The Nigerian Federal Government is advancing key tax reform initiatives, driven by dual aims: increasing revenue efficiency and meeting conditions to unlock a $750 million World Bank loan under the Accelerating Resource Mobilisation Reforms (ARMOR) program.
The loan is part of a $2.25 billion package approved by the World Bank in June 2024, designed to strengthen Nigeria’s economic stability and support its vulnerable populations.
The ARMOR program, a cornerstone of Nigeria’s tax reform drive, focuses on three main areas: expanding Value-Added Tax (VAT) and excise tax collections, improving tax and customs administration, and enhancing the transparency of oil and gas revenues.
To facilitate these objectives, the government plans to increase VAT rates, currently set at 7.5%, with a proposed climb to 10% by 2025, reaching 12.5% by 2026, and further escalating to 15% by 2030.
The reforms, aimed at increasing VAT compliance and collections to 1.8% of non-oil GDP, are part of a structured plan with benchmarks tied to disbursement from the loan.
Nigeria’s Ministry of Finance signed the agreement, detailing that the loan funds would be released incrementally, contingent on the country’s success in meeting these performance metrics.
To reinforce tax collection, Nigeria has introduced bills proposing a 5% excise duty on telecommunications, gaming, and betting industries, signalling an overhaul of its taxation landscape.
One proposed bill, titled “A Bill for an Act to Repeal Certain Acts on Taxation,” seeks to consolidate and modernize Nigeria’s tax framework by instituting excise duties across telecommunications, gambling, and betting, among other sectors.
The reforms also call for increased taxes on health and environmentally harmful products.
New excise taxes on telecom services and an electronic money transfer (EMT) levy through Nigerian banks are among the measures intended to diversify revenue sources and reduce reliance on oil income.
The loan framework allocates $5 million each to the Federal Inland Revenue Service (FIRS) and the Nigeria Customs Service (NCS) for improving tax collection infrastructure.
This investment supports the development of advanced e-invoicing systems, risk-based audit programs, and a VAT lottery to incentivize compliance.
The FIRS is also tasked with establishing a third-party data-sharing platform to streamline operations, enhance transparency, and ensure efficient revenue collection.
The NCS, similarly, will receive funding to improve its administrative processes, incorporating sanctions for excise tax non-compliance and a centralized control room for continuous operational monitoring.
The reforms also aim to implement the “Authorized Economic Operator” framework to promote trade compliance, targeting a reduction in tax expenditures through streamlined corporate bond exemptions and rationalized tax incentives.
Officials say the Federal Government is aligning its tax reforms with policies designed to stimulate economic growth and attract investment.
A new Economic Development Incentive Certificate program, under review in the legislature, seeks to reward companies that invest in capital-intensive projects.
Applicants will pay a non-refundable fee, capped at five million naira, with approvals contingent on presidential endorsement and regular reporting requirements.
The Taiwo Oyedele-led Presidential Committee on Fiscal Policy and Tax Reforms has also proposed replacing the current “pioneer status” tax incentive with priority sector incentives, linking benefits to companies’ investments in the Nigerian economy.
