Nigeria’s Tax Reforms Chief Proposes 95% of Informal Sector Be Exempted From Taxes

The Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) set up by President Bola Tinubu has hinted of plans to revolutionise Nigeria’s tax system, exempting 95% of the informal sector from all taxes. 

Chairman of the Committee, Taiwo Oyedele, who disclosed this to newsmen at the weekend at the end of the close-out retreat of the PFPTRC in Abuja, stressed that the move was aimed at reducing the burden of multiple taxation on small businesses and low-income individuals.

According to him, the informal sector is populated by citizens working hard to earn a legitimate living, emphasizing that in the eye of the Committee, people in the category should not be over-burdened with taxation, but rather supported to grow economically to a point where they can fit into the more affluent categories before imposing taxes on them. 

Oyedele also explained that a lot was considered before the committee came up with the recommendation, noting the those who earn between ₦25 million and less annuallt should be expected from paying all forms of taxes, including income and value added tax (VAT). 

He stressed the need for tax reform, saying, “Everybody, even if you’re not a business person, feels the impact of multiple taxation almost everywhere you turn. It affects small businesses even more than large businesses, and the poor and vulnerable population are having to deal with it.

“So we’re using data to inform our decisions, currently if you earn N25 million a year or less, you don’t have to pay company income tax, you don’t have to worry about VAT. We’re looking at increasing that significantly, first to recognize the inflation we’ve had to contend with over the past few years and also because we think that this whole idea and concept of “your money is in the informal sector” is not supported by data. 

“We think that the informal sector are people who are trying to earn legitimate living, we should allow them be and support them to grow to a point where they can then have the ability to pay taxes. So we think that 95% of the informal sector should be legally exempted from all taxes; withholding tax, company income tax, even payee on their staff, let them be. 

“We can then focus our attention on top 5% of that sector and of course, the middle class and the elites. We think that the days of being above the law in paying taxes are over. The same thing we’re saying to our leaders, whether they are elected or appointed, we think they have to lead by example by showing that they have paid the taxes, not only on time, but correctly to the lawful authorities as contained in the various laws”, he said.

According to him, the Committee’s proposal for tax reforms is expected to be submitted to the National Assembly by the third quarter of this year. 

Oyedele disclosed that the committee has concluded the proposal phase and is currently consulting with the private sector, with internal approvals expected by the end of June. 

He said some executive orders and regulations, such as the new withholding tax regulation exempting small businesses, are ready for implementation and await the Minister’s signature. 

His words: “Additionally, a new National Tax Policy, Spending Policy, and Borrowing Policy will be introduced before the end of the year, while Constitutional amendments are expected in 2025 and 2026, aligning with the National Assembly’s two-year timeline.

“We just closed out now on the proposal phase, we’re already consulting with the private sector. That consultation we expect will continue for the rest of this month, May, and then the internal approvals, whether it’s FEC, whether it’s NEC, whether it’s any other organ of government, up until the end of June. 

“We envisage by the Quarter Three, our documents will be ready to go to the National Assembly and by the end of that Q3, we should have them enacted into law, so we can give reasonable notice to the public, businesses, individuals before commencement for many of them kick off in 2025. 

“But where we have executive orders, directive regulations that don’t require enactment into law, like we have a new withholding tax regulation, where small businesses will be exempt from having to deduct withholding tax, that based on the existing law today, you don’t need to enact it into law, we just need the Minister to sign. So it’s ready, we’re waiting for the final signature. 

“We also have a new National Tax Policy that communicates this direction of our tax system, how we’re going to be spending our money, we have a Spending Policy now, as well as Borrowing Policy so that the social contract with the people is delivered to them in a meaningful way. 

“So all of that will happen before the end of the year, but where we are enacting the law and proposals to amend the Constitution, will happen in 2025, and maybe 2026, in the case of the Constitution because I think the timeline that the National Assembly has is about two years”.

Oyedele said the administration is reforming the country’s tax system with the aim to reduce the burden of multiple taxation on small businesses and low-income individuals. 

According to him, despite numerous taxes, the country’s tax collection as a percentage of GDP remains low and to address this, the government intends to repeal many taxes, harmonize the remaining ones, and improve tax collection efficiency.

“So all of that will happen before the end of the year, but where we are enacting the law and proposals to amend the Constitution, will happen in 2025, and maybe 2026, in the case of the Constitution because I think the timeline that the National Assembly has is about two years”, he said.

Oyedele explained the administration is reforming the country’s tax system with the aim to reduce the burden of multiple taxation on small businesses and low-income individuals. 

According to him, despite numerous taxes, the country’s tax collection as a percentage of GDP remains low and to address this, the government intends to repeal many taxes, harmonize the remaining ones, and improve tax collection efficiency.

 Deji Elumoye in Abuja

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