Taxation is a necessary part of any nation’s economic system. The International Monetary Fund suggests that tax diversification in resource-rich countries like Nigeria can lead to more sustainable and inclusive economic growth. Just like other countries, Nigeria implements new tax policies now and then to strengthen its revenue base. Last year, Nigeria’s President, Bola Ahmed Tinubu, suspended some of the stifling taxes in Nigeria and directed the implementation of a single-digit tax system in the country. The single-digit tax system shrinks the current multiple tax regime, put at over 60 taxes, to 9 taxes. Nigeria expects to significantly boost revenue this year. The Federal Inland Revenue Service forecasts revenue to increase 57% in 2024 to 19.4 trillion naira ($20.3 billion), compared to last year.
However, just like in many other countries, navigating the tax system in Nigeria can be complex and disruptive for businesses and individuals. While these measures are intended to benefit the country in the long run, can cause disruptions in the short term. Sometimes, these new policies often lack clarity in their initial stages, leading to uncertainty for taxpayers. However, the ultimate goal of these policies is to generate more tax revenue for public services, infrastructure development, and social programs. Here are three interesting tax policies Nigeria has introduced in 2024 so far.
The Expatriate Employment levy
The Expatriate Employment Levy (EEL) was introduced in February 2024. The policy was initiated to oversee expatriate employment in the country as well as necessitates employers to pay a levy for hiring expatriates. The goal was to strike a balance between attracting foreign expertise and nurturing domestic talent. This levy mandated Nigerian entities employing expatriates to pay an annual fee for directors and other categories of foreign workers. Also, it required companies to maintain detailed records of expatriate employees and report regularly to government agencies. The president said that the implementation of the EEL, should not constitute a bottleneck or hindrance to the much-needed foreign investment into the country.
However, the policy sparked debate. Stakeholders voiced concerns about the levy’s potential to discourage foreign investment, particularly regarding its cost and feasibility. The Ministry of Interior convened a meeting on the 8th of March 2024, led by the Honourable Minister of Interior with a delegation led by the Minister of Industry, Trade and Investment, Mrs. Doris Uzoka-Anite to provide an opportunity for constructive dialogue and exploration of avenues to enhance the welfare of Nigerians while promoting investment. The government, acknowledging these concerns, wisely opted for a temporary suspension. Discussions are ongoing to refine the policy and reach a consensus that fosters both a skilled local workforce and the continued flow of essential foreign expertise.
Oil & Gas sector gets a tax break
This year, the Nigerian government has taken a targeted approach to stimulating its declining oil and gas sector. By an Executive Order, the Nigerian President introduced notable tax credits, incentives, and allowances for stakeholders in the Nigerian Oil and Gas sector. The Order introduced tax credit incentives for non-associated gas greenfield developments. It also makes provisions to grant an investment allowance – of 25% of the actual expenditure incurred on gas utilization, and expenditure on plant and equipment incurred in respect of projects in the midstream oil and gas industry.
Cybersecurity Levy: the digital defence fund
The most recent development is the introduction of a cybersecurity levy. The Central Bank of Nigeria, acting under the amended 2024 Cybercrime Act, mandated banks to collect a 0.5% levy on all electronic transactions. This levy will contribute to a national cybersecurity fund administered by the National Security Advisor’s office. This move buttresses the government’s growing concern about cyber threats. Nigerian financial institutions have reported ₦159 billion ($201.5 million) losses to fraud since 2020. Nigerian banks lost ₦2.09 billion to fraud in 2023. This growing concern about cyber fraud led the Corporate Affairs Commission to instruct all individuals and Point of Sale operators in the country to register their agents and merchants with the commission on or before July. Notably, loan disbursements, repayments, and salary payments are exempt from this levy, ensuring minimal disruption to everyday financial transactions.
