Nigeria is in the middle of a tax reform debate. The proposed 2024 Tax Reform Bills stem from the recommendations of the Presidential Committee on Tax Reform, chaired by the renowned fiscal policy expert Mr. Taiwo Oyedele. Established in 2023, the committee was tasked with overhauling Nigeria’s outdated tax framework to enhance revenue generation, improve compliance, and address inefficiencies in tax administration. Guided by principles of equity, simplicity, and economic growth, the committee’s work culminated in the drafting of these reform bills, marking a decisive effort to modernise the country’s tax system and align it with global best practices.
The reform bills comprise four separate bills:
- The Nigeria Tax Bill (NTB),
- The Nigeria Tax Administration Bill (NTAB),
- The Nigeria Revenue Service Establishment Bill (NRSEB),
- The Joint Revenue Board Establishment Bill (JRBEB)
The major objectives of the bills are to:
- Consolidate various tax laws into a unified framework.
- Simplify compliance and reduce multi-layered taxation.
- Expand the tax base to generate sustainable revenue.
- Address complexities within the current tax system.
- Enhance compliance by leveraging technology and clarity in administration.
Although these reforms are ambitious and commendable in their objectives, they have been a hard sell – in part, because they are coming on the back of previous bold reforms that have not delivered welfare to the general populace. As a result, the proposed reforms have sparked considerable controversy since the bill’s initial submission to parliament. A closer examination reveals substantial challenges that must be addressed to achieve fiscal equity, enhance administrative efficiency, and ensure long-term economic stability.
Some Leading Contentions in Nigeria’s 2024 Tax Reform Bills
Progressive VAT Increase – An Overreach Amid Economic Woes?: One of the reform’s most contentious elements is the proposed progressive increase in Value Added Tax (VAT). The reforms propose a progressive increase in VAT rates from 10% in 2025 to 12.5% (2026–2029) and 15% from 2030 onward. Although such measures align with global best practices to enhance revenue, a major argument against the bills has been about the timing. Nigeria’s economy is grappling with slow growth, high inflation, and widespread poverty. The argument has been that a VAT hike under the prevailing economic conditions risks exacerbating inflationary pressures and eroding consumer purchasing power, disproportionately affecting lower-income households.
Additionally, the implementation schedule is ambitious but lacks a robust impact analysis. How will businesses, especially small and medium enterprises (SMEs), absorb the cost of compliance and price adjustments without pushing it back to consumers thereby stifling disposable income and aggregate demand? There needs to be more rigorous thinking along this line to ensure a functional and truly progressive tax reform.
Revenue Sharing Formula – A Recipe for Inequity? : The proposed revision of the revenue-sharing formula seeks to allocate a larger share (55%) of VAT collections to State Governments and the Federal Capital Territory, with 35% for Local Governments and a reduced 10% for the Federal Government. While the shift reflects an effort to empower subnational entities, the absence of a clear definition of “derivation” creates a risk of lopsided benefits. States with higher corporate headquarters, rather than those with actual VAT-generating consumption, could disproportionately benefit from the derivation principle. This loophole undermines the fiscal federalism objectives of equitable resource distribution and risks intensifying regional disparities. To address this, there is need to establish a transparent, consumption-based derivation formula that reflects economic realities rather than administrative conveniences.
Development Levy- A Double-Edged Sword for Critical Sectors: The introduction of a retrogressive Development Levy on corporate profits, ranging from 4% in 2025 to 2% by 2030, aims to generate targeted funding for key sectors. However, its revenue allocation plan raises critical issues. Initially, funds are distributed to vital agencies like the Tertiary Education Trust Fund (TETFUND), the National Information Technology Development Agency (NITDA), and the National Agency for Science and Engineering Infrastructure (NASENI), alongside the Student Loan Fund. Yet, from 2027 onward, all funds will be redirected to the Student Loan Fund, effectively phasing out support for education, research, and innovation by 2030. Concerns are that this funding shift risks undermining critical investments in education and technology, sectors essential for driving long-term development and competitiveness. Additionally, as the student loan agenda of the government gains more momentum and less funding to the education sector, there is a risk of tuition fees rising, deterring access for economically disadvantaged students and creating a cycle of indebtedness. This needs a significant rethink. Nigeria’s education needs huge investment at all levels and the government needs to really take charge of that process to ensure that Nigerians are relevant in the global economic space in the next decades.
Timing and Stakeholder Engagement- Missing the Mark?: Perhaps the most glaring critique of the 2024 Tax Reform Bills is the poor timing and limited stakeholder consultation. Rolling out substantial tax changes amidst economic hardship risks public resistance and undermines compliance. Moreover, the perception of a regressive tax burden, coupled with a lack of transparency in policy formulation, may erode trust in the government’s fiscal agenda. To mitigate these risks, the government must prioritise stakeholder engagement to foster a shared understanding of the reforms’ goals and implications. Policymakers should also explore phased implementation and pilot programs to test the effectiveness of proposed measures before nationwide rollouts.
Policy Fatigue, a Shirking State or Reforms Without Relief
Nigeria stands at a critical juncture, with sweeping reforms in taxation, fuel subsidy removal, electricity and foreign exchange liberalisation dominating the policy landscape. While these measures are designed to modernise the economy and enhance fiscal stability, a growing sense of reform fatigue among Nigerians cannot be ignored. This exhaustion stems from the relentless burden placed on citizens, who are increasingly bearing the costs of governance without corresponding improvements in public services or welfare.
Economic theory posits that households aim to maximise utility, firms strive for profit, and governments optimise welfare. In functional states, governments play a pivotal role in facilitating the optimisation objectives of households and firms by providing public goods and creating an enabling environment. Unfortunately, in Nigeria, this balance appears broken. Households must now shoulder the full cost of energy, security, education, and healthcare, eroding disposable incomes and quality of life. Firms, on the other hand, operate in an environment fraught with infrastructural deficits, policy uncertainty, and a high cost of doing business. This abdication of responsibility by the state has led many Nigerians to perceive their government as one of the most irresponsible globally, a sentiment fuelled by glaring disparities between the opulent lifestyles of public officials and the misery of ordinary citizens.
The recent reforms are a stark illustration of the widening gap between policy intentions and public welfare. The deregulation of the downstream sector has led to skyrocketing fuel prices, disproportionately affecting low-income households. The liberalisation of the foreign exchange market has further devalued the naira, escalating inflation and eroding purchasing power. Now, the proposed tax reforms, though promising to streamline taxation and enhance efficiency, are perceived as yet another burden on already strained households and businesses.
While taxation is a necessary tool for revenue generation and development, it must be paired with visible improvements in public services and infrastructure. In many developed countries, citizens willingly pay taxes because they see tangible benefits in return such as quality education, healthcare, security, and reliable infrastructure. In contrast, Nigerians face a stark reality where their contributions often disappear into opaque systems with little accountability or impact on their welfare. This explains the gradual erosion of Nigeria’s middle class, marked by an increasing exodus of individuals seeking better opportunities abroad “japa”, presents a significant challenge to the nation’s economic stability.
A large portion of Nigerians who hover just above the poverty line have already left or are in the process of leaving. This mass migration undermines the country’s ability to establish a robust tax base, as the middle class—traditionally a cornerstone of tax revenue in many economies diminishes. In other contexts, middle-class households play a critical role in driving tax revenue due to their higher consumption levels and greater capacity to stimulate aggregate demand. Additionally, their income growth tends to influence demand patterns positively, making them vital for sustaining economic momentum. Without a strong and stable middle class, Nigeria faces not only a weakened fiscal foundation but also diminished prospects for broad-based economic growth.
The Way Forward
The growing resistance to these reforms underscores a deeper issue: the erosion of trust in the government/the Nigerian state. The social contract between the state and its citizens is fraying, and rebuilding it requires urgent action.
- The government must demonstrate a commitment to accountability by ensuring that public resources are managed efficiently and transparently. Citizens need to see clear evidence that tax revenues are used to improve their lives, not to sustain the lavish lifestyles of public officials.
- To ease the burden on households and firms, the government must prioritise investments in critical public goods such as education, healthcare, security, and public infrastructure, particularly shared infrastructure, to boost productivity. Visible improvements in these areas will help restore faith in the state’s ability to deliver on its responsibilities.
- Policymakers must engage in robust stakeholder consultations to build consensus around reforms. Clear communication about the rationale, expected benefits, and mitigation measures for vulnerable groups is essential for gaining public buy-in.
- Given the current economic realities, reforms should be introduced gradually, with safety nets to cushion the impact on vulnerable populations. This approach will help minimise resistance and ensure a smoother transition.
Conclusion
The 2024 Tax Reform Bills represent an ambitious and necessary step toward fiscal modernisation, but their success must be evaluated against the broader realities faced by an already strained populace. While the promise of streamlining multiple taxation is commendable, it is overshadowed by the urgent need for the government to demonstrate a genuine commitment to optimising public welfare and rebuilding trust with its citizens. Nigerians are not inherently averse to taxation; rather, they oppose a system where taxes are perceived as burdensome extractions without a corresponding benefit to their daily lives. For these reforms to succeed, the government must honour its side of the social contract by delivering accountability, transparency, and measurable improvements in public services. Only by fulfilling these obligations can the state credibly ask citizens to shoulder the weight of transformative policies. The reforms also raise critical questions about equity, timing, and sectoral impacts. Policymakers must adopt a collaborative and evidence-based approach to ensure that the proposed measures do not deepen existing inequalities or hinder key development priorities. Achieving a balance between revenue generation and fairness is essential to foster broad-based support and economic inclusivity. While the road to an effective and sustainable tax system is undoubtedly challenging, strategic adjustments and meaningful public engagement can transform these reforms into a catalyst for inclusive growth and development. With the right approach, Nigeria can not only boost revenue but also build a tax system that strengthens social cohesion and fosters long-term progress.
