Introduction

Nigeria’s fiscal framework is undergoing significant transformation, driven by a series of tax reforms aimed at modernizing the tax system, expanding the tax base, and promoting economic growth. These reforms are part of the government’s broader strategy to address inefficiencies, increase revenue, and align the country’s tax system with global best practices. Over the past few years, the passage of successive Finance Acts has laid the groundwork for this overhaul. In 2024, new regulations and legislative proposals are reshaping Nigeria’s tax landscape, affecting businesses and individuals alike.

This article highlights the key changes introduced in 2024, including amendments to tax legislation, and provides an outlook on future developments.

Key 2024 Tax Reforms

1. Deduction of Tax at Source (Withholding Tax) Regulations 2024

On October 2, 2024, the Federal Government issued the Withholding Tax (WHT) Regulations 2024, setting new rules for the deduction of taxes at source under various tax laws, including the Companies Income Tax (CIT) Act and Personal Income Tax (PIT) Act. The new regulations aim to clarify when and how WHT should be deducted, simplify processes, and encourage compliance. Key changes include:

• Reduced WHT Rates: Contracts for the supply of goods or materials (excluding manufacturers) and contracts for services are now subject to a reduced WHT rate of 2%, down from 5%. Professional, management, technical, and consultancy services now attract a 5% WHT rate (previously 10%) for resident companies, while non-residents remain at 10%.
• Exemption for Small Businesses: Companies with a turnover of ₦25 million or less are exempt from the obligation to deduct WHT, provided the supplier has a valid Tax Identification Number (TIN) and the transaction value is ₦2 million or less.
• Enhanced Compliance Measures: WHT will be applied at double the standard rate if the vendor does not provide a TIN. Additionally, businesses failing to deduct or remit WHT on time will face administrative penalties and interest.
• Issuance of Tax Receipts: Businesses deducting WHT must issue a receipt to the vendor, enabling them to claim tax credits, regardless of whether the deduction has been remitted. This improves credit utilization and transparency.
• Clarification on Deduction and Remittance Timing: For unrelated parties, WHT is due at the earlier of payment or settlement. For related parties, WHT applies when payment is made or the liability is recognized. This change alleviates the burden of remitting WHT before payments are received.
• Transaction Exemptions: The regulations exempt certain transactions from WHT, including telephone charges, internet data, airline tickets, and goods manufactured by suppliers. These exemptions reduce the financial strain on businesses, freeing up working capital.

2. Value Added Tax (Modification) Order 2024

The Value Added Tax (Modification) Order 2024, issued by the Minister of Finance, introduces incentives for the gas and renewable energy sectors. Key changes include:

• Expanded VAT Exemptions: Equipment for the expansion of Compressed Natural Gas (CNG), Liquefied Petroleum Gas (LPG), Electric Vehicles (EV), and clean energy infrastructure is now VAT-exempt. This includes conversion kits, domestic LNG processing facilities, and electric vehicle components.
• Service Exemptions: Services related to the conversion and installation of CNG and LPG systems, as well as the manufacturing and sale of electric vehicles, are now VAT-exempt.
• Updated Definition of Petroleum Products: The definition now includes feed gas, automotive gas oil (AGO), aviation turbine kerosene, household kerosene, compressed natural gas, and crude petroleum oil. This update aligns VAT laws with Nigeria’s shift toward clean energy and its broader economic policies.

Future Outlook: Proposed Tax Bills

In addition to these recent reforms, several legislative proposals are under review, poised to reshape Nigeria’s tax administration and fiscal framework:

• Nigeria Revenue Service Bill (NRS Bill): This bill aims to reform the Federal Inland Revenue Service (FIRS) by establishing the Nigeria Revenue Service with greater autonomy. It seeks to consolidate revenue collection across various agencies, such as Nigeria Customs Service and Nigeria Ports Authority, improving efficiency and expanding the tax base.
• Joint Revenue Board Bill (JRB Bill): The JRB Bill proposes replacing the Joint Tax Board with the Joint Revenue Board to enhance collaboration between federal, state, and local tax authorities, reducing inefficiencies and boosting compliance.
• Nigeria Tax Administration Bill (NTA Bill): The NTA Bill focuses on simplifying tax laws, leveraging technology to streamline tax filings, and improving the ease of doing business by automating data collection and reducing administrative burdens.
• Nigeria Tax Bill (Tax Bill): This comprehensive bill seeks to overhaul existing tax laws, ensuring clarity, transparency, and fairness in tax administration. It aims to create a more equitable tax environment for businesses and individuals.
• Economic Stabilization Bill: Designed to provide a legal framework for the government to implement fiscal measures during crises, this bill allows for temporary tax adjustments and levies to stabilize the economy during fiscal downturns.

Conclusion

Nigeria’s 2024 tax reforms reflect a commitment to creating a more modern, efficient, and transparent tax system. The WHT Regulations 2024 simplify withholding tax processes and promote compliance, while the VAT (Modification) Order 2024 incentivizes clean energy adoption and aligns tax policies with the government’s sustainability goals. The ongoing legislative proposals, including the NRS Bill, JRB Bill, and NTA Bill, aim to further strengthen Nigeria’s fiscal framework by improving tax administration and fostering economic stability.

For taxpayers, staying informed and proactive in understanding these changes is crucial. Businesses should review their transactions to identify potential risks and ensure compliance with the new laws, while taking advantage of the incentives and benefits provided by these reforms. As Nigeria’s tax landscape continues to evolve, these reforms are set to play a key role in driving economic growth, increasing government revenue, and enhancing the overall business environment.

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