On 26 June 2025, Nigeria entered a new era of taxation. With the signing of the Nigeria Tax Act (NTA), Nigeria Tax Administration Act (NTAA), Nigeria Revenue Service Establishment Act (NRSEA), and the Joint Revenue Board Establishment Act (JRBEA), the Federal Government has initiated a structural overhaul that redefines tax compliance, administration, and taxpayers’ obligations across board.

Unlike previous reforms, these Acts are far-reaching in both scope and substance targeting digital transformation, widening the tax net, creating a more business friendly environment and rebalancing fiscal responsibilities across federal, state, and local authorities.

Note: While the effective date will be confirmed in the official gazette, it is unlikely that implementation will begin prior to 1 January 2026

The Nigeria Tax Act consolidates four major legislative instruments:

• Nigeria Tax Act 2025

The new Nigeria Tax Act 2025 introduces significant reforms to the country’s tax system, aiming to simplify tax administration, enhance compliance, and promote economic growth. The Act unifies the legal tax framework in Nigeria by creating a single statute for the taxation of all income, transactions and instruments. Once effective, the NTA shall repeal existing tax legislations such as the Companies Income Tax Act, Personal Income Tax Act, Capital Gains Tax, Value Added Tax, Petroleum Profits Tax Act, Stamp Duties Act, Industrial Development (Income Tax Relief) Act, among others.

• Nigeria Tax Administration Act 2025

The Nigeria Tax Administration Act as defined in its own Act is “an act to provide for the assessment, collection of, and accounting for revenue accruing to the federation, federal, states and local governments; prescribe the powers and functions of tax authorities, and for related matters”. The Act provides the operational backbone for the new tax regime by focusing on how taxes are to be administered and enforced. It sets out the rules, processes and powers for tax enforcement while also providing the clarity and structure for implementing the Nigeria Tax Act.

• Nigeria Revenue Service (Establishment) Act 2025

The Act repeals the Federal Inland Revenue Service (Establishment) Act of 2007 and enacts the Nigeria Revenue Service (Establishment) Act 2025 to establish the Nigeria Revenue Service (NRS) as the central tax authority tasked with the assessment, collection and accounting for tax revenue accruable to the Federal government.  In simpler terms, the FIRS has now been replaced with the NRS with expanded mandates.

• Joint Revenue Board of Nigeria (Establishment) Act 2025

The newly passed Act establishes the Joint Revenue Board (JRB), replacing the Joint Tax Board as a more autonomous and inclusive body designed to harmonize tax administration across the country. It also creates the Office of the Tax Ombud and a restructured Tax Appeal Tribunal with increased scope to coordinate and settle disputes among tax stakeholders in matters of tax administration as well as promote the rights of taxpayers.

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Key highlights of the Nigeria Tax Act are as follows:

Maintained VAT Rate and Expanded the scope of Input VAT Recovery

• The VAT rate remains unchanged at 7.5%
• VAT paid on all purchases including services and fixed assets will now be recoverable as input tax (within a period of 5 years) only to the extent it was incurred for the purpose of consumption, use or supply in the course of making taxable supplies.
• The NTA 2025 expands the scope of zero-rated goods and services, allowing suppliers to charge VAT at 0% while still claiming input VAT credits.

The following are now treated as zero-rated supplies:

• Basic food items
• Medical and pharmaceutical products, including medicinal herbal products
• Educational books and materials
• Fertilizers and locally produced agricultural chemicals
• Locally produced veterinary medicines and animal feeds
• Live cattle, goats, sheep, and poultry
• Agricultural seeds and seedlings
• Electricity generated by generation companies (GENCOs) and supplied to National Grid or Nigeria Bulk Electricity Trading Company (NBET);
• Electricity transmitted by Transmission Company of Nigeria (TCN) to Electricity Distribution Companies (DISCOs);
• Medical services and medical equipment
• Tuition for nursery, primary, secondary, and tertiary education
• Exported goods (excluding oil and gas), exported services, and exported incorporeal property
• Electric vehicles, and parts or semi-knocked-down units used for their assembly

Rate of Tax for Companies to remain at 30%

• Rate of tax for small companies is now 0%, while all other companies’ rate of tax shall be 30%.
• A small company has now been defined as a company that earns a gross turnover of N100,000,000.00 or less per annum with total fixed assets not exceeding N250,000,000.00 and excludes any business providing professional services.
• The rate of tax for large companies can be reduced to 25% effective from a date as may be determined in an Order issued by the President on the advice of the National Economic Council
• The classification of medium sized companies has been expunged.
• The rate of tax on chargeable gains from disposal of chargeable assets has been increased from 10% to 30% for corporate entities, except for small companies, which will be taxed at 0%. For individuals, such gains will now be subject to tax under the graduated tax rate for individuals rather than a flat rate. It is important to note that chargeable gains will now be included in computing the total profits of a company and the total income of an individual.

Taxation of Nonresidents

The definition of a Nigerian company has been expanded to include any company that:

1. • is formed, registered, or incorporated under any law in Nigeria.
   • has its central place of management or control in Nigeria; or
   • has its effective place of management or control in Nigeria.

The NTA 2025 expands the tax net for non-resident persons by clearly providing that profits from any trade, business, or profession are taxable in Nigeria where:

1. 1. the non-resident has a Permanent Establishment (PE) or Significant Economic Presence (SEP) in Nigeria;
   2. payments are made by a Nigerian resident or a Nigerian PE for offshore services, except where the payment is:
      • to an employee under a contract of employment,
      • by an individual for teaching by or to an educational institution, or
      • by a foreign PE of a Nigerian entity and the cost is borne by that PE;

• Insurance premiums are paid to the non-resident for risks situated in Nigeria.
• The NTA 2025 provides that where a non-resident person has a PE in Nigeria, profits attributable to that PE will include not only income earned through the PE, but also income from goods or services of the same or similar kind supplied directly to Nigeria by the non-resident or its connected persons even if not routed through the PE.
• Payments made to non-residents for cross-border services, or insurance premiums related to risks located in Nigeria, are subject to withholding tax, which shall be treated as the final tax on such income. However, where the non-resident has a Permanent Establishment (PE) or Significant Economic Presence (SEP) in Nigeria to which the income is attributable, the income may be subject to further taxation.
• Where a non-resident has a PE or SEP in Nigeria, and the profit attributable to it cannot be reliably determined, the following rules apply:
• The tax authority may apply the non-resident’s global profit margin to its Nigerian-sourced income to estimate taxable profits.
• If the declared profit is lower than this benchmark, the higher amount will be deemed as taxable profit in Nigeria.

Regardless of the profit determination method, where WHT has been deducted at source, it will constitute the minimum tax payable on the income. However, if no WHT applies, the non-resident will be required to pay a minimum tax of 4% on the total Nigerian-sourced income.

Global Minimum Tax Implementation

• The Minimum tax rate of 0.5% of gross turnover would no longer apply to companies with no taxable profit in Nigeria.
• Members of an MNE group and companies with gross turnover of EUR750,000,000 and above or N50,000,000,000 and above will have to pay a minimum tax if their effective tax rate is less than 15%. The Act requires such companies to recompute and pay an additional tax that brings its effective tax rate equal to 15%. This aligns with the OECD BEPS Pillar Two global minimum tax framework.
• The effective tax rate has been defined to mean the rate produced by dividing the aggregate covered tax paid by a company for a year of assessment by the profits of the company. For this purpose, profit is defined as the net profit before tax as reported in the audited financial statements, reduced by 5% of depreciation and personnel costs for the year.

4% Development Levy Replaces Multiple Levies

• A 4% Development Levy on assessable profits of all companies except small companies and non-resident companies replaces the Tertiary Education Tax (TETFUND) and other levies.
• The revenue accruing from the levy will be distributed as follows:

• • 50% to the Tertiary Education Trust Fund,
  • 15% to the Nigerian Education Loan,
  • 8% to the National Information Technology Development Fund,
  • 8% to the National Agency for Science and Engineering Infrastructure,
  • 4% to the National Board for Technological Incubation
  • 10% to the Defense and Security Infrastructure Fund and
  • 5% to the National Cybersecurity Fund.

Revised Revenue and VAT Sharing Framework

The Value Added Tax (VAT) revenue formula has been revised to be shared as follows among the Federal, State, and Local Government:

• • 10% to the Federal Government.
  • 55% to the State Governments and the Federal Capital Territory; and
  • 35% to the Local Governments.

The revenue sharing formula among the State and Local Governments has also been adjusted as follows:

• • For States: 50% based on equality, 30% based on consumption, 20% based on population.
  • For Local Governments: 70% based on equality, 30% based on population.

These formulae are designed to promote equitable revenue distribution and incentivize consumption-based development.

Removal of Reasonability and Necessity Tests on Deductions

• The longstanding subjective “reasonably” and “necessarily” tests for deducting business expenses have been abolished.
• Deductibility will now rely solely on objective compliance with tax laws and actual business use, removing ambiguity and reducing disputes.

Income Tax for Individuals

• The NTA 2025 sets out that an individual’s chargeable income is calculated as their total income, as defined in Section 28 of the Act, less allowable deductions (referred to as eligible deductions). These deductions represent personal reliefs intended to reduce the individual’s tax burden and reflect essential expenses.

Eligible deductions include:

• Contributions to the National Housing Fund (NHF)
• Contributions to the National Health Insurance Scheme (NHIS)
• Contributions under the Pension Reform Act
• Interest on loans used to develop an owner-occupied residential house
• Life insurance premiums or annuities paid for the individual or their spouse
• Rent relief equal to 20% of the annual rent paid, capped at ₦500,000 whichever is lower, and subject to full disclosure of rent and other prescribed details.

The Act also introduces new tax rates for individuals ranging from 0% to 25% as follows:

• First N800,000 at 0%;
• Next N2,200,000 at 15%.
• Next N9,000,000 at 18%.
• Next N13,000,000 at 21%.
• Next N25,000,000 at 23%; and
• Above N50,000,000 at 25%.

Individuals earning minimum wage in line with the Minimum Wage Act are exempted from income tax.

Compensation or damages up to ₦50,000,000 for personal injury, professional injury, loss of office, libel, slander, or enticement are not taxable as chargeable gains. Only amounts exceeding ₦50,000,000 would be treated as a chargeable gain and subject to tax.

Economic Development Incentive

• The NTA repeals the Industrial Development Act and replaces the Pioneer Status Incentive (PSI) with the Economic Development Incentive (EDI). The EDI aims to stimulate capital investments in defined priority sectors, focusing on actual performance rather than blanket tax holidays.

The EDI introduces key features such as

• • The implementation of 5% Economic Development Tax Credit (EDTC) on QCE per annum for 5 years (priority period), offsetting CIT payable
  • Unused EDIC can be carried forward for up to 5 years.
  • Possibility of a one-time 5-year extension if 100% of profits are reinvested, though clarity is needed on whether the 5% EDTC applies during the extension.

Capital Allowance

• Capital allowance on qualifying capital expenditure is no longer split into initial and annual Instead, a straight- line allowance is now applicable on assets categorized into either of the three classes: Class 1, 2 & 3 of Table 1 of the First Schedule of the NTA.
• Intangible assets expenditure and software expenditure can now claim capital allowance under rates specified for Class 1 & 3 of Table 1 of the NTA respectively.

Digital Compliance & E-invoicing

• The Acts mandate VAT focalization, requiring taxpayers to adopt e-invoicing systems linked to the NRS for real-time transaction monitoring.
• Profits or gains arising from transactions in digital or virtual assets are now classified as chargeable gains and will be subject to tax under the rules applicable to chargeable assets.
• A National Single Window platform will integrate tax filings and payments, facilitating ease of doing business and reducing tax gaps.

Tax Dispute Resolution Enhancements

• The Office of the Tax Ombud will serve as an independent and impartial arbiter for review and resolution of disputes between taxpayers and tax authorities, improving fairness and reduced protracted litigation.
• The Tax Appeal Tribunal is reconstituted with jurisdiction over all federal and state tax disputes, promising faster and more effective resolution.

New Compliance Obligations for Virtual Asset Service Providers (VASPs)

• Businesses involved in virtual asset exchanges, custody, or management are required file detailed returns on virtual asset transactions, even without formal notification from tax authorities.

Additional Assessments

• The NTA provides that the relevant tax authority may continue a tax audit and raise additional assessments beyond the six-year limitation period, provided that the audit commenced before the expiration of that period. This ensures that ongoing audits can be concluded properly, and any further tax liabilities discovered during the process can still be assessed.
• The NTA also provides that the relevant tax authority is now required to respond to a tax payer’s objection notice within 90 days. Where no response is provided within this period, the objection shall be deemed upheld in favor of the taxpayer.

Mandatory Disclosure of Tax Planning Arrangements

• The new framework introduces a proactive disclosure requirement for taxpayers engaging in tax planning arrangements aimed at securing a tax advantage. Any person who enters or intends to enter into a transaction or agreement primarily designed to confer a tax benefit must, without notice or request, disclose relevant details to the appropriate tax authority.

The tax authority is empowered to issue regulations detailing:

• The type of information to be disclosed,
• The format and method of submission,
• The timeline for disclosure, and
• Applicable penalties for non-disclosure, false disclosure, or late/incomplete submissions.

“Tax advantage” is broadly defined to include the reduction, deferral, or avoidance of tax liabilities or obligations, and applies to any transaction, scheme, or arrangement undertaken to achieve such benefits.

Filing of Tax Incentives Return

Taxpayers (both individuals and corporate) are now required to file Annual Tax Incentive Returns including those under the Economic Development Incentive (EDI) regime and other sector-specific reliefs. This filing is in addition to the regular annual tax returns and must cover all income tax and incentives not generally available to all taxpayers.

Stricter Penalties and Offenses

The reform enhances the penalty regime for tax non-compliance with higher fines and clearer offenses.

Penalties applicable to companies (excluding those engaged in petroleum operations):

S/N	Offence	Penalty
1	Failure to register for tax	₦50,000 for first month + ₦25,000 for each subsequent month
2	Awarding contract to unregistered person	₦5,000,000
3	Failure to file returns / incomplete or inaccurate returns	₦100,000 for first month + ₦50,000 for each subsequent month
4	Failure to keep books and records	₦10,000 (individual); ₦50,000 (company)
5	Failure to grant access for deployment of technology	₦1,000,000 first day + ₦10,000 each subsequent day
6	Failure to use focalization system	₦200,000 + 100% of tax due + interest at CBN MPR
7	Failure to deduct tax	40% of amount not deducted
8	Failure to make attribution / notify	₦1,000,000
9	Failure to remit tax deducted or self-account	Amount not remitted + 10% per annum penalty + interest at CBN MPR: also imprisonment up to 3 years or fine up to 50% of sum
10	Failure to respond to notices / demands	₦100,000 first day + ₦10,000 each subsequent day
11	Failure to supply info / records	₦200,000 first day + ₦10,000 each subsequent day
12	Failure to comply with info obligations (legal arrangements)	₦1,000,000 first day + ₦10,000 each subsequent day
13	VASP non-compliance	₦10,000,000 first month + ₦1,000,000 each subsequent month or license suspension/revocation
14	Failure to stamp dutiable instruments	10% of unpaid duty + interest at CBN MPR
15	Failure to disclose facts in dutiable instrument	₦100,000 admin penalty or ₦50,000 fine + 3 years jail or both
16	Failure to notify change of address	₦100,000 first month + ₦5,000 each subsequent month
17	Fraud in relation to stamps	₦2,000,000 fine or up to 3 years jail or both
18	Offence by authorized/unauthorized persons (e.g. fraud, embezzlement)	200% of sum or up to 3 years jail or both
19	Inducement of authorized officer	₦500,000 (individual); ₦2,000,000 (body corporate) + up to 3 years jail or both
20	Use of weapon in offence	Up to 5 years jail; injury: up to 10 years jail
21	Impersonation of authorized officer	₦1,000,000 fine or up to 3 years jail or both
22	Aiding and abetting	₦1,000,000 fine or up to 3 years jail or both
23	Obstruction	₦1,000,000 admin penalty + ₦1,000,000 fine or up to 3 years jail or both
24	Unauthorized disclosures of taxpayer info	₦1,000,000 fine or up to 3 years jail or both
25	False claims of tax refund	50% of refund + interest + recovery of refund
26	False/fictitious VAT refund claim	100% of refund + interest + recovery of refund
27	Default in payment of mineral royalties	10% penalty + interest (SOFR + 10% for FX, CBN MPR for Naira)
28	False declaration	₦1,000,000 admin penalty + tax undercharged or ₦1,000,000 fine + up to 3 years jail
29	Counterfeiting documents	₦1,000,000 admin penalty + ₦1,000,000 fine or up to 3 years jail
30	Offence by body corporate (responsible officers)	Same penalty as individual unless no knowledge/consent
31	General contravention without specific penalty	₦1,000,000 admin penalty or up to 3 years jail or both

Penalties applicable to companies engaged in petroleum operations include:

S/N	Offence	Penalty
1	Failure to file estimated or actual returns on due	10,000,000 on first day + either 2,000,000 for each subsequent day of failure or another sum prescribed by Minister Interest at SOFR + 10% on differential of revised tax over estimated tax (if further return is not made)
2	Late payments of tax, royalty or remittance	10% of unpaid sum + interest (SOFR +10% for FX or CBN MPR+ 2% for Naira 10,000,000 or USD equivalent first day + either 2,000,000 Possible distraint, cancellation, seizure, disposal or revocation of licenses or assets of the holder
3	Failure to comply with notice / appear in response to notice or summons/ submit returns	10,000,000 on first day +2,000,000 for each day default continues 10,000,000 fines on conviction for an offence + either 2,000,000 each day default continues or 6 months
4	Incorrect accounts, schedules, statements or false information	15,000,000 + 1% of either of the correct or incorrect account undercharged tax (whichever is higher) + appropriate tax payable On conviction of an offence: Same penalty + possible imprisonment
5	False statements / forged documents / prepares or aids false returns	Either fine of 15,000,000 or 1% of tax amount (whichever is higher) or 6 months imprisonment or both fine & imprisonment
6	Offence by authorized or unauthorized person (e.g. embezzlement, fraud	Either 200% of sum in question or 3 years imprisonment or both
7	Default in petroleum royalty payment (after 30 days)	Same penalties as late tax payment: 10% of unpaid sum + interest +10,000,000 first day +2,000,000 per day thereafter
8	General non-compliance where no specific penalty provided	10,000,000 +2,000,000 for each day of continued default
9	Where no penalty is specifically provided	Either 20,000,000 fine or another sum prescribed by Minister or 6 months imprisonment or both fine and imprisonment

Conclusion

The Nigerian Tax Reform Acts are more than an administrative update; they are a blueprint for a modernized tax ecosystem. While the scale of the instituted changes may appear daunting, it presents forward-thinking businesses with a timely opportunity to streamline operations, reinforce transparency, and rethink tax governance in a way that adds long-term value.

Delaying tax readiness could expose your organization to compliance risks, revenue leakage, and reputational concerns especially with the rise of fiscal digitalization, mandatory disclosures, and enhanced regulatory scrutiny.

At Stransact Chartered Accountants, we are committed to helping clients transition confidently into the post-reform environment. Whether through impact assessments, compliance restructuring, or executive workshops, we offer the insight and support necessary to align your tax strategy with evolving national and global expectations.

To better understand how these reforms impact your specific industry, structure, or compliance obligations, reach out to our experts at [email protected] to schedule a tailored tax impact assessment or executive strategy session.

Disclaimer

This article is based on the version of the Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service Establishment Act, and Joint Revenue Board Establishment Act currently in circulation. As of the time of publication, these Acts have not been officially gazetted. Consequently, interpretations provided herein may be subject to change upon official gazetting or further regulatory guidance. Businesses are advised to seek professional advice tailored to their specific circumstances.

As part of its broader effort to modernize tax administration and close revenue gaps, the Federal Inland Revenue Service (FIRS) has announced the phased implementation of an electronic invoicing (e-Invoicing) system in Nigeria, known as the FIRS Merchant Buyers’ Service Solution (FIRSMBS). The rollout, beginning July 2025, will initially target large taxpayers (i.e., companies with annual turnover of N5 Billion and above), with plan to expand to other taxpayer categories in subsequent phases.

This regulatory development aligns with Nigeria’s National Digital Economy Policy and Strategy (2020–2030) which aims to enhance tax transparency, improve efficiency in VAT collection and reduce revenue leakages through digital transformation and automation.

What Is FIRSMBS?

The FIRSMBS platform is designed to bridge taxpayers’ internal invoicing systems with the FIRS infrastructure. This integration is intended to give the tax authority real-time access to transaction data, reduce tax leakages, and simplify VAT monitoring. The solution offers businesses a secure, real-time mechanism for creating, validating, and transmitting invoices electronically. It also aims to standardize invoice formats, ensuring consistency and reliability in tax submissions.

Key Highlights of the E-Invoicing Framework

• The e-Invoicing mandate will apply to Business-to-Business (B2B), Business-to-Government (B2G) and Business-to-Consumer (B2C) transactions, integrating with enterprise systems through Application Programming Interface (APIs) or National Information Technology Development Agency (NITDA) approved Access Point Providers (APPs).
• The B2B/B2G invoices must be pre-cleared with FIRS and must carry a unique Invoice Reference Number (IRN) and Cryptographic Stamp Identifier (CSID). The B2C invoices must be reported within 24-hours and include a QR code for validation.
• Taxpayers will access the FIRSMBS platform using their Taxpayer Identification Number (TIN) to create a digital profile. Once onboarded, businesses can generate invoices through the portal. Each invoice will contain standardized information such as supplier and buyer details, item descriptions, quantities, pricing, tax breakdowns, and total amount.
• Invoices must be transmitted to the FIRS for validation in real time or shortly before being shared with the customer. To be accepted, the e-invoice must include essential fields such as transaction type, parties’ names and VAT registration numbers, tax amounts, and the total value. All validated invoices must be submitted within 21 days of generation.
• Implementation begins from July 2025 for large taxpayers while that of the medium and small businesses will be in subsequent phases and based on the feedback from the initial roll out.

Read more: National Repository Portal and Financial Reporting Compliance: A Guide for Nigerian PIEs

Why E-Invoicing?

The shift to e-invoicing is not just a technological update; it represents a transformation in how businesses transact, comply with tax laws, and engage in cross-border trade. Key advantages include:

• Faster Tax Reporting: Accelerates the invoicing process, resulting in timely and accurate VAT filings.
• Reduced Costs and Errors: Automation eliminates manual processes and minimizes invoicing errors, improving data integrity.
• Streamlined Operations: Electronic systems reduce paperwork and facilitate easier reconciliation and recordkeeping.
• Regulatory Compliance: Ensures adherence to uniform invoice standards, aiding in audits and reducing disputes.
• Sustainable Practice: Reduces paper usage and aligns with environmental best practices.
• System Interoperability: Enables seamless communication between businesses’ ERP systems and the FIRS platform, fostering digital integration.

How can we support you?

We understand that compliance transformations require more than just systems upgrades; they require strategic alignment. Our team is equipped to support your business through:

• E-invoicing readiness assessments
• System integration support
• Policy and process design
• Staff training and compliance advisory

The implementation of E-invoicing by the FIRS signals a clear direction toward a data-driven, digitally enabled tax system in Nigeria. While the changes may appear daunting at first, businesses that prepare early will be better positioned to realize operational efficiencies and maintain compliance.

We encourage you to reach out to us at [email protected] as you begin navigating this transition.

 

In a landmark decision aimed at strengthening Nigeria’s domestic economy and promoting local content, the Federal Executive Council (FEC), presided over by President Bola Tinubu, on Monday 5^th of May 2025 approved a sweeping new policy framework tagged the “Renewed Hope Nigeria First Policy”. This policy aims at making government investment directly benefit our people and industries by changing how we spend, how we procure, and how we build our economy.

Understanding the Nigeria First Policy

The Nigeria First policy is expected to become the cornerstone of the administration’s economic strategy, especially as the government pushes forward with its industrialization agenda and import-substitution goals.

The policy comes at a critical time as the International Monetary Fund, IMF, forecasts a gradual slowdown in Nigeria’s economic growth from 3.4% in 2024 to 3.0% in 2025 and further declining to 2.7% in 2026. This downward trajectory underscores the urgent need for structural economic reforms to sustain growth momentum. The Nigeria First policy aims to counteract these declining growth projections by stimulating domestic production and reducing import dependency.

Read More: Why Nigeria Is Not Classified as a Hyperinflationary Economy

Key Resolutions and Implementation Strategies

• Revision and Enforcement of Procurement Guidelines: The Bureau of Public Procurement (BPP) is to revise and enforce procurement rules that prioritize Nigerian-made goods and homegrown solutions across all Ministries, Departments, and Agencies (MDAs).

• Mandatory Waivers for Foreign Procurements: MDAs are prohibited from procuring foreign goods or services that are available locally without obtaining a written waiver from the BPP. This measure is intended to curb unnecessary foreign expenditures and stimulate domestic production.
• Inclusion of Technology Transfer Provisions: Where foreign contracts are unavoidable, they must include provisions for technology transfer, local production, or capacity development in Nigeria.

Implications for Stakeholders

• For Government Agencies: MDAs must audit existing procurement plans and submit revised versions aligned with the new policy directives. This requires a thorough assessment of current procurement practices and a shift towards sourcing from local suppliers.
• For Local Industries: The policy presents an opportunity for Nigerian manufacturers and service providers to increase their participation in government contracts. By meeting quality and capacity standards, local businesses can position themselves as preferred suppliers.
• For Foreign Contractors: International firms seeking government contracts in Nigeria must now incorporate strategies for technology transfer and local capacity development into their proposals. This approach ensures that foreign engagements contribute to the growth of Nigeria’s domestic industries.

Read More: The New Reality for Nigerian Manufacturers—And How to Compete in It

Conclusion

The Nigeria First policy comes amid economic reforms being pushed by the Tinubu administration, including subsidy removals, a new foreign exchange regime, and efforts to restore investor confidence. By making local content central to government spending, the administration hopes to drive job creation, industrial growth, and sustainable economic development.

While the policy will likely face implementation challenges and resistance from entrenched procurement interests, officials say the administration is determined to enforce compliance at all levels.

At Stransact Chartered Accountants, we specialize in guiding businesses through complex regulatory landscapes. Our team of experts can help you understand the implications of the Nigeria First Policy and develop strategies to align with its requirements.

 

📩 Contact us at [email protected] for personalized support.

 

As an employee, your paycheck is your livelihood. But what if you’re paying more taxes than you should? Pay-As-You-Earn (PAYE) is the system used in Nigeria to deduct income tax from employees’ salaries. While it’s designed to simplify tax compliance, errors can occur, leading to over-taxation.

In this article, we’ll teach you how to spot common PAYE deduction errors, steps to resolve them, and how Stransact’s PAYE calculator can help ensure accuracy.

Understanding PAYE in Nigeria

PAYE is a method of collecting income tax from employees directly through their employers. The tax is deducted monthly based on the employee’s earnings and remitted to the relevant tax authority (usually the State Internal Revenue Service).

The PAYE system is governed by the Personal Income Tax Act (PITA), 2011 (as amended), which outlines the rules for calculating and deducting taxes.

Key components of PAYE

• Taxable Income: This includes your basic salary, allowances, bonuses, and other benefits.
• Tax Reliefs and Allowances: Certain allowances, like consolidated relief allowances (CRA), are tax-free. Also, certain contributions/expenses are considered tax-free.
• Tax Bands: Nigeria uses a progressive tax system, meaning the more you earn, the higher your tax rate.

Common PAYE Deduction Errors

Here are some common mistakes that could lead to over-taxation:

• Incorrect Taxable Income Calculation
  Employers may include non-taxable income (e.g., reimbursement made due to company’s expenses made from personal account) in your taxable income, leading to higher PAYE tax deductions
• Miscalculation of Consolidated Relief Allowance (CRA)
  The CRA is a tax-free allowance granted to all employees. It includes:
  • 20% of gross income plus
  • N200,000 or 1% of gross income (whichever is higher).
    If your employer fails to apply this correctly, your taxable income will be overstated.
• Exclusion of Tax-Deductible Expenses
  Certain contributions/expenses are deductible for tax purposes. They include:
  • Pension contribution
  • Contribution to the National Housing Fund
  • Interest on mortgage loan
  • Life assurance premium
• Wrong Application of Tax Bands
  Nigeria’s tax bands are progressive, with rates ranging from 7% to 24%. If your employer applies the wrong band, your tax deductions could be higher than necessary.

How to Spot PAYE Errors

• Review Your Payslip
  Check your gross income, taxable income, and net pay. Ensure that non-taxable allowances and tax-deductible expenses are excluded and that the CRA is applied correctly.
• Verify Your Tax Bands
  Use the current tax bands to confirm that your employer is applying the correct rate.
  The bands are calculated as follows on an annual basis:
  • First N300,000: 7%
  • Next N300,000: 11%
  • Next N500,000: 15%
  • Next N500,000: 19%
  • Next N1,600,000: 21%
  • Above N3,200,000: 24%
• Compare with Previous Payslips
  Look for sudden increases in tax deductions without a corresponding increase in income.
• Confirm Pension and NHF Deductions
  Ensure that your pension (8% of basic, housing, and transport) and NHF (2.5% of monthly income) contributions are correctly deducted before tax calculation.

  NOTE:
  The NHF contribution is required but not obligatory for private sector employees but compulsory for public sector workers.

• Use a PAYE Calculator
  Stransact’s PAYE Calculator simplifies this process. Input your gross earnings and deductions to verify whether your employer is correctly computing your PAYE tax.

  Visit: stransact.com/paye-calculator

Steps to Resolve PAYE Discrepancies

• Discuss with Your Employer
  Politely bring the issue to your employer’s attention. Provide evidence (e.g., payslips, tax calculations) to support your claim.
• Contact Your State Internal Revenue Service (SIRS)
  If your employer doesn’t resolve the issue, reach out to your State Internal Revenue Service. They can investigate and ensure compliance with tax laws.
• Seek Professional Help
  Tax consultants, like Stransact, can help you review your payslips, identify errors, and liaise with your employer or tax authorities on your behalf.

How Stransact’s PAYE Calculator Can Help

At Stransact, we understand how complex PAYE calculations can be. We developed a PAYE calculator to help employees and employers ensure accuracy.

Here’s how it can help you:

• Quick Calculations: Instantly compute your net pay based on your gross income, allowances, and deductions.
• Error Detection: Identify discrepancies in your tax deductions by comparing your payslip with the calculator’s results.
• Compliance Assurance: Ensure your employer is applying the correct tax bands and reliefs.

Conclusion

PAYE errors can cost you thousands of naira yearly if left unchecked. By taking proactive steps to verify deductions, leveraging available tax reliefs, and seeking expert assistance when needed, you can ensure your salary reflects what you truly deserve.

Stay tax-smart! Double-check your deductions with Stransact’s PAYE calculator today.

Law-making in Nigeria is strictly the primary function of the legislative arm of government, whether at federal or state level.  This function is enshrined under the broad heading – “Legislative Powers” in section 4 of the 1999 Constitution of the Federal Republic of Nigeria, as amended (the Constitution).  Section 4(1) of the Constitution provides that:

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“The legislative powers of the Federal Republic of Nigeria shall be vested in a National Assembly for the Federation which shall consist of a Senate and a House of Representatives”

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The Constitution further outlines the procedures for making of laws which typically begins with the first stage, where the bill is presented before the constituted legislative body through to the final stage when the President assents. In line with the provisions in section 58 of the Constitution, the President’s signing of a bill into law gives legal force or effect to such Law or Act.  Also, where an Act gives anybody or a committee the inherent power to make regulations, rules or policies to operate such Act, such regulations, rules, or policies are deemed legally effective if made by the designated person or committee.

Official Gazetting of Legislation 

Official gazetting of laws upon assent by the President has become a conventional and administrative process of making laws in Nigeria. Official gazettes are primary sources of law published by federal, state, or local governments to disseminate new legislation, regulations, and decisions of governmental bodies.  The essence of this administrative process is principally to create public awareness about such Acts, Regulations, and Policies. The official gazette serves as proof of the existence and authenticity of a law.

While it is a settled conventional and administrative principle that all regulations, ordinances, etc made under an Act are required to be published in the Official Gazette, the pertinent question is: What happens to Acts, Regulations, and Ordinances that are not gazetted? What is their legal force or validity?

The Legal Basis for Ungazetted Laws in Nigeria

Ungazetted laws or regulations are legal enactments that have not been officially published in the Federal or State Government Gazette.  While the gazette proves the existence and authenticity of a law or regulation, failure to gazette does not necessarily invalidate such a law or regulation.  Also, where a Principal Act provides that a Minister or any other person can make regulations or rules for the operation of the Act, such regulations if duly made by the Minister or other designated person in line with the process outlined in the Principal Act shall have full legal effect and force. These apply to tax legislations also.

However, whether an ungazetted law is enforceable depends on several legal principles and precedents, which are considered below.

Constitutional Provisions

The 1999 Constitution of the Federal Republic of Nigeria (as amended) is the supreme law in Nigeria. As such, any law or regulation that is inconsistent with the Constitution becomes null and void to the extent of the inconsistency.  Section 1(3) of the Constitution states thus:

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“If any other law is inconsistent with the provisions of this Constitution, this Constitution shall prevail, and that other law shall to the extent of the inconsistency be void.”

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However, the Constitution itself does not mandate that laws must be gazetted for such laws to be enforceable or effective, though certain statutes require this for official recognition.  Therefore, it would be an aberration to hold the view that Acts or Regulations must be gazetted before being considered legal or effective. Such a view contradicts the provisions of the Nigerian Constitution.

 

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Interpretation Act, Cap I23, LFN 2004

The Interpretation Act governs how statutes and subsidiary legislations are to be interpreted and gives guidance on the operation of laws in Nigeria.  Section 2 of the Interpretation Act stipulates that the operation or commencement of a law may be determined by its publication or by another mechanism specified in the law itself.  Section 2 provides that:

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1. “An Act is passed when the President assents to the Bill for the Act whether or not the Act then comes into force.
2. Where no other provision is made as to the time when a particular enactment is to come into force, it shall, subject to the following subsection, come into force-
   • in the case of an enactment contained in an Act of the National Assembly, on the day when the Act is passed;
   • in any other case, on the day when the enactment is made. 
3. Where an enactment is expressed to come into force on a particular day, it shall be construed as coming into force immediately on the expiration of the previous day “

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The above provisions imply that a signed law or regulation becomes effective on either “the day it is passed” or “on any other date or in line with any other provision that is stipulated in the law or regulation”. Once effective, such law or regulation then becomes legally enforceable.  This means where the law or regulation does not stipulate that publishing it in the official gazette will be a pre-condition for its enforceability, then failure to gazette it should never affect its validity or legality.

 

Read More: New Withholding Tax Regulations Explained

 

Judicial Decisions on Ungazetted Laws

Judicial decisions form part of the secondary law-making process in Nigeria.  They help with the interpretation of laws. The courts have ruled about the propriety of ungazetted laws in Nigeria as represented in the cases below:

• Uwaifo v. Attorney-General of Bendel State (1982) LPELR-3448(SC)

In this case, the Supreme Court of Nigeria held that laws take effect from the date specified for their commencement and not necessarily from the date of publication in the Gazette unless the law expressly states that gazetting is a pre-condition for its operation. The implication of this ruling is that: failure to gazette a law does not automatically invalidate it unless the law specifically stipulates so.

• Afolabi v. Governor of Oyo State (1985) LPELR-215(SC)

The Supreme Court held that administrative orders, policies, or laws that have not been gazetted could still be valid, provided they meet all other requirements of due process and do not conflict with statutory or constitutional provisions. Gazetting, while important for public notice, is not always a pre-condition for validity.

• Chief Felix Ogunmade & Ors v. Federal Republic of Nigeria (2003) LPELR-2327(SC)

The court ruled that the failure to gazette a regulation may render it unenforceable against the public unless there is evidence that the public was made aware of the regulation through other means. This therefore implies that if the public is overwhelmingly aware of any regulation or law that is not gazetted, the presumption of enforceability is then deemed valid.  The principle of fairness in the enforcement of laws implies that the public should have access to laws that govern their conduct.

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While it is agreed that the publication of a law or regulation in an official gazette gives authenticity to such law or regulation, this does not extinguish the fact that where a law or regulation was not made by following the due process as contained in the enabling statute, publication of such law or regulation in an official gazette does not make it valid or legal.  This was the decision of the Tax Appeal Tribunal in Check Point Software Technologies B.V Nig Ltd v Federal Inland Revenue Service where the Tribunal declared the Income Tax (Country-By-Country Reporting) Regulations, 2018 as void, invalid, or illegally made regulations.  This decision was on the premise that ‘the Regulations’ was not made by the FIRS Board, which is the body empowered by the enabling statute to make such regulations.

Finance Act 2023 and Deduction of Tax at Source (Withholding) Regulations 2024

• The Finance Act 2023

The Finance Act 2023 (FA 2023) was signed into law by former President Muhammadu Buhari on 28 May 2023, and was meant to take effect on the same day.  However, President Bola Ahmed Tinubu subsequently issued an executive order in July 2023, upon his assumption of office to postpone the commencement of the FA 2023 to 1 September 2023.

Though the FA 2023 has not been published in the official gazette since it was signed into law by the President, the various Tax/Regulatory authorities as well as taxpayers and the general public have continued to fully apply the provisions of the Act.  This, therefore, underscores the fact that an Act or Regulation does not need to be gazetted before it is considered legal or valid, except where a law specifically provides otherwise.

 

• Deduction of Tax at Source (Withholding) Regulations 2024

The Deduction of Tax at Source (Withholding) Regulations 2024 (WHT Regulations 2024) was made by the Minister of Finance based on the powers conferred on him by the enabling statute.  The WHT Regulations 2024 was expressly set to commence on 1 July 2024.  However, since its publication by the Federal Ministry of Finance, an official gazetted copy has not been published.

This halt in the administrative procedure of publishing the Regulations in the official gazette has been misconstrued by some tax administrators as a basis for invalidating the ‘WHT Regulations 2024’.  Their argument is that ‘the New Regulations’ lacks proper legal force just because it has not been gazetted.  Nonetheless, it is clear from our comprehensive analyses presented above, that such a view is purely a fundamental misconception that is contrary to the extant provisions of the Nigerian Constitution and all available judicial precedents.

Conclusion 

An ungazetted law or regulation is not automatically illegal or invalid in Nigeria except a legislation specifically provides that gazetting such law or regulation would be a pre-condition for its legality or validity.  The date of commencement of a law is crucial in determining its enforceability; meanwhile, gazetting is merely an administrative or conventional process that is used to notify the public, but is not relevant for determining the law’s inherent legality.  Judicial precedents have affirmed that the failure to gazette a law or regulation does not necessarily invalidate it, but may only affect its enforceability where such failure has denied the public the reasonable opportunity of being aware of the said law or regulation.

The Nigerian Securities and Exchange Commission (SEC) recently announced significant advancements in its regulatory approach to digital assets through its Accelerated Regulatory Incubation Program (ARIP) and Regulatory Incubation (RI) Program. These programs, which aim to foster innovation while ensuring investor protection, have now granted “Approval-in-Principle” to two digital asset exchanges and admitted five firms to test their models and technologies.

This development marks a critical step towards integrating digital assets into the Nigerian capital market, but it also raises some important tax considerations, particularly relating to some of the amendments introduced by the Finance Act 2023.

SEC’s Regulatory Incubation Programs: A Catalyst for Innovation

The SEC’s ARIP was introduced to strategically onboard firms that had begun operations before the release of the Rules on Virtual Assets Service Providers in May 2022. The focus of the ARIP is to fast-track the onboarding of Virtual Assets Service Providers (VASPs) and other Digital Investment Service providers (DISPs) who want to register with the SEC.

The RI Program, on the other hand, is designed to assess the business models of new digital assets (Fintech) firms, testing innovative products, services, and technologies in a controlled environment via basic but limited regulations. RI is aimed at innovators who have been assessed and considered eligible for SEC regulation, but for which no rules currently exist or for which amendment of current rules are required.

These initiatives are characterized by the increasing use of Distributed Ledger Technology (DLT) in the creation and trading of crypto assets. The participating firms under these programs, such as Busha Digital Limited and Quidax Technologies Limited, operate digital assets exchanges that facilitate cryptocurrency trading with fiat currencies. Others, like Trovotech Ltd and Wrapped CBDC Ltd, focus on offering platforms for tokenizing real-world assets and introducing stablecoins pegged to the Nigerian Naira (₦).

The programs are designed to ensure that these digital assets and platforms operate within a secure and regulated environment, paving the way for broader adoption in the Nigerian financial ecosystem.

Tax Implications Under the Finance Acts 2023

While the SEC’s programs are a leap forward for the digital assets space in Nigeria, they also bring to the fore some critical tax considerations.

Capital Gains Tax (CGT)

The Finance Act 2023 included digital assets {Cryptocurrencies, Non-Fungible Tokens (NFTs), etc} as part of qualifying assets for CGT purpose. This means that any gains realized from the disposal of these digital assets would be subject to CGT.  The tax rate for capital gains in Nigeria is currently 10%, and this applies to both individuals and corporate entities. 

This underpins the need for robust tax reporting and compliance mechanisms to ensure that CGT is accurately assessed and remitted on all capital gains from digital assets. The CGT Act requires that entities should compute CGT on all chargeable assets disposed, pay the tax computed and file self-assessment returns at least twice yearly (i.e. not later than ‘30 June’ and ‘31 December’).

For example, taxpayers who hold ‘tokenized real estate investments’ offered by platforms like HousingExchange.NG Ltd and Dream City Capital, must account for CGT on any capital gains realized from the disposal of these digital tokens. Similarly, the capital gains from trading cryptocurrencies on exchanges like Busha and Quidax would also be subject to CGT.

Other Related Taxes

There are provisions for the taxation of income derived from digital platforms, including income from staking, lending, trading of various forms of digital assets and other decentralized finance (DeFi) activities. For firms operating under SEC’s regulatory incubation programs, it is essential to navigate these tax obligations carefully.

The Nigerian tax law requires that all income derived by corporate entities (with Nigerian Income Tax Presence – either via local incorporation, Permanent Establishment or Significant Economic Presence) from digital assets must be reported and taxed in Nigeria, where such income is deemed to be derived from Nigeria.  However, individuals who are Nigerian residents earning income (other than capital gains) from digital assets may be assessed to Personal Income Tax in Nigeria on their global income, whether such income is realized locally or from international sources. This underscores the importance of compliance with Nigeria’s tax laws and the need for digital assets firms and business owners to establish clear tax strategies that align with their business models and objectives.

Regulatory and Tax Compliance

As digital assets continue to gain traction in Nigeria, the intersection of regulatory oversight and taxation will become increasingly significant. The SEC’s ARIP and RI programs are a step in the right direction, providing a structured framework for the introduction and regulation of digital assets in the Nigerian capital market. However, the success of these programs will largely depend on the ability of participating firms to continuously ensure compliance with the relevant regulatory requirements and tax obligations.

For digital assets exchanges, offering platforms, and custodians, this means not only adhering to SEC’s guidelines but also ensuring full compliance with the extant tax provisions.  Firms must implement robust tax reporting systems, maintain accurate records of all transactions, and ensure timely payment of taxes, including CGT, VAT, and income tax.

Balancing Innovation with Compliance

The ongoing efforts of SEC to regulate digital assets through its ARIP and RI programs reflect a commitment to fostering innovation while safeguarding the interests of investors. As these programs evolve, they will likely serve as a model for other regulatory jurisdictions looking to integrate digital assets into their financial markets.

However, as the digital assets landscape in Nigeria expands, so too will the complexity of the tax and regulatory environment. For firms operating in this space, the key to success will lie in balancing innovation with compliance, ensuring they not only seek to exploit the opportunities presented by digital assets, but also keen to fulfilling their obligations under Nigerian law. By doing so, they can contribute to the growth and stability of the Nigerian capital market, paving the way for a new era of financial innovation and inclusion.

Empowering Businesses for the Future

As the digital asset landscape in Nigeria continues to evolve, the intersection of innovation, regulation, and taxation becomes increasingly complex. At Stransact, we understand the unique challenges businesses face in navigating this dynamic environment. Our team of tax, regulatory, and advisory experts is well-positioned to guide firms through the intricacies of compliance while fostering growth and innovation.

We offer tailored solutions that go beyond mere compliance—by deeply understanding your business needs, we help you seize new opportunities while mitigating risks. Whether you’re a digital asset provider seeking regulatory clarity or a business looking to optimize tax strategies under the Finance Act 2023, our holistic approach ensures you remain competitive in this rapidly changing landscape.

Let us empower your business with forward-thinking strategies and expert guidance that drive success and sustainability for the future. Together, we’ll help you navigate the challenges of today and thrive in the opportunities of tomorrow.

The Deduction of Tax at Source Withholding Tax (WHT) Regulations 2024 released on July 1, 2024, by the office of the Honourable Minister of Finance and Coordinating Minister of the Economy, has now been gazetted on October 2, 2024.

The regulations have an effective date of 1 January 2025 and supersede all previous regulations concerning deductions at source or Withholding Tax.  It also simplified areas of complexity in the old regulations as well as the issue of reduced rates for industries with low margins have now been adequately addressed by the new regulations.

Also, the regulations are designed to promote easier tax compliance and administration, reduce arbitrage between corporate and non-corporate business structures, and address emerging issues, while also aligning with global best practices.

What to Know about Withholding Tax (WHT)

Withholding Tax (WHT) is a tax deducted at source from payments made to a taxable person for the supply of goods and services or any other eligible transaction involving both passive and non-passive income.  It is not a separate form of tax but an advance payment of income tax.

WHT can be used as a tax credit to offset any subsequent income tax liability.  However, in certain cases, the WHT deducted at source serves as the final tax in the hands of the recipients. WHT was designed to curb tax evasion by widening the tax net, which in the long run improves overall tax revenue generation.

Key Updates on the New Withholding Tax Regulations

Below are the notable changes brought by the “Deduction of Tax at Source (Withholding) Regulations 2024” to address the challenges faced by taxpayers and to promote tax compliance:

Tax to be deducted at source

• ‘The new Regulations’ has expanded the list of eligible transactions liable to WHT, providing simplified and clear descriptions.  There have also been reduced rates to address low-margin industries.  Additionally, if a double tax treaty (DTT) duly ratified by the National Assembly exists between Nigeria and any other country, the reduced rates specified in the treaty will apply to eligible recipients who are residents of that treaty country.
• If recipients of payments for goods, services, or other eligible non-passive income transactions do not have a Tax Identification Number (TIN), the amount to be deducted at source shall be twice the specified rate. This is a drive to widen the tax net.

Exemption of small businesses from Withholding Tax compliance.

The new Regulations exempt “small companies” (defined under the Companies Income Tax Act as having a gross turnover of N25 million or less) and unincorporated business entities with the same turnover threshold from the requirement to deduct tax at source from any transactions, provided the supplier is registered for tax (i.e. has a Valid TIN) and the transaction value is N2 million or less during the calendar month.

This exemption encourages small companies and unincorporated business entities to maximize their working capital without the burden of tax compliance.  Remember, WHT deductions will not apply to transactions of small companies, since their profits are exempted from income tax.

Deduction at Source Obligations (i.e. When to deduct?)

• For transactions between independent parties, the obligation to deduct at source shall arise at the earliest of when payment is made or the amount due is otherwise settled (i.e. deduction is solely on a “cash basis”).
• For transactions between related parties, a deduction shall be made at the time of payment or when the liability is recognized, whichever is earlier.
• Also, deductions on any payment to a non-resident person shall be the final tax except such income is still subject to any other further tax by reason of a taxable presence in Nigeria.

Deduction to be Receipted

• The Regulations mandate that when an entity deducts tax from a supplier’s invoice and remits it to the relevant tax authority, it must provide the supplier with a receipt for tax deducted at source.
• This receipt should include all relevant information about the supplier, such as their name, address, Tax Identification Number, National Identification Number (for individuals), or RC number (for companies), nature of the transactions, the gross amount payable or settled, the amount deducted, and the month of the transaction.
• The person from whom the deduction has been made (i.e. the beneficiary) may submit the receipt to the relevant tax authority as evidence of the amount deducted for the purpose of claiming tax credit irrespective of whether the amount has been remitted or not.

Offences

The regulations also specify the penalties for those who either fail to withhold tax at source (WHT) or, after withholding, fail to remit the deducted amount to the appropriate tax authority. The penalties include:

• Failure to deduct the required amount attracts an administrative penalty.
• Failure to remit the amount already deducted attracts an administrative penalty, and annual interest.

Transactions Exempt from WHT deductions:

The following transactions are exempt from withholding tax deductions as stipulated by the regulations.

• Compensating payments under a Registered Securities Lending Transaction
• Any distribution or dividend payment to Real Estate Investment Trust or Real Estate Investment Company
• Across-the-counter- transactions: This refers to “any transaction carried out between parties without an established contractual relationship or any prior formal contracting arrangement and in which payment is made instantly in cash or on the spot via electronic means”. (i.e. transactions where there is no formal agreement or contract).
• Interest and fees paid to a Nigerian bank by way of direct debit of the funds domiciled with the bank
• Goods manufactured or materials produced by the person making the supply: This involves the assembling of a final product or the making of a part or component of a product utilizing raw materials or other inputs including labor and production overhead.  This also includes the production of energy, including electricity, gas, and petroleum products.
• Imported goods where the non-resident suppliers do not have an Income tax presence in Nigeria
• Any payment in respect of income or profit which exempt from tax
• Out-of-pocket expense that is normally expected to be incurred directly by the supplier and is distinguishable from the contract fees.
• Insurance Premium
• Telephone charges, internet data and airline tickets.
• Supply of Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Premium Motor Spirits (PMS), Automotive Gas Oil (AGO), Low Pour Fuel Oil (LPFO), Dual Purpose Kerosene (DPK) and JET-A1.
• Commission retained by a broker from monies collected on behalf of the principal in line with the industry norm for such transactions
• Winnings from games of chance or reality shows with contents designed exclusively to promote entrepreneurship, academics, technological or scientific innovation.

Timeline for Remittance

• In case of payment to the Federal Inland Revenue Service (FIRS), not later than the 21st day of the month following the month of payment.
• In case of payment to the State Internal Revenue Service (SIRS), with respect to Capital Gains Tax and Pay-As-You-Earn, not later than the 10th day of the month following the month of payment, while with respect to any other deduction, not later than the 30th day of the month following the month of payment.

 

Download summarised fact sheet

Legal Implications of the Gazetted Regulations

The earlier version of the WHT regulations that was initially published stated 1 July 2024 as its commencement date. A lot of taxpayers had since commenced implementation of the regulations. However, the recently gazetted version states that implementation of the regulations shall be effective from 1 January 2025. It also stated in the new Regulations that the relevant tax authority shall, with the permission of the Minister, issue guidelines for the effective implementation of the Regulations.

The Federal Inland Revenue Service (FIRS) subsequently issued a public notice stating that the new regulations shall take effect from 1 January 2025, while the Companies Income Tax (Rates, etc of Taxes Deducted at Source (Withholding Tax) Regulations (old CIT WHT Regime) shall continue up until 31 December 2024. However, it is important to note that this FIRS notice only affects corporate taxpayers. All other unincorporated business entities, whose taxes are administered by their respective State Revenue Authorities, are not affected by this FIRS notice.

Nonetheless, corporate taxpayers who began complying with the new regulations from July may be concerned about whether their actions were lawful or whether they have inadvertently breached the regulations.

Did Taxpayers Breach the Law by Complying Early?

No, taxpayers who began complying with the new regulations from July were acting within the confines of the law, based on the information available at the time. While the gazetted version has now shifted the official start date to January 2025, any deductions made before it was published in the official gazette are not considered unlawful.

We understand that tax compliance can be complex, especially with shifting regulatory landscapes, but rest assured that your early compliance efforts were entirely legitimate. For more detailed information on why early compliance with ungazetted regulations does not constitute a breach of law, we encourage you to read our in-depth article on this topic: The Legal Propriety of Ungazetted Acts or Regulations in Nigeria.

Next Steps for Taxpayers

Now that the gazetted version is officially in place and the FIRS has clarified the start date for corporate taxpayers, we advise all taxpayers to discontinue the use of the new regulations and revert to the previous withholding tax regulations until 1st January 2025. This delay provides additional time to adjust and prepare for the new WHT regulations without fear of legal consequences.

 

Written By:

Ajaba Okachi – Tax Consultant

Similoluwa Awodeyi – Tax Consultant

Victor Athe – Partner, Tax & Strategy Services

In an exclusive interview with The Nation newspaper’s Ibrahim Apekhade Yusuf, Victor Athe, partner at Stransact (Chartered Accountants), correspondent firm of RSM in Nigeria, shared insights on the federal government’s latest withholding tax policy. He discussed the advantages and disadvantages of the new regime, providing a comprehensive overview of its implications for taxpayers and businesses.

Who is exempted from withholding tax?

The original idea behind the introduction of the WHT system in Nigeria, as early as 1977,was to widen the tax net by capturing details of entities that were then engaged in business transactions, without being formally registered for tax compliance. The implication of being unregistered for tax compliance purpose, is that these entities would continue to do business and earn income, but would never pay their fair share of income taxes to the government, whilst enjoying benefits from the resources contributed by the registered taxpayers.

However, with the Withholding Tax system in place, the invoices issued by an entity for goods or services sold would have to be subjected to tax deduction at a specified rate. A credit note is then issued in favour of the tax deduction suffered, such that the taxpayer can then apply the Withholding Tax credit note against the final income tax payable when filing its income tax returns for the relevant year. This is why Withholding Tax is referred to as an advance payment of income tax. It therefore follows that if an entity is not liable to pay income tax, perhaps due to some tax incentive that confers exemption on its income, its sales invoices should never be subject to Withholding Tax deductions. This is currently the case for Non-Resident Companies that have no income tax presence and are not rendering Technical, Management, Consultancy or Professional services to Nigerian customers, Small companies (i.e. those having gross turnover of N25 million or less), Companies that currently enjoy the Pioneer Status Incentive and other category of Nigerian companies that are outrightly exempted from income tax payment.

The Federal Ministry of Finance recently published the new “Deductions at Source (Withholding) Regulations 2024” which now replaces the previous Withholding Tax Regulations.  The new Regulations now exempts small companies and unincorporated business entities (with the same turnover threshold as small companies) from the requirement to deduct tax at source provided the supplier is registered for tax and the transaction value is N2 million or less.

The debacle over the interpretation of the term “Sales in the ordinary Course of Business” has now also been effectively put to rest.  The new Regulations now specifically exempts “Across -the-counter- transactions” (defined as transactions involving no established contractual relationship) from deductions at source.

Is withholding tax any different from VAT?

Withholding Tax is an advance income tax deduction. On the other hand, Value Added Tax is tax charged on the supply of goods and services. They are both governed by entirely different laws and regulations. Withholding Tax is principally governed by the Companies Income Tax Act (CITA), CITA Withholding Tax Regulations, Personal Income Tax Act (PITA) & PITA Withholding Tax Regulations, while VAT is governed by the VAT Act.

There are instances in which some entities like oil and gas companies, some Telcos (specifically MTN & Airtel) and Deposit Money Banks are statutorily required to withhold both Withholding Tax and VAT from invoices issued by suppliers before making net payments to them. In such situations, some suppliers would typically misunderstand and bemoan such multiple tax deductions.  However, it should be noted that while the Withholding Tax deduction would eventually be credited against the final income tax payable by the supplier, the VAT charged on the supplier’s invoice would be remitted to a separate Federal Government VAT Account on behalf of the supplier.

Who really benefits from withholding taxes?

When an entity’s invoice suffers Withholding Tax deduction, credits would typically be issued to that entity which it would then apply against its eventual income tax payment when filing its Corporate Income Tax returns for the year. What this means, is that Withholding Tax, and should not constitute a different source of revenue for the government, knowing that it is merely part of an entity’s income tax that has been deducted in advance.

Withholding Tax deduction is typically applied directly on each of the supplier’s sales invoices, whilst the eventual income tax payable by the supplier is computed as 20-30% of its Taxable Profit for the year (i.e. Revenue less all expenses plus/minus all relevant tax adjustments, less capital allowances claimable).  Now, where the total Withholding Tax deduction suffered on an entity’s sales invoices, all year round, is higher than its Income Tax payable for the year, it would give rise to an excess Withholding Tax credit situation. This would usually occur where the sales invoices are not properly structured to show the ‘profit component’ separate from the cost/reimbursement components, in which case, Withholding Tax would have to be applied on the entire invoice amount, rather than just the specific profit component. Since Withholding Tax is an advance payment of income tax, it should be applied on a base that constitutes the profit component of each of the sales invoices, and not the entire invoice amounts (which translate to the revenue reported for the year).

A lot of low-margin businesses are caught in this “Excess Withholding Tax Credits” web, which creates an unfavourable cash-flow situation for them.  The plight of these businesses is further worsened by the consistently deteriorating value of the Naira, which means that the real value of the Withholding Tax credits when they are eventually utilised at a future date would even be further eroded. This constitutes a huge dis-benefit to these taxpayers.

In a case where an entity continues to have excess Withholding Tax credits, the whole essence of the Withholding Tax system would be defeated, since Withholding Tax is actually meant to be an advance payment of income tax rather than an excess payment above the income tax payable for the year. It is important to get professional help from well-experienced tax advisors, if this happens to be your peculiar situation at the moment.

Based on hindsight, what’s the projected revenue the country stands to get from the receipt of withholding taxes?

Improved compliance with Withholding Tax should actually bring about an increase in the number of taxpayers in the tax net. While increased Withholding Tax payment should not actually translate into increased revenue for the government, it can potentially improve collection of major taxes like income tax- corporate, personal and VAT.

Part of the amendments introduced by the New Withholding Regulations is that where a non-registered entity issues a sales invoice, the Withholding Tax rate to be applied should be double the rate ordinarily applicable. This would potentially drive a lot of businesses currently operating outside the tax net to get registered quickly for tax compliance purposes, since they would not want to suffer the attendant cash-flow implications.

The new Regulations now also requires that where an entity makes tax deductions from the invoice of a supplier and remits to the relevant tax authority, it should issue the supplier a receipt containing all relevant information of the supplier (name, address, Tax Identification Number, National Identification Number in the case of an individual or RC number in the case of a company, nature of transactions, gross amount payable, amount deducted and month of the transaction). The supplier can use this receipt to claim the income tax credit from its relevant tax authority (whether the entity that made the tax deduction has remitted the amount deducted, or not). The relevant tax authority will impose applicable penalty and interest charges where the tax amounts deducted are not remitted timely.

Would this not add to multiple taxation, which has rendered almost most businesses prostate?

The New Withholding Regulations have directly listed a number of laudable exemptions from deductions at source, which include: Interest and fees paid to a Nigerian bank by way of direct debit of the funds domiciled with the bank, Supply of goods/materials by the manufacturer, Imported goods by non-resident supplier without Income tax presence in Nigeria, Insurance Premium, Payment relating to income/profit that is tax-exempt, Reimbursable expenses, Supply of Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Premium Motor Spirits (PMS), Automotive Gas Oil (AGO), Low Pour Fuel Oil (LPFO), Dual Purpose Kerosene (DPK) and JET-A1, etc.

The direct exemption of these transactions from deductions at source would further strengthen the cash-flows of the affected businesses (that are mostly characterised by low-margins).  However, this should not be misinterpreted as exemption from income tax obligations. The reduction of the withholding rates for other low-margin businesses like retail and construction are also commendable.

Furthermore, the new Regulations also specifically states that the reduced Withholding Tax rates, as contained in a Double Tax Treaty between Nigerian and any other country, shall apply to an eligible recipient to the extent that such reduced rates are contained in the relevant Treaty or Protocol duly ratified by the National Assembly. This means the reduced Withholding Tax rates would now be automatically enjoyed by eligible non-residents without them having to write formally to the Federal Inland Revenue Service as previously required.

Under the new regime of withholding taxes, what’s the possibility of compliance given the penchant by unscrupulous businessmen to cut corners and commit tax avoidance?

The new Withholding Regulations contain some punitive provisions that aim to directly tackle non-compliance.  For instance, The Regulations provide that where an entity that is not registered for tax issues an invoice for supply of goods or services, the rate of deduction that should be applied should be twice the normal applicable rate.

The new Regulations also require that an entity that makes tax deductions should issue a receipt to the supplier. The supplier would then be able to claim the tax credit from the relevant tax authority (whether the entity that made the deduction has remitted, or not).  In this instance, the Tax Authority would be required to hold accountable the entity that has deducted and failed to remit the deductions. The tax authority will also impose additional penalty and interest charges.

The new Regulations further state where an entity fails to make deductions at source from a supplier’s invoice, the entity shall only be liable to payment of just an administrative penalty and one-off annual interest charge (not including the Principal Withholding Tax amount not deducted). This is understandable, since it is expected that the supplier from whom tax deductions were not made, would eventually declare its entire income and file its income tax returns for the relevant year. Therefore, seeking to collect the principal Withholding amount from the entity that failed to deduct at source, would only be tantamount to double taxation. However, where an entity has made the Withholding Tax deduction, and failed to remit, the new regulations require payment of the principal amount deducted, in addition to the administrative penalty and interest charges.

The Regulations also specifically states that Withholding Tax deductions should not constitute a separate tax or an extra cost. What this means is that, where an entity has paid the full invoice amount to a supplier without deducting Withholding Tax, and then decides to bear the Withholding Tax burden from its own cash-flows, that extra Withholding Tax payment paid, will not be admissible as valid business expenses for income tax purposes. The less onerous approach for an affected taxpayer in this situation would be to either “seek to make the omitted Withholding Tax deductions from future payments to the supplier” or “just make provisions for payment of penalty and interest resulting from the non-deduction.”

Can digital products fall under withholding taxes too?

The application of Withholding Tax deductions on digital supplies will depend on the nature of the transaction (whether B2B or B2C). Typically, Business-to-customer (B2C) type of digital supplies would usually not require detailed contracting between both parties before they are made, while most Business-to-Business (B2B) type digital supplies would require detailed contracting that would be tailored to the specific needs of the service recipient.

Following the definition of “Across-the-counter transactions” in the new Withholding Regulations, it then means that B2C-type digital supplies would enjoy exemption from Withholding Tax deductions while B2B supplies involving contracts between both parties will be subject to Withholding Tax deductions.  Where the B2B supplies are from a non-resident entity, the Withholding Tax deducted shall be the final tax, except where the non-resident is involved in other transactions that trigger income tax presence in Nigeria.

In this interview with ROLAND OGBONNAIYA of Independent Newspaper, our Managing Partner, Eben Joels, discusses tax reforms in Nigeria, President Bola Tinubu’s one-year administration, and what the federal government must do to put the country on a path of progressive growth and socio-economic development

Tax reform is widely discussed in Nigeria. What do you think the government should prioritise in terms of tax reform?

If President Bola Tinubu remains in office for another eight years, his tax reform efforts in Nigeria should prioritise broadening the tax base and improving tax collection efficiency while lowering the tax rate. Broadening the tax base should entail implementing a tax system that requires every Nigerian to file a tax return with the government. I plan to propose a nominal federal income tax for individuals and require states to share data with the Federal Inland Revenue Service. This will increase the efficiency of the state’s Internal Revenue Services. I will eliminate all other taxes disguised as levies for specific purposes, such as the Education Tax, Police Trust Fund, NITDA levy, and so on. All of these levels have resulted in our corporate tax rate being among the highest in the world. For example, Russia recently raised its corporate tax rate to 25%. That is a country with a wartime economy. However, ours is approximately 34%. These special causes taxes I mentioned are primarily used to offset the administrative costs of the bureaucracy they fund, or they are mostly stolen. I would rather have a lower tax rate and a broader tax base.

There are other radical tax proposals. For example, given that Nigeria is a republic, I am not sure why the President and Governors are exempt from paying taxes. This is absurd, given that even in a monarchy like the United Kingdom, where the King and Prince of Wales are tax-exempt, they choose to voluntarily pay taxes to the state. If the President of the world’s largest economy, the United States, is not tax-exempt, I see no reason for a relatively poor country like ours to exempt certain offices from taxes.

Finally, I hope the President is brave enough to implement an inheritance tax system in Nigeria. Most advanced countries impose a high tax on estates, sometimes exceeding 40%, when they are passed down. This tax is one way for these capitalist countries to ensure that wealth is redistributed in some way. The tax applies only to the very wealthy. In the United Kingdom, the threshold is estates worth over GBP325,000. The system provides substantial relief to anyone who chooses to donate to a charitable non-profit. This is another way to expand the charitable non-profit sector. Consider this: anyone inheriting assets worth N5 billion or more must pay 40% to the state, or 20% if they donate a certain amount to charity. There are several advantages. However, I hope that such a system reduces the incentive to steal large sums of money and leave them to your heirs.

Diageo, the owner of Guinness PLC, is exiting Nigeria and selling its 58% stake in the company to Singapore-based Tolaram. What are your thoughts on this, and what does it mean for the immediate future?

Diageo’s decision to exit Nigeria and sell its stake in Guinness PLC to Tolaram suggests that it sees better opportunities elsewhere or believes that the challenges in the Nigerian market outweigh the potential benefits. This move could indicate a strategic shift in Diageo’s global portfolio or a reassessment of its investment priorities. Diageo has devised a more profitable way to generate revenue in Nigeria without having to deal with the harsh operating environment for businesses.

Tolaram Group will likely see this acquisition as an opportunity to strengthen its presence in Nigeria. They already have operations in Nigeria, primarily through subsidiaries in various industries, such as Dufil Prima Foods Plc, which manufactures popular Indomie instant noodles, and the Lekki Deep Sea Port project. The acquisition of Diageo’s stake in Guinness PLC demonstrates that they recognise the value of the Nigerian market and are willing to invest in it. Tolaram may bring a new perspective and strategy to the table, which could lead to changes in how Guinness PLC operates in Nigeria. It may also indicate increased competition or consolidation in the Nigerian beverage industry. While Diageo’s exit raises concern about the Nigerian market’s attractiveness to multinational corporations, Tolaram’s investment indicates continued interest and opportunities for growth in the region.

Kimberly-Clark, an American multinational and baby product manufacturer, Huggies, GlaxoSmithKline Consumer Nigeria Plc, Sanofi-Aventis Nigeria Limited, and Procter & Gamble are among the multinationals that have recently ceased operations in Nigeria, either completely or partially. Some International Oil Companies (IoCs), including Shell, ExxonMobil, and ENI, are rumoured to be actively selling assets to exit Nigeria. Should we be concerned about multinationals’ exit from Nigeria?

The departure of multinational corporations from any country, particularly those as large as those you mentioned, should normally raise concerns. These exits can have an impact on employment, economic growth, and overall stability. These multinational corporations are among the few places where you can find best practices in employee recruitment, training, and compensation. They are among the few companies where graft is not tolerated. Many Nigerian-owned businesses do not adhere to best practices. However, it is critical to understand the reasons for these exits. They are influenced by a variety of factors, including economic challenges, regulatory issues, and security concerns, which lead to companies making strategic business decisions to exit the market. Addressing these underlying issues may attract and retain multinational investments. The government should prioritise improving the business environment, increasing security, providing regulatory clarity, and promoting economic diversification to mitigate the negative effects of multinational exits and encourage future investments.

Some of the clauses in the new bank recapitalisation plan have sparked heated debate. Do you think the Central Bank of Nigeria has good intentions for the banking sector?

Overall, whether the CBN has good intentions for the banking sector is determined by the balance it strikes between strengthening financial stability, promoting competitiveness, and ensuring that the needs of the economy, businesses, and consumers are adequately met. Open dialogue and collaboration among the CBN, banks, regulators, and other stakeholders are critical for navigating these challenges and achieving positive outcomes for the banking sector and the broader economy. Overall, I am hopeful. The previous round of capitalization fueled the capital market and boosted the economy. I hope this yields the same result.

Despite CBN efforts to reduce non-performing loans, many banks still have a high percentage on their books. What can be done to make banks solvent and reduce their debt burden?

To address the persistent issue of high non-performing loans (NPLs) in Nigerian banks, a multifaceted approach is required. To begin, banks should prioritise proactive risk management practices, including thorough credit assessments and stringent monitoring mechanisms to detect potential defaults early on. This includes restructuring loans for distressed borrowers and implementing strong recovery strategies to effectively mitigate losses. Simultaneously, regulatory bodies such as the Central Bank of Nigeria (CBN) should strengthen supervision and enforcement of prudential regulations, ensuring that banks have sufficient capital to absorb potential losses and remain resilient in the face of economic volatility. Furthermore, improving credit information systems and encouraging economic diversification away from volatile sectors can reduce systemic risks and improve bank stability, resulting in a lower debt burden and a healthier banking sector. Most importantly, the CBN should require regular stress testing. It is recommended that impairment indicators be reported regularly.

Do you think Heritage Bank’s licence revocation was timely? Some believe it could spark a run on other banks, causing panic.

The timing of Heritage Bank’s licence revocation by the Central Bank of Nigeria (CBN) is a critical decision with far-reaching implications. While the CBN’s reasons for taking such action are likely to be specific, such as concerns about the bank’s financial stability or regulatory compliance, the timing must take into account the broader impact on the banking sector’s stability. The revocation of a bank’s licence can raise concerns among depositors and investors, potentially leading to a run on other banks and causing panic in the financial system. As a result, the CBN must carefully manage communication and ensure transparency to mitigate any spillover effects and restore trust in the banking sector. To avoid widespread panic and systemic disruptions, the CBN should continue to reassure affected depositors of its commitment to maintaining financial stability.

The Central Bank of Nigeria (CBN) has dissolved the boards and management of Union Bank, Keystone Bank, and Polaris Bank. What distinguishes these banks’ cases from that of Heritage Bank?

The CBN appointed new management teams to stabilise the banks and protect stakeholders’ interests. In contrast, Heritage Bank did not face a similar intervention from the CBN; instead, its licence was revoked. I suspect this is due to Heritage Bank’s poor financial health and governance, which may render it unsalvageable.

The Naira has faced the most difficult challenges since it became legal tender in Nigeria four decades ago. The value has been completely eroded by the unprecedented drop in the foreign exchange market. Do you think the CBN has done enough to hedge the Naira against the dollar so far with its recovery strategy? And will these efforts be sustainable?

The Central Bank of Nigeria (CBN) has implemented several measures to hedge the Naira against the dollar, including foreign exchange market interventions, monetary policy rate adjustments, and the implementation of various forex management policies. Despite these efforts, the Naira has continued to depreciate significantly, indicating that current strategies may be insufficient to address the underlying issues affecting the currency’s value. Structural economic challenges, such as reliance on oil exports, limited foreign reserves, and a large import bill, particularly the continued importation of petroleum products, continue to put pressure on the Naira.

Stabilising the Naira will necessitate a multifaceted strategy that extends beyond short-term interventions. To reduce reliance on foreign exchange, the CBN must prioritise diversification of the economy, increased domestic production, and an improved business environment. In addition, policy consistency and open communication are critical for restoring investor and market confidence.

Access to credit remains a major concern for businesses, particularly SMEs, due to the high-risk quotient. What can be done to reduce the burden on businesses so that they can easily access credit at low interest rates?

The government and financial institutions must implement several strategies. First, the CBN can improve its existing credit intervention programmes, such as the Anchor Borrowers’ Programme and the Micro, Small, and Medium Enterprises Development Fund (MSMEDF), by increasing funding and streamlining application processes. These programmes can be expanded to include additional sectors and lower interest rates. Furthermore, financial institutions should be encouraged to create tailored financial products that meet the specific needs of SMEs, such as flexible repayment terms and lower collateral requirements.

Furthermore, strengthening Nigeria’s credit infrastructure is critical. Establishing and maintaining a comprehensive credit registry system to track businesses’ credit history can help lenders reduce perceived risks. Strengthening credit guarantee schemes can also provide additional security to banks, encouraging them to lend more to SMEs. For example, I do not know of any credit insurance companies in Nigeria. On a broader scale, fostering a stable macroeconomic environment with low inflation and consistent policies will help to reduce the overall risk profile, allowing businesses to obtain credit at lower interest rates.

Nigerian graduates often complain about a lack of opportunities and the need to know a highly-placed person to get a job. What can we do as a country to promote job growth among young people?

To increase job opportunities for Nigerian youth, an enabling environment that encourages entrepreneurship and supports small and medium-sized businesses (SMEs) is required. We live in a society where we worship powerful men without considering their source of wealth. We define success as having a lot of cash in your bank account, regardless of whether it came from a criminal enterprise. As a result, many young people today are focused on making quick money. It is not so much about learning how to sell. As a result, we create a large number of unemployed individuals. People with the incorrect values.

I remain convinced that there is always room for merit. For example, we are a top destination for the best-graduating students from most local universities, and you do not need to know anyone to work with us. You only need to be competent and have the right mindset, which is one of continuous learning, as well as the right values.

The nearly 40% inflation rate has had a significant impact on people’s standard of living due to the excruciating cost of goods and services. What steps can be taken to mitigate this?

A multifaceted strategy is required. Tighter monetary policies to control the excessive money supply have proven ineffective. Raising interest rates and increasing bank reserve requirements have also proven ineffective. I believe the government should focus on stabilising the exchange rate by increasing foreign reserves and decreasing reliance on imports. This is the time to strengthen the agricultural sector by providing subsidies and support programmes to improve local food production, allowing us to enjoy lower food prices.

On the fiscal policy front, Nigeria’s government should improve public spending efficiency and reduce waste. Investing in infrastructure, particularly transport and energy, can reduce the cost of doing business as well as the prices of goods and services. Implementing social safety nets and targeted subsidies for essential goods can help to alleviate low-income households’ immediate financial burden. Encouraging competition in critical sectors such as telecommunications and energy can also reduce prices through market forces. Fostering an environment that encourages local manufacturing will result in more jobs and higher wages.

Among the challenges confronting businesses in Nigeria is the proliferation of taxes and other levies across the subnational level, rendering the entire ideal and concept of ease of doing business a mirage. What concrete measures can be implemented to ease business operations and increase productivity and efficiency within the country’s business ecosystem?

To address the issue of a plethora of taxes and levies that impede Nigerian businesses, comprehensive tax reform is required. The government should simplify the tax system by combining various taxes and levies into a single, simpler tax regime. This can be accomplished by implementing a unified tax policy at the federal, state, and local levels, which eliminates overlapping and redundant taxes. Establishing a centralised tax collection system would reduce administrative burdens for businesses, making compliance simpler and more efficient. Additionally, providing clear guidelines and ensuring transparency in tax policies can assist businesses in better understanding their tax obligations and planning accordingly.

Furthermore, the government can improve the ease of doing business by streamlining regulatory frameworks and reducing bureaucratic red tape. Nigeria can boost productivity, attract investment, and, ultimately, drive economic growth by making its environment more business-friendly.

Nigeria’s infrastructure is in shambles, and the country is constantly dealing with power outages and other intractable issues. How much money does the government need to invest in infrastructure to put the country on a path of progressive growth and socioeconomic development?

The government must make substantial investments in infrastructure. According to estimates, Nigeria will need to invest around $3 trillion in infrastructure over the next 30 years to bridge existing gaps and support its growing population. Immediate priorities should include significant investments in the power sector to address the chronic power outages that stifle business operations and everyday life. Investment in renewable energy sources, national grid upgrades, and increased electricity access have the potential to transform the energy landscape, promoting industrial growth and improving people’s quality of life.

In addition to power, the government should prioritise investments in transportation, healthcare, and education infrastructures. Modernising and expanding the road, rail, and port networks will improve connectivity, lower transportation costs, and increase trade efficiency. Similarly, improving healthcare facilities and educational institutions is critical to developing a healthy and skilled workforce. Public-private partnerships (PPPs) can help mobilise capital and ensure efficient project execution. By committing to comprehensive infrastructure development, Nigeria can create a more conducive environment for economic activity, attract foreign investment, and achieve long-term social progress.

The administration led by President Bola Tinubu has been in place for one year. In your opinion, what has he done right or wrong, and what are the low-hanging fruits he can easily pick to make things right?

President Bola Tinubu’s administration has taken some significant steps in his first year in office, including prioritising economic reforms. He needs to be more aggressive in tackling corruption. His efforts to increase foreign investment through better business policies have been met with cautious optimism. The administration’s emphasis on infrastructure projects, such as road construction and increased power generation, seeks to address critical issues affecting economic growth. However, there have been concerns about the speed of these initiatives and their immediate impact on the lives of ordinary Nigerians. The administration has also struggled to effectively manage the country’s security situation, as ongoing conflicts and insecurity persist in several regions.

President Tinubu can concentrate on low-hanging fruit, such as improving the agricultural sector through targeted subsidies and support programmes to increase food production. They can also concentrate on simplifying the tax system to alleviate the burden on small and medium-sized businesses (SMEs). They can address power shortages with quick-win projects, such as deploying renewable energy solutions in underserved communities. By focusing on these attainable goals, President Tinubu can boost public trust and lay a solid foundation for long-term development.

The organised labour in Nigeria recently called a strike and reduced their minimum wage demand to N250,000 per month, while the federal government offered N60,000. What do you think the minimum wage should be?

Setting an appropriate minimum wage in Nigeria necessitates balancing workers’ needs with the economic realities of businesses and the government. Given the significant difference between the organised labour’s demand of N250,000 per month and the Federal Government’s offer of N60,000, a compromise must be found. A reasonable minimum wage should take into account current inflation rates, the cost of living, and the need to keep businesses running without causing undue financial strain. A new minimum wage is ineffective unless it is accompanied by policies that promote economic growth and productivity, which can support higher wages in the long run. Implementing inflation-reducing measures, such as stabilising the exchange rate and increasing domestic production, can help to sustain wage increases. Improving social services such as healthcare and education can also help to reduce workers’ overall financial burden. Nigeria can create a more equitable and sustainable economic environment for its workforce by implementing a comprehensive approach that includes a fair minimum wage and supportive economic policies.

Nigeria’s economy, which was said to be Africa’s largest in 2022, is expected to fall to fourth place in 2024. What caused this, and how can it be reversed?

A variety of factors can contribute to the slip. Persistent issues like political instability, insecurity, and corruption have hampered economic growth. High inflation, a depreciating currency, and inadequate infrastructure have all contributed to a difficult business climate. These factors, combined with the slow implementation of economic reforms, have harmed investor confidence and stifled growth across a variety of industries.

To reverse this trend, Nigeria’s economy must diversify away from oil dependency by investing in key sectors such as agriculture, technology, and manufacturing. Implementing policies that promote economic stability, reduce corruption, and improve governance is critical. Improving the business environment through infrastructure, particularly in power and transportation, will attract both domestic and foreign investment. Improving education and vocational training can result in a more skilled workforce, which promotes innovation and productivity. By focusing on these areas, Nigeria can create a more resilient economy capable of sustaining growth and regaining its position as Africa’s largest economy.

Source: Independent Newspaper

Private equity is ownership or interest in entities that aren’t publicly listed or traded. A source of investment capital, private equity comes from firms that buy stakes in private companies or take control of public companies with plans to take them private and delist them from stock exchanges.

The definition of Private Equity (PE) on a well-explained background is based on two aspects, each related to the two-man characteristics of the PE fundamentals:

•    PE is a source of financing, It is an alternative to other sources of liquidity, (such as a loan or an initial public offering (IPO)) for the company receiving the financing.
•    PE is an investment made by a financial institution; Private Equity Investor (PEI) in the equity of a non-listed company (i.e. not a public company).

Venture Capital is a very specific case of PE. It is the investment in the very early stages of a company’s life.

Tax Incentive and Private Equity Growth

The expansion of private equity is fueled by economic policies that include tax incentives. It is critical to comprehend the effects of tax incentives in Nigeria, where private equity firms are fast emerging as significant economic actors. In sequence, the Nigeria Startup Act, 2022 was passed by the National Assembly and signed into law by the president on October 19, 2022. The legislation establishes the institutional and legal foundation for the growth and operation of startups and private businesses in Nigeria.

Furthermore, the aforementioned legislation included particular clauses designed to address recognized legal, regulatory, tax, and administrative bottlenecks that have impeded the functioning of venture-backed companies (VBC) in Nigeria. The law also provides certain tax incentives which include:

• Pioneer Status Incentive

Labelled Startups operating in eligible industries under the Pioneer Status Incentives (‘PSI’) Scheme may apply through the Secretariat to the Nigerian Investment Promotion Commission (‘NIPC’) for grant of tax reliefs and incentives under the PSI. If granted, this would entitle the Labelled Startup to a tax holiday for an initial period of three years, which may be extended for an additional two years.

The effective date for the PSI reliefs will be the date of issuance of the startup label.

A labelled startup shall enjoy full deduction of any expenses on research and development which are wholly incurred in Nigeria and the restrictions placed by the Companies Income Tax Act (CITA) shall not apply to a labelled startup.

 

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• Exemption from Contribution to ITF

Section 25(5) of the act exempts a labelled startup from contributions to ITF in respect of in-house training provided to its employees for the duration of the startup label.

•    Other Stakeholder-related Incentives

Angel investors, Private Equity funds, accelerators, and venture capitalists are entitled to an investment tax credit equivalent to 30% of their investment in a labelled startup. The credit ‘shall’ be applied on any gains on investment, which are subject to tax. Interestingly, the Act specifically amends only the Companies Income Tax Act in this regard, leading to a presumption that angel investors who invest without using a company may not be eligible to enjoy this incentive.

The Act also exempts angel investors, venture capitalists, private equity funds, accelerators or incubators from capital gains tax when they dispose of their investment in a Labelled Startup provided that the assets have been held in Nigeria for a minimum of 24 months.

Since this is a specific and a later-in-time provision, the ₦100m threshold imposed by the Finance Act, 2021 will not apply. However, where the investment is sold within 2 years, the capital gains tax payable shall be reduced by the amount of the investment tax credit.

 

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Incentives for Venture Capital Companies

The fiscal incentives as outlined under the Capital Gains Tax Act, the Industrial Development (Income Tax Relief) Act and the Companies Income Tax Act as amended improve on those earlier prescribed by the Venture Capital (Incentives) Act, which targets venture companies and venture projects.

Venture companies that invest in venture projects must be recognized by the Federal Inland Revenue Service (FIRS) as venture companies or venture projects, and must invest a minimum of 25% of the total equity required for the venture project to be eligible for the following:

• Accelerated capital allowance for equity investment by a venture company in a venture project, with the following deductions: first year – 30%; second year – 30%; third year – 20%; fourth year – 10%; and fifth year – 10%.
• Reduction of withholding tax on dividends declared by venture projects to venture companies for the first five years, from 10% to 5%.
• Export incentives such as export expansion grants, if the venture project exports its products.
• Gains realized by venture companies from a disposal of its equity interest in the venture project will enjoy capital gains tax exemption of 25-100% where the disposal recurs between 5-15 years of the investment.
• Exemption from company income tax for three years, which can be extended for an additional final period of two years.

 

Read More:The Future of Nigeria’s Technology Industry: A Look at the Nigeria Startups Act

 

Benefits of these incentives on Private Equity in Nigeria

Developing countries such as Nigeria deserve special attention because the circumstances in which investment takes place in developing countries are typically strenuous when compared to developed countries.

In contrast to the US and other developed economies, where leveraged buyouts are the primary PE deal type, management buyouts and restructuring—which include launching green or brownfield investments—are the most common PE transaction types in Nigeria. A major participant in the majority of private equity transactions in Nigeria, Actis, is most known for its US$134 million investment in Diamond Bank Nigeria Plc

Private equity funds may benefit from the aforementioned tax credits and incentives by ways and means of;

• Investment Tax Credits:

For Angel Investors, Private Equity Funds, and Venture Capitalists: These investors are entitled to a tax credit equivalent to 30% of their investment in a labelled startup, which can be applied against gains on investment subject to tax. This incentive encourages more investments into startups by reducing the effective tax rate on gains, making investments more attractive and potentially increasing the available capital for startups.

• Enhanced Investment Returns

Venture companies investing in venture projects benefit from accelerated capital allowances, which provide substantial deductions in the initial years (30% in the first and second years, tapering down over five years). This accelerates the recovery of investment costs, improving cash flow and investment returns.

• Encouragement for Innovation and Growth

Private equity investments can help small and medium-sized enterprises (SMEs) grow, leading to increased employment and economic activity. Encouraging the establishment and growth of new businesses and startups can further stimulate innovation.

Conclusion

In summary, the strategic application of tax incentives is crucial for fostering the growth of private equity in Nigeria. The Nigerian government has introduced several legislative measures, such as the Nigeria Startup Act, to create a conducive environment for private equity investments. These measures include tax holidays, exemptions from certain statutory contributions, investment tax credits, and incentives specific to venture capital companies. Such incentives are designed to encourage investment, promote economic development, and support the growth of startups and private companies.

Private equity firms and investors should leverage these opportunities to maximize returns. At Stransact, we specialize in enhancing every transaction. Let us help you navigate the tax landscape and drive your business growth. Contact us to learn how we can solve your tax challenges and propel your business forward.