Navigating the Current Taxation Rules in Nigeria: What You Need to Know in 2024.

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Navigating the Current Taxation Rules in Nigeria: What You Need to Know in 2024.

By: Peace Adisa 

Introduction

Nigeria’s tax system is undergoing significant changes as the country strives to improve revenue generation, enhance compliance, and support economic growth. As of 2024, several key reforms and rules are shaping the taxation landscape in Nigeria. This article provides an overview of the current taxation rules, recent reforms, and their implications for businesses and individuals in Nigeria.

1. Overview of Nigeria’s Tax Structure

Nigeria’s tax system is multi-faceted, comprising federal, state, and local taxes. The primary taxes include:

• Corporate Income Tax (CIT): Levied on the profits of companies, with a standard rate of 30% for large companies and 20% for small companies (those with gross annual turnover not exceeding NGN 25 million).
• Personal Income Tax (PIT): Applied to individuals based on their income, with rates ranging from 7% to 24% depending on the income bracket.
• Value Added Tax (VAT): A consumption tax currently set at 7.5% on most goods and services.
• Petroleum Profit Tax (PPT): Specific to companies involved in the oil and gas sector.

2. Recent Reforms and Changes

a. Corporate Income Tax Adjustments

In recent years, Nigeria has introduced several changes to Corporate Income Tax regulations to improve compliance and ease the tax burden on small businesses. The Finance Act 2020 and subsequent amendments have made notable adjustments, including:

• Reduced CIT Rate for Small Companies: The rate for companies with gross turnover not exceeding NGN 25 million has been reduced from 30% to 20%, aiming to support micro, small, and medium-sized enterprises (MSMEs).
• Introduction of Minimum Tax: Companies are now required to pay a minimum tax if their tax liabilities are lower than a certain threshold, ensuring that even companies with minimal profits contribute to tax revenues.

b. Value Added Tax (VAT) Adjustments

The VAT rate in Nigeria was increased to 7.5% in 2020, up from 5%. This increase was implemented to boost revenue and align with global VAT practices. Recent discussions have centered around whether further adjustments are needed to meet revenue targets and economic conditions.

c. Digital Economy Taxation

To address the challenges of the digital economy, Nigeria has introduced measures to tax digital services. The Finance Act 2020 included provisions for the taxation of digital transactions, requiring non-resident companies providing digital services to Nigerian customers to register and pay VAT on such services.

d. Tax Incentives and Reliefs

The Nigerian government has introduced various tax incentives to promote investment and economic growth:

• Investment Tax Reliefs: Companies investing in certain sectors, such as agriculture and infrastructure, can benefit from tax reliefs and exemptions.
• Research and Development (R&D) Tax Credits: Firms engaging in R&D activities can claim tax deductions for related expenses, aiming to foster innovation and technological advancement.

3. Compliance and Enforcement

The Nigerian government is strengthening tax compliance and enforcement measures to combat tax evasion and ensure that businesses and individuals meet their tax obligations. Key initiatives include:

• Automation and Digitalization: The Federal Inland Revenue Service (FIRS) has introduced digital platforms for tax filing and payment, such as the Tax Pro Max platform, to streamline processes and enhance efficiency.
• Increased Penalties: Penalties for non-compliance, including late filing and payment, have been increased to encourage timely tax compliance.

4. State and Local Taxes

In addition to federal taxes, state and local governments levy their own taxes, which can vary significantly across jurisdictions. These include:

• State Taxes: Such as the Personal Income Tax for residents and businesses, and various business permits and levies.
• Local Government Taxes: These include property taxes, business premises registration fees, and other local levies.

State governments have also been encouraged to enhance their tax collection mechanisms and improve revenue generation to support local development projects.

5. Challenges and Opportunities

While the reforms aim to improve Nigeria’s tax system, several challenges remain:

• Tax Evasion and Compliance Issues: Despite efforts to enhance compliance, tax evasion and avoidance are still prevalent. Strengthening enforcement and broadening the tax base are ongoing priorities.
• Economic Impact: The impact of tax reforms on businesses, especially MSMEs, and the overall economy is a key consideration. Balancing tax rates with economic growth and competitiveness is crucial.

Opportunities for improvement include leveraging technology for better tax administration, expanding the tax base by including informal sector activities, and continuing to align Nigeria’s tax policies with international best practices.

 

In our upcoming article, we’ll dive into the essential realm of tax authorities—those crucial entities that play a pivotal role in shaping and enforcing tax regulations. Whether you’re a business owner, a freelancer, or simply someone keen to understand the finer points of tax compliance, knowing who the key players are and what they do is critical. We’ll break down the responsibilities of these authorities, their impact on your financial obligations, and how to effectively interact with them. Don’t miss out on this insightful discussion that could help streamline your approach to managing taxes!