This week’s Gender Equality and Social Inclusion (GESI tracker) discusses the tax reform bills currently in the National Assembly and its impact on marginalized groups.
In October 2024, President Bola Tinubu introduced a series of tax reform bills to the National Assembly, aiming to overhaul Nigeria’s tax system. These reforms are designed to reduce multi-layered taxation, expand the tax base, enhance compliance, and generate sustainable revenue for national development. They also seek to protect small businesses and address tax evasion.
These bills have passed second reading in the House of Representatives; while debates are still ongoing around these reforms, it presents a significant opportunity to enhance GESI within the country’s tax framework.
It is crucial to analyze how these reforms can address disparities and promote inclusivity for marginalized groups, particularly women and low-income earners.
READ ALSO: Tax Reforms Bills Set for Public Hearing Soon – Senate
Controversies Around the Tax Reform Bills
Nigeria’s proposed tax reforms have sparked debate. Supporters say the plan will simplify the tax system by removing multiple small taxes that burden the poor and small businesses.
However, critics worry that the reforms could shift the tax burden to certain sectors, discourage investment, and worsen income inequality. They also fear that removing some taxes might create revenue gaps, leading the government to find other ways to generate funds, which could affect vulnerable groups. This is seen in the aspect of the equitable revenue distribution which has become a pressing concern for some state governments with less diversified economies as they have raised concerns that they may struggle to adapt to the new tax reforms.
GESI Features in the Tax Reform Bills
Progressive Taxation: The bill proposes a tax system with different levels, making taxes lower for people with low incomes. Specifically, it introduces a zero-tax rate for individuals earning ₦800,000 or less annually, up from the previous threshold of ₦300,000.
This change is expected to benefit many women and low-income families who often work in informal sectors with lower earnings, thereby increasing their disposable income and economic stability.
Support for Small and Medium Enterprises (SMEs): The reform expands the definition of small companies to those with annual turnovers of up to ₦50 million, exempting them from corporate income tax.
This is particularly significant for women entrepreneurs who often operate SMEs. By alleviating tax burdens, the bill encourages growth and sustainability in businesses led by women and other marginalized groups, fostering economic empowerment.
VAT Exemptions on Essential Goods: The bill proposes VAT exemptions on essential items such as food, educational materials, and healthcare services. This measure is crucial for low-income households, which disproportionately include women and children.
By reducing costs on necessities, the reform aims to improve access to basic needs, thereby enhancing overall well-being and quality of life.
Job Creation Incentives: The reform includes reduction for income tax for companies, this makes provisions for companies that create jobs or retain employees for at least three years. This aspect is vital for addressing youth unemployment and providing opportunities for women entering the workforce.
By linking tax benefits to job creation, businesses have an added incentive to expand operations and invest in human capital, ultimately boosting productivity and national economic performance. By incentivizing job creation, the government can stimulate economic growth while promoting gender inclusivity in employment.
Equitable Revenue Distribution: The bills propose equitable revenue distribution, particularly concerning the allocation of VAT among the country’s 36 states and the Federal Capital Territory.
However, there are concerns about unequal benefits across regions, especially between states like Lagos and those in the north. This has sparked debates on regional fairness. States that generate more VAT would receive a larger share of the revenue, which could disadvantage less developed regions and widen existing socio-economic gaps. However, ensuring a fair tax revenue distribution is crucial for national unity and reducing regional inequalities.
Challenges in GESI Implementation Under the Tax Reform Bill
While the Tax Reform Bill presents numerous opportunities for promoting GESI, several challenges must be addressed:
Awareness and Education: if the bills are passed into law, effective implementation of the reforms will require widespread awareness among citizens about their rights and obligations under the new tax laws. Educational campaigns targeting marginalized groups will be essential to empower them to take advantage of available benefits.
Monitoring and Evaluation: Establishing mechanisms to monitor the impact of these reforms on different demographic groups will be vital. This data will help assess whether the intended benefits are reaching those most in need and inform future policy adjustments.
While the tax reform bills represent a pivotal moment for Nigeria as it seeks to create a more equitable tax system that promotes GESI, further consideration should be taken to ensure that every Nigerian is carried along and it should benefit all. Furthermore, implementation will be crucial to ensure that reforms achieve their intended outcomes and foster a more inclusive economy.
