The Nigeria Extractive Industries Transparency Initiative (NEITI) has backed the tax reform bills currently before the National Assembly.
NEITI also identified areas of the proposed law that needed to be worked on.
NEITI’s position was contained in a memo signed by its Executive Secretary, Dr Ogbonnaya Orji, and addressed to the leadership of the National Assembly and Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele.
The memo said, “The bills have the potential to modernise Nigeria’s tax system, streamline and broaden its administration and tax base to align with global best practices.”
Orji disclosed that NEITI’s observations followed a detailed review of the draft legislation, which showed extensive research and consultation to produce the innovative provisions currently being deliberated upon.
The draft tax bill, NEITI stated, emphasised consolidation of legal frameworks, taxing digital assets, resident and non-resident taxation, and measures to curb tax evasion, while demonstrating a strong commitment to fiscal transparency and efficiency.
“A detailed review of the bill revealed that it has the potential to impact positively on revenue generation, household livelihoods, job creation, and overall economic opportunities,” a statement signed by NEITI’s spokesperson, Obiageli Onuorah, said.
As an agency with legitimate interests in the draft legislation, NEITI said the public debate generated by the bills underscored the overwhelming public interest by Nigerians and the need for greater clarity and trust in its provisions.
Despite the potential of the bills, NEITI said its section-by-section review of the draft law revealed its strengths and weaknesses, particularly as they affected the extractive industries, which is the core of NEITI’s specific mandate.
It made several recommendations to bridge the gaps in the implementation of the proposed law.
NEITI said, for instance, Sections 1 and 2 aimed to ensure a unified tax legislation across Nigeria for all individuals and legal entities. It stressed, however, that the sections did not have explicit guidelines to harmonise federal and state tax laws and clarify roles of sub-national governments.
Commending the intent of the bills on unifying tax administration in the country, by repealing existing Acts and consolidating them into a single framework, NEITI stated that careful management of the transition process and robust public awareness campaigns were critical to avoid administrative confusion.
On implications of the tax law for the oil, gas and mining industries, including income, petroleum operations, VAT, and tax incentives, NEITI recommended the introduction of clauses to address issues of alignment with state tax systems and provide guidance for resolving jurisdictional conflicts.
It stated that the provision on taxation of digital assets aligned with global practices. But it called for clear definitions of the taxable assets and events, and valuation guidelines to be established to ensure effective reporting mechanisms and implementation, allowing for exemptions or phased implementation for small businesses, to support growth.
On Resident and Non-Resident Taxation, NEITI commended the provision for significant economic presence, but said it required clear criteria to avoid disputes and challenges in enforcement.
While the provision requiring minimum effective tax rates for foreign subsidiaries was desirable to curb profit shifting, NEITI said collaboration with international tax authorities was essential for its success.
The transparency and accountability agency stated further that it supported the provisions on taxation of undistributed profits, but advised that consideration must be given to small and medium enterprises (SMEs), to avoid disproportionate impacts on their businesses.
The agency also recommended the provision of exemptions for small businesses or start-ups to encourage reinvestment and growth, stipulation of explicit thresholds for significant economic presence to simplify enforcement and compliance with taxation of non-resident persons.
On taxation of petroleum operations, NEITI called for the reduction of hydrocarbon tax rates for smaller operators to promote industry participation. It called for expansion of incentives for carbon capture and the introduction of incentives for renewable energy development projects and energy transition investments to align with energy transition goals.
Describing the provisions on Stamp Duties and Value Added Tax (VAT) as comprehensive, NEITI observed that its enforcement in the informal sector and compliance burdens on SMEs remained concerns to be mitigated.
It said the success of efforts to provide relief on double taxations would depend on robust international agreements and institutional capacity to effectively implement the scheme.
NEITI called for the reassessment of tax rates for small-scale service providers, including the simplification of processes for compliance with Excise Duty on Services to ease their burden.
Among others, it recommended the streamlining of application procedures and the provision of technical support for applicants for Economic Development Tax Incentives; and definition of eligible sectors exemptions from Stamp Duties and VAT transactions for greater transparency.
Meanwhile, Trade Union Congress (TUC) welcomed the proposed inclusion of a derivation component in VAT distribution among the three tiers of government.
TUC also expressed support for the decision of the federal government not to further increase the VAT rate of 7.5 per cent.
A statement signed by TUC President, Festus Osifo, said the union was happy with the agreement reached between the state governors and the federal government.
According to Osifo, the deal addressed most of TUC’s earlier concerns regarding the new tax reform bills.
The statement said, “Allowing the VAT rate to remain at 7.5 per cent is in the best interest of the nation, as increasing it would place an additional financial burden on Nigerians, many of whom are already struggling with economic challenges.
“On a general perspective, we welcome the inclusion of a derivation component in the VAT distribution amongst the three tiers of government.”
TUC said at a time when inflation, unemployment, and the cost of living were rising, imposing higher taxes would further strain households and businesses, potentially slowing economic growth and reducing consumer purchasing power.
The union also said the government’s decision to retain both TETFUND and NASENI as going concerns was good, adding that the two institutions have greatly impacted the country through their respective mandates.
TUC expressed the hope that when passed into law and properly implemented, the new tax law will encourage productivity at the sub-national level thereby moving Nigeria gradually from a total rent seeking economy to a derivation based system that will stimulate economic activities.
The union stated that the threshold for tax exemptions should be increased from the current N800,000 per annum, as proposed in the bill, to N2,500,000 per annum.
“This will provide relief to struggling Nigerians within that income bracket, easing the excruciating economic challenges they face by increasing their disposable income,” TUC added.
However, TUC expressed reservation over the decision to assign oil royalty collection to the Nigeria Revenue Service (NRS). Although it might appear beneficial on the surface, TUC argued that it would most likely result in significant revenue losses for the government.
TUC stated, “Royalty determination and reconciliation require specialised technical expertise in oil and gas operations, which NUPRC possesses but NRS lacks, potentially leading to inaccurate assessments and enforcement issues.
“Additionally, this shift would create regulatory burdens, increase compliance costs for industry players, and reduce investor confidence due to overlapping functions and inefficiencies between NUPRC and NRS.”