By Bassey Udo
The 2024 Tax Reform Bill currently being debated in the National Assembly has the potential to modernize Nigeria’s tax system, the Nigerian Extractive Industries Transparency Initiative (NEITI) has said.
NEITI in a memo, signed by its Executive Secretary, Dr Orji Ogbonnaya Orji, and addressed to the leadership of the National Assembly and the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, noted that when passed into law, the Bill would help streamline and broaden the country’s tax administration and base to align with global best practices.
Dr. Orji said NEITI’s observations followed a detailed review of the draft legislation, which showed extensive research and consultation to produce the innovative provisions being deliberated upon in the National Assembly.
The draft tax bill, NEITI noted, emphasized consolidation of legal frameworks, taxing digital assets, addressing resident and non-resident taxation, and introducing measures to curb tax evasion while demonstrating a strong commitment to fiscal transparency and efficiency.
“A detailed review of the Bill revealed that it has the potential to impact positively on revenue generation, household livelihoods, job creation, and overall economic opportunities,” the transparency and accountability agency stated.
As an agency with legitimate interests in the draft legislation, NEITI said “the public debate generated by the Bill underscored the overwhelming public interest by Nigerians and the need for greater clarity and trust in its provisions after it is finally passed into law”.
Despite the potentials of the Bill, NEITI said its section-by-section review of the draft law revealed its strengths and weaknesses as well as areas that need to be reviewed to bridge the policy implementation gaps, particularly as they affect the extractive industries, which is the core of NEITI’s specific mandate.
NEITI noted that although Sections 1 and 2 aim to ensure a unified tax legislation across Nigeria for all individuals and legal entities, they do not have explicit guidelines to harmonize federal and state tax laws and clarify roles of subnational governments.
Commending the intent of the Bill on unifying tax administration in the country, by repealing existing Acts and consolidating them into a single framework, NEITI stated that “Careful management of the transition process and robust public awareness campaigns were critical to avoid administrative confusion.
On implications of the tax law for the Oil, Gas and Mining Industries, including income, petroleum operations, VAT, and tax incentives, NEITI recommended the introduction of clauses to address issues of alignment with state tax systems and provide guidance for resolving jurisdictional conflicts.
Noting that the provision on taxation of digital assets aligned with global practices, NEITI however called for clear definitions of the taxable assets, events and valuation guidelines to be established to ensure effective reporting mechanisms and implementation, allowing for exemptions or phased implementation for small businesses, to support growth.
On Resident and Non-Resident Taxation, NEITI commended the provision for significant economic presence, but said it required clear criteria to avoid disputes and challenges in enforcement.
While the provision requiring minimum effective tax rates for foreign subsidiaries was desirable to curb profit shifting, NEITI said collaboration with international tax authorities was essential for its success.
The transparency and accountability agency stated further that it supported the provisions on taxation of undistributed profits, but advised that consideration must be given to small and medium enterprises (SMEs), to avoid disproportionate impacts on their businesses.
The Agency also recommended the provision of exemptions for small businesses or startups to encourage reinvestment and growth, stipulation of explicit thresholds for significant economic presence to simplify enforcement and compliance with taxation of non-resident persons.
On Benefits in Kind (BIK) and Employee Taxation, NEITI called for explicit guidelines to be established for valuing benefits, like accommodation and other perks, to ensure smooth implementation and minimize disputes.
In addition, NEITI noted the exclusion of partnerships and joint ventures in petroleum operations which presents a huge gap that should be addressed to ensure fairness and accountability in the extractive sector.
On taxation of petroleum operations, NEITI called for the reduction of hydrocarbon tax rates for smaller operators to promote industry participation, expansion of incentives for carbon capture and the introduction of incentives for renewable energy development projects and energy transition investments to align with energy transition goals.
Describing the provisions on Stamp Duties and Value Added Tax (VAT) as comprehensive, NEITI observed that its enforcement in the informal sector and compliance burdens on SMEs remain concerns to be mitigated, while the success of efforts to provide relief on double taxations would depend on robust international agreements and institutional capacity to effectively implement the scheme.
Besides, NEITI called for the reassessment of tax rates for small-scale service providers, including the simplification of processes for compliance with Excise Duty on Services to ease their burden. NEITI recommended the implementation of robust digital tax administration tools to track, monitor and prevent VAT evasion, compliance and fraud.
The Transparency Agency also called for simplified application procedures to be established and incentives expanded to include climate change mitigation and renewable energy projects and provision of targeted incentives for renewable energy projects to align with energy transition goals.
NEITI urged the National Assembly to expand exemptions under the tax incentives to include renewable energy and other sustainability projects, pointing out that placing emphasis on sustainability and environmental initiatives was limited and weak.
Other recommendations include the need to streamline application procedures and the provision of technical support for applicants for Economic Development Tax Incentives; definition of eligible sectors exemptions from Stamp Duties and VAT transactions for greater transparency as well as lower stamp duty rates for priority sectors to encourage investment.
In terms of the general provisions, NEITI recommended investment in capacity-building for tax administrators and adoption of data-driven monitoring systems.
On Relief for Double Taxation and Taxation of Dutiable Instruments, NEITI recommended the inclusion of provisions for the establishment of clear dispute resolution mechanism, possibly through tax tribunals for arbitration or negotiations. It equally called for the introduction of reduced rates or exemptions for priority sectors to encourage investment.
NEITI therefore called for robust engagements with critical stakeholders especially the civil society. The Agency offered to lead the engagements with the third sector on the reform Bill, given its experience in relationship management, goodwill and confidence building it has developed over time with the civil society.
