The Federal Government in a move to encourage the payment of income taxes and encourage Investment , has approved a reduction in the rates applicable for payment of Company , as well as Personal Income taxes.

The approval followed a recommendation, which was submitted by the Minister of Finance , Dr. Mansur Muhtar, to the Federal Executive council . In the National Tax policy obtained by our correspondent on Sunday, which was approved by FEC two weeks ago, the minister recommended a reduction in Companies ’ income tax from 30 per cent to 20 per cent.

The New tax policy also reduced the top rate for personal income tax from 25 per cent to 17.5 per cent. In the document, the minister argued that it was important to limit the opportunities for tax avoidance in order to ensure that there were no significant differences in the rates of Company Income Tax and Personal Income Tax.


He said Value Added Tax should be left unchanged at five per cent since it was easier to administer and more difficult to evade. He said, “When Nigeria lowers income tax rates to attract Investment into the country, it may be difficult for other West African countries to compete for Investments . It is, therefore, possible that Nigeria can achieve competitive advantage in its tax System through lowering tax rates.

“In order to encourage Investment , it is necessary, but not sufficient to lower the overall rates of income taxes. Part of the burden that falls on taxpayers is the administrative cost necessary to comply with the tax laws, especially, as complicated tax laws increase compliance cost. “The tax laws shall be amended for clarity. Furthermore, All tax / revenue authorities in Nigeria should adopt wide-spread taxpayer Education strategies to enable taxpayers to understand tax compliance procedure required to meet their tax obligations.”

On sectors to be granted incentives, the minister said that the Energy (power, Oil and Gas ), mining, railways/roads, Education , Health , Aviation , exports as well as the agriculture sectors should be given more incentives. He said, “Horizontal Equity is a key condition for fairness in a tax System . Under this Concept , similar Companies Are treated similarly under the provisions of the tax laws.

“A Tax holiday (or Pioneer Status) may violate horizontal Equity as it involves giving a Company or Sector preferential treatment over other Companies or sectors. It is also difficult to administer and therefore complicates the tax System .

“However, whilst some tax incentives should generally be avoided, there Are some specific sectors, which the Government may wish to accord priority. The justification for this is that those sectors have potentially large Benefits to the entire economy.

“Where the Government has identified such priority sectors, it would be beneficial to provide tax holidays to facilitate the growth and Development of these sectors. This fulfils the requirements stated in the National Tax Policy that tax holidays must only be granted where they would be of benefit to the entire economy.”