The Nigeria Extractive Industries Transparency Initiative (NEITI) has expressed its support for the federal government’s Tax Reforms Bill, currently under consideration in the National Assembly.
NEITI also said it has written to the National Assembly (NASS) endorsing the 2024 Tax Reform Bill, which it emphasised has the potential to enhance transparency and accountability in revenue generation, aligning with its mandate to promote good governance in the extractive sector.
NEITI’s endorsement comes amid ongoing community engagement efforts by the government to address public skepticism about taxation and ensure widespread understanding of the proposed changes.
The Nigeria Extractive Industries Transparency Initiative
NEITI, in a memo on its position, signed by its executive secretary, Dr. Orji Ogbonnaya Orji and addressed to the leadership of the NASS and the chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, identified areas needed to improve the policy gaps in the Bill.
The agency said the Bill has the potential to modernise Nigeria’s tax system, streamline and broaden its administration and tax base to align with global best practices.
Dr. Orji explained that NEITI’s observations followed a detailed review of the draft legislation, which showed extensive research and consultation to produce the innovative provisions that are being deliberated upon.
He pointed out that the draft tax bill emphasized consolidation of legal frameworks, taxing digital assets, addressing resident and non-resident taxation, and introducing measures to curb tax evasion while demonstrating a strong commitment to fiscal transparency and efficiency.
“A detailed review of the Bill revealed that it has the potential to impact positively on revenue generation, household livelihoods, job creation, and overall economic opportunities,” NEITI stated, adding that “the public debate generated by the Bill underscored the overwhelming public interest by Nigerians and the need for greater clarity and trust in its provisions after it is finally passed into law”, Orji said in a statement by NEITI’s acting director, Communications & Stakeholders Management, Obiageli Onuorah.
The agency observed however, that despite the potentials of the Bill, section-by-section review of the draft law revealed its strengths and weaknesses, particularly as they affect the extractive industries, which is the core of NEITI’s specific mandate.
According to NEITI, Sections 1 and 2 aim to ensure a unified tax legislation across Nigeria for all individuals and legal entities, but does not have explicit guidelines to harmonize federal and state tax laws and clarify roles of subnational governments.
The agency stated that careful management of the transition process and robust public awareness campaigns were critical to avoid administrative confusion.
On implications of the tax law for the oil, gas and mining industries, including income, petroleum operations, VAT, and tax incentives, NEITI recommended the introduction of clauses to address issues of alignment with state tax systems and provide guidance for resolving jurisdictional conflicts.
NEITI also noted that the provision on taxation of digital assets aligned with global practices, calling for clear definitions of the taxable assets, events and valuation guidelines to be established to ensure effective reporting mechanisms and implementation, allowing for exemptions or phased implementation for small businesses, to support growth.
On Resident and Non-Resident Taxation, NEITI commended the provision for significant economic presence, but said it required clear criteria to avoid disputes and challenges in enforcement. While the provision requiring minimum effective tax rates for foreign subsidiaries was desirable to curb profit shifting, NEITI said collaboration with international tax authorities was essential for its success.
The agency stated further that it supported the provisions on taxation of undistributed profits, but advised that consideration must be given to small and medium enterprises (SMEs), to avoid disproportionate impacts on their businesses. It also recommended the provision of exemptions for small businesses or startups to encourage reinvestment and growth.
On Benefits in Kind (BIK) and Employee Taxation, NEITI called for explicit guidelines to be established for valuing benefits like accommodation and other perks, to ensure smooth implementation and minimize disputes.
Furthermore, NEITI noted the exclusion of partnerships and joint ventures in petroleum operations which presents a huge gap that should be addressed to ensure fairness and accountability in the extractive sector.
On taxation of petroleum operations, NEITI called for the reduction of hydrocarbon tax rates for smaller operators to promote industry participation, expansion of incentives for carbon capture and the introduction of incentives for renewable energy development projects and energy transition investments to align with energy transition goals.
Describing the provisions on Stamp Duties and Value Added Tax (VAT) as comprehensive, NEITI observed that its enforcement in the informal sector and compliance burdens on SMEs remain concerns to be mitigated, while the success of efforts to provide relief on double taxations would depend on robust international agreements and institutional capacity to effectively implement the scheme.
Also, NEITI called for the reassessment of tax rates for small-scale service providers; streamlining procedures and the provision of technical support for applicants for Economic Development Tax Incentives; definition of eligible sectors exemptions from Stamp Duties and VAT transactions as well as lower stamp duty rates for priority sectors to encourage investment.
On Relief for Double Taxation and Taxation of Dutiable Instruments, NEITI recommended the inclusion of provisions for the establishment of a clear dispute resolution mechanism, possibly through tax tribunals for arbitration or negotiations.
