There is a current shift in the tax administration system in Nigeria which is observed in the promulgation and reform of existing regulations in recent months. Some of these reforms are aimed at enhancing revenue generation, improving compliance, and boosting economic growth, especially within pioneer sectors of the economy. This newsletter analyses some of these changes and their impact on Nigeria’s tax administration.
The Order was signed on September 1, 2024, and it modifies Parts I and II of the First Schedule to the VAT Act (“the Act”) and extends the list of exempted items under paragraph 2 of the Order. These modifications are set out below.
In addition to goods exempted under Part I of the First Schedule of the Act, items such as equipment and infrastructure related to the expansion of Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG), including conversion kits; Domestic Liquified Natural Gas (LNG) Processing Facilities and Equipment, Electric Vehicles, Parts, semi-knock-down units for the assembly of Electric Vehicles, Biogas and Biofuel equipment and accessories for clean cooking and transportation are now exempted from VAT. The Order also expands the list of related services exempted from VAT – CNG and LPG conversion and installation services and manufacturing, assemblage, and sale of electric vehicles.
Also, the definition of “Petroleum products” has been expanded to mean “feed gas for all processed gas, aviation turbine kerosene, premium motor spirit, automotive gas oil (AGO), household kerosene, locally produced liquefied petroleum gas, compressed natural gas, imported liquefied petroleum gas, and crude petroleum oils”. Thus, it expands the previously exempted items to include AGO, CNG, LPG and feed gas for all processed gas. Particularly, the VAT exemption for AGO takes effect from October 1, 2023.
On October 4, 2024, the Federal Government of Nigeria, proposed a bill which seeks to mandate all individuals engaged in banking, insurance and stockbroking to present a tax identification number (TIN) before opening or operating any account. The Proposed Bill is aimed at ensuring tax compliance and optimizing revenue collection across Nigeria.
Furthermore, the Proposed Bill sets out to grant the relevant tax authorities the power to automatically register individuals who fail to apply for a TIN. The tax authorities are also required to notify these individuals of such registration.
The Proposed Bill however states that non-resident individuals who earn only passive income from investments in Nigeria will not be required to register, rather they will provide the necessary information as may be required by the tax authority.
Also, the Proposed Bill provides penalties for non-compliance. Where a taxable individual fails to register for taxes, such an individual would be liable to a penalty of N50,000 for the first month and N25,000 for each subsequent month of failure to register.
The Federal Ministry of Finance in July 2024 issued the Regulation to streamline the withholding tax process in Nigeria. The Regulation, therefore, amongst other things provides for transactions which are exempted from withholding tax, such as distributions or dividend payments to a real estate investment trust or real estate investment company; across-the-counter transactions, technological or scientific innovation, etc.
Some noticeable impacts of these reforms include:
As noted above, the recent shift in the tax administration in Nigeria, aims to enhance revenue generation. Thus, if the Proposed Bill is passed into law, there will be an increase in the number of taxpayers, and this will create an avenue for the government to generate funds.
Ultimately, effective tax reforms can contribute to broader economic growth by providing the government with the resources needed for infrastructure, education and health services.
The expansion of the list of VAT exempt goods and services under the Order shows the adoption of natural gas as an alternative source of fuel for Nigerians. This will help in making the environment more sustainable for Nigerians to live in. This can also increase foreign investments.
These reforms present opportunities for economic growth and development across emerging sectors such as clean energy. It is also expected that tax efficiency will improve the state of the economy, create jobs and an improved business environment where increased taxes are collected from individuals who ordinarily refrain from paying taxes.
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