to 7.5% under the Finance Act 2019. While this was aimed at boosting government revenue, it has increased the cost of doing business, especially for enterprises in consumer-facing industries.

2. Corporate Tax Adjustments

The Finance Act has introduced several corporate tax changes, such as:

• Exempting small businesses (with turnover less than ₦25 million) from Companies Income Tax (CIT).
• Reducing CIT for medium-sized businesses (with turnover between ₦25 million and ₦100 million) from 30% to 20%.

While this reform provides relief for smaller firms, larger companies still bear a 30% corporate tax, making Nigeria’s corporate tax one of the highest in Africa.

3. Digital Economy Taxation

A significant shift in tax reforms is the introduction of digital taxation. The Finance Act 2020 mandated that foreign tech companies such as Google, Facebook, and Netflix pay taxes on revenue earned from Nigerian users, even if they do not have a physical presence in the country. This move has generated revenue but has also raised concerns about higher service costs being passed on to consumers.

4. Multiple Taxation Challenges

Despite tax reforms, businesses still suffer from multiple taxation due to levies imposed by federal, state, and local governments. Some businesses pay taxes to both the Federal Inland Revenue Service (FIRS) and State Internal Revenue Services (SIRS), leading to increased compliance costs and inefficiencies.

Impact on Individuals

1. Increased VAT and Cost of Living

The increase in VAT from 5% to 7.5% has led to a rise in the prices of goods and services, directly affecting consumers. Essential commodities such as food, transport, and healthcare have seen price hikes, making life more expensive for ordinary Nigerians.

2. Personal Income Tax Adjustments

The Finance Act 2020 adjusted the Personal Income Tax (PIT) structure, exempting minimum wage earners from tax. This provides relief for low-income earners but has had minimal impact on middle and high-income individuals who still face significant tax deductions.

3. Impact on Employment and Wages

With higher corporate taxes and compliance costs, many businesses are struggling with operational expenses, leading to reduced hiring and, in some cases, layoffs. Some companies pass on the tax burden to employees through lower wages or increased work hours.

4. Real Estate and Property Taxation

The introduction of Stamp Duty on Rent Agreements and Property Transactions under the Finance Act has increased the cost of renting properties. This has particularly affected urban dwellers, leading to higher housing costs in cities like Lagos and Abuja.

Relevant Legislators and Government Bodies

1. National Assembly Committees on Finance and Taxation

Key legislators who play a role in tax policy include members of the Senate Committee on Finance and the House of Representatives Committee on Finance, who review and approve amendments to tax laws.

2. Federal Inland Revenue Service (FIRS)

The FIRS, headed by the Executive Chairman, is responsible for implementing tax laws and ensuring compliance. The agency has led digital tax initiatives and enforcement measures.

3. Minister of Finance, Budget, and National Planning

The Minister of Finance plays a crucial role in drafting tax policies and overseeing fiscal reforms. Over recent years, finance ministers, including Zainab Ahmed, have championed Finance Act reforms aimed at increasing revenue.

4. State Governments and Internal Revenue Services (SIRS)

State tax agencies are responsible for enforcing Personal Income Tax (PIT) and other state-imposed levies, creating a complex tax environment for individuals and businesses.

Conclusion

Tax reforms in Nigeria have had a mixed impact on businesses and individuals. While they have helped improve government revenue and introduced exemptions for small businesses and minimum wage earners, they have also increased the tax burden on larger firms and consumers. Moving forward, policymakers must address issues of multiple taxation, compliance burdens, and economic sustainability to ensure that tax policies do not stifle business growth or worsen the cost of living.

REFERENCES

1. Finance Act (2019, 2020, 2021, 2022, 2023) – Federal Government of Nigeria
   • Available at the Federal Inland Revenue Service (FIRS): https://www.firs.gov.ng
2. Companies Income Tax Act (CITA)
   • National Assembly of Nigeria: https://www.nass.gov.ng
3. Value Added Tax (VAT) Act (Amended)
   • Federal Inland Revenue Service VAT guidelines: https://www.firs.gov.ng
4. Personal Income Tax Act (PITA)
   • Federal Ministry of Finance: https://www.finance.gov.ng
5. Petroleum Industry Act (PIA) 2021
   • National Assembly: https://www.nass.gov.ng
6. Federal Inland Revenue Service (FIRS) Annual Reports
   • Available at: https://www.firs.gov.ng/resources/publications
7. National Bureau of Statistics (NBS) Tax Revenue Data
   • Tax revenue statistics and impact analysis: https://www.nigerianstat.gov.ng
8. Central Bank of Nigeria (CBN) Economic Reports
   • Analysis of tax impact on businesses and inflation: https://www.cbn.gov.ng
9. PwC Nigeria Tax & Fiscal Policy Reports
   • Insights on Nigerian tax reforms: https://www.pwc.com/ng
10. BusinessDay Nigeria & The Guardian Nigeria

• VAT, corporate taxation, and Finance Act analysis:
• https://businessday.ng
• https://guardian.ng

11. “Impact of Tax Reforms on Economic Growth of Nigeria (2000-2021)”

• Published in an academic journal. Available at: https://www.researchgate.net

12. International Monetary Fund (IMF) Report on Nigeria’s Revenue Reform https://www.imf.org