The National Assembly is currently deliberating on a significant piece of legislation that seeks to increase the Value-Added Tax (VAT) from the current rate of 7.5 percent to 10 percent by 2025. According to an executive bill obtained by TheCable, the proposed tax increment is part of a broader strategy to enhance fiscal policies in Nigeria.
Proposed VAT Rates
- 2025: VAT to rise to 10 percent
- 2026-2029: VAT to increase to 12.5 percent
- 2030 and thereafter: VAT set to reach 15 percent
This move is reportedly aimed at boosting government revenue amidst ongoing fiscal challenges.
Corporate Income Tax Adjustments
In a notable counterbalance to the VAT increase, the bill also proposes a reduction in the Corporate Income Tax (CIT):
- 2025: CIT to decrease from 30 percent to 27.5 percent
- 2026: Further reduction to 25 percent
The bill includes an exemption for companies with an annual turnover of less than N20 million, which will not be required to pay the CIT.
Key Provisions of the Bill
- VAT on Taxable Supplies:
- Tax will be charged on the value of all taxable supplies according to the specified rates for each year of assessment.
- Corporate Income Tax Structure:
- Small companies will be taxed at 0 percent.
- Other companies will face a 27.5 percent CIT in 2025 and a 25 percent CIT from 2026 onwards.
- Minimum Effective Tax Rate:
- Any company whose effective tax rate is below 15 percent will be required to recompute and pay an additional tax to meet this threshold.
- Applicability:
- The provisions will apply to multinational enterprise (MNE) groups and any company with an aggregate turnover exceeding N20 billion.
Background Context
The discussions around VAT adjustments have been fueled by insights from Mr. Taiwo Oyedele, the chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, who emphasized the necessity of raising the VAT rate to improve revenue generation. This proposal comes amid a backdrop of economic challenges and the need for enhanced public financing.
Conclusion
The proposed changes to the VAT and CIT rates reflect a significant shift in Nigeria’s tax policy landscape. While the increase in VAT aims to bolster government revenues, the concurrent reduction in corporate tax may provide relief to businesses, particularly small and medium enterprises. The outcome of these legislative discussions will be pivotal in shaping the fiscal environment in Nigeria over the coming years.
