Site icon The Cheer News

Federal Government Advances Tax Reforms to Secure $750 Million World Bank Loan

By DAYO ADESULU

Comprehensive Strategy Aims to Enhance Revenue Collection and Economic Stability

The Federal Government of Nigeria is actively pursuing critical tax reforms aimed at boosting tax revenue and efficiency, as well as meeting the conditions for a **$750 million loan** from the **World Bank**. This loan forms part of a larger **$2.25 billion** package approved on June 13, 2024, intended to stabilize Nigeria’s economy and support vulnerable populations.

Loan Structure and Conditions

The loan package is divided into two parts, with the first being the **$750 million** loan, which is yet to be disbursed. The second part involves the **Nigeria Reforms for Economic Stabilisation to Enable Transformation Development Policy Financing Programme**, for which the government has already accessed **$751.88 million** out of the approved **$1.5 billion**.

The first loan is contingent upon meeting specific fiscal and governance conditions outlined under the **Accelerating Resource Mobilisation Reforms (ARMOR)** programme. The ARMOR initiative targets three main areas:

1. **Tax and Excise Reforms**: Increasing Value-Added Tax (VAT) collections and excise rates on health and environmentally friendly products.
2. **Strengthening Tax and Customs Administration**: Enhancing VAT compliance and audit effectiveness.
3. **Safeguarding Oil and Gas Revenues**: Increasing transparency and net revenue contributions.

Key Targets for Loan Disbursement

According to the loan agreement, disbursement will occur only upon achieving measurable progress in critical areas:

– Raising VAT collections to **1.8%** of non-oil GDP, unlocking **$105 million**.
– Registering **660,000** VAT filers for **$30 million**.
– Launching an e-invoicing system for VAT traders, which will trigger **$20 million**.
– Achieving a **30%** trader adoption rate for an additional **$45 million**.

To enhance VAT revenue, the government is also considering a proposal to increase VAT from **7.5%** to **10%** by **2025**, with further increases planned to reach **15%** by **2030**.

Proposed Tax Legislation and Innovations

The Federal Government plans to introduce a bill that includes:

– A **5% excise duty** on telecommunications services, gaming, and betting activities.
– Reintroduction of excises on telecom services and electronic money transfers.

This legislation seeks to overhaul Nigeria’s tax framework, consolidating various tax laws into a coherent system. Additionally, the government has allocated **$5 million** each to the **Federal Inland Revenue Service (FIRS)** and the **Nigeria Customs Service (NCS)** for capacity-building initiatives.

Strategic Investments in Tax Administration

The funding will support the development of systems aimed at improving data sharing, risk-based audits, and compliance processes. Key initiatives include:

– Establishing a VAT lottery system and an e-invoicing system to enhance VAT collections.
– Developing a risk-based audit assessment program for VAT and Corporate Income Tax.

The NCS will also receive funding to implement new administrative processes and enhance compliance, including developing centralized control room systems for operational resilience.

Customs Reforms and Trade Compliance

The loan also focuses on customs reforms to increase trade compliance and revenue. Specific targets include:

– Directing **15%** of cargo through the Green Channel to unlock **$35 million**.
– Implementing a compliant trader program under the Authorized Economic Operator framework for an additional **$15 million**.

Broader Economic Development Goals

In addition to tax reforms, the government is reviewing current guidelines for tax incentives and plans to replace the existing pioneer status with new priority sector incentives. This aims to reward companies based on their investments in the economy.

The proposed **Economic Development Incentive Certificate** will provide tax incentives for companies investing in capital projects, requiring a non-refundable application fee as part of the process.

Conclusion: A Path Forward

The Federal Government’s concerted efforts to reform its tax system and enhance revenue collection reflect a strategic approach to addressing economic challenges while fulfilling the conditions necessary for international financial support. Through these reforms, Nigeria aims to achieve greater fiscal stability, support its vulnerable populations, and foster a more efficient tax environment that encourages compliance and economic growth.

Exit mobile version