World Bank Loan: Nigeria Introduces Tax Overhaul

Nigeria Overhauls Tax System to Unlock $750M World Bank Loan

Nigeria is rolling out compliance initiatives to unlock funds from its World Bank loan...

Nigeria Unveils Tax Reforms to Unlock $750M World Bank Loan: VAT Hike, Excise Taxes, and Compliance Initiatives

The Nigerian government is pushing forward with significant tax reforms to secure a $750 million loan from the World Bank. This loan is part of a larger $2.25 billion package aimed at bolstering Nigeria's economic stability and supporting its vulnerable populations.

Major Reforms:

Raising VAT rates: Increasing Value-Added Tax from 7.5% to 10% by 2025 and 12.5% by 2026-2029 

Excise taxes: Introducing excise duties on telecom services, gaming, and betting activities 

Tax administration: Strengthening tax and customs administrations to enhance VAT compliance and audit effectiveness 

Oil and gas revenues: Increasing transparency and net revenue contributions from the oil and gas sector 

These reforms are crucial for Nigeria to access the loan, which is tied to specific fiscal and governance conditions under the Accelerating Resource Mobilisation Reforms programme.

Nigeria is on the path to economic recovery thanks to a $2.25 billion loan package from the World Bank. The first loan of $750 million, under the Accelerating Resource Mobilisation Reforms (ARMOR) program, is contingent upon Nigeria meeting specific fiscal and governance targets.

The ARMOR program aims to boost non-oil revenues and safeguard oil revenues to promote fiscal sustainability and provide sufficient resources to deliver quality public services. To achieve this, the program will focus on several key areas, including:

Raising VAT Revenue: Increasing VAT rates to boost revenue collection

Strengthening Tax Administration: Enhancing tax and customs administration to reduce evasion and improve compliance 

Ensuring Oil and Gas Revenue Transparency: Implementing measures to ensure transparency in oil and gas revenue collection 

Introducing VAT Lottery System: Implementing a VAT lottery system to incentivize tax compliance 

E-Invoicing System: Introducing an e-invoicing system to streamline tax collection and reduce evasion 

Additionally, the Federal Government is considering introducing an excise on telecom services to boost revenue. This move is part of efforts to raise non-oil revenues and meet the conditions for the World Bank loan. The government is also working on drafting key legislations to implement necessary changes to fiscal policies and tax reforms in Nigeria.

Overall, these reforms are expected to have a positive impact on Nigeria's economy, promoting fiscal sustainability and providing resources for quality public services.

Nigeria is set to undergo significant tax reforms, including a hike in Value-Added Tax (VAT) rates from 7.5% to 10% by 2025 and eventually to 15% by 2030. This move aims to boost tax revenue and efficiency, as well as meet the requirements for a $750 million loan from the World Bank. The loan is part of a broader $2.25 billion package approved by the World Bank to bolster Nigeria's economic stability and support its vulnerable populations.

Tax Reforms

• VAT Rate Hike: Increase from 7.5% to 10% by 2025 and 15% by 2030 
• Excise Taxes: Increase on products impacting health and the environment 
• New Excise Duties: Introduction of excise duties on telecom services, gaming, and betting activities 

Capacity Building

The Federal Inland Revenue Service (FIRS) and Nigeria Customs Service (NCS) will receive $5 million each to enhance their capacity in implementing data-sharing platforms and compliance systems. Specifically, FIRS plans to establish a risk-based audit for VAT and corporate taxes to enhance enforcement. Meanwhile, NCS will develop disaster recovery systems and control rooms to support resilient operations and enhance compliance.

Loan Conditions

The World Bank loan is tied to specific fiscal and governance conditions under the Accelerating Resource Mobilisation Reforms programme. The loan aims to support Nigeria's economic stability and vulnerability reduction, with a focus on increasing transparency and net revenue contributions from the oil and gas sector.

Nigeria is rolling out compliance initiatives to unlock funds from its World Bank loan. The government has set specific benchmarks, such as directing 15% of cargo through the Green Channel and implementing a compliant trader program, to access additional funds.

Key Initiatives:

• Green Channel Cargo: Directing 15% of cargo through the Green Channel
• Compliant Trader Program: Instituting a program to encourage trader compliance

To reduce tax expenditures, Nigeria will modify exemptions for corporate bonds and reform the Pioneer Status Industry (PSI) incentive scheme. This reform will introduce sector-specific incentives tied to economic contributions, led by Taiwo Oyedele's fiscal policy committee.

Tax Expenditure Reduction:

• Corporate Bond Exemptions: Modifying exemptions to reduce tax expenditures
• PSI Reform: Reforming the Pioneer Status Industry incentive scheme

A new Economic Development Incentive Certificate will also be introduced to incentivize capital investment. Applicants will need to pay a nominal fee and undergo review by the Nigerian Investment Promotion Commission (NIPC).

Economic Development Incentive Certificate:

• Nominal Fee: Applicants must pay a fee
• NIPC Review: Undergo review by the Nigerian Investment Promotion Commission

These tax changes aim to meet Nigeria's loan-linked revenue goals while driving economic growth through targeted investmet.