Over the decades, I have deeply studied Nigeria’s fiscal policy—from the prosperous oil boom of the 1980s to the pivotal debt relief period of the 2000s. This long-standing engagement with fiscal trends places me in a strategic position to distinguish genuine reform from superficial adjustments. In the case of the newly introduced tax laws under President Bola Tinubu’s administration, I see a deliberate and progressive attempt to revive the nation’s struggling economy. Whether one supports the current administration or not, it’s clear that Tinubu’s government deserves commendation for these bold and thoughtful reforms.

Reinforcing the Social Contract Through Fiscal Federalism

With a background rooted in political science, I have always found the intersection between government policies and the social contract they uphold particularly fascinating. In this regard, one of the most compelling features of these new tax laws lies in how they advance the principle of fiscal federalism—a long-contested issue in Nigeria’s governance structure.

Historically, the imbalance in revenue distribution between the federal and state governments has generated significant tension. Many states have become overly dependent on the monthly federal allocations to cover both capital and recurrent expenditures. The new tax laws take a vital step forward by revising the Value Added Tax (VAT) revenue-sharing formula—a longstanding flashpoint in Nigeria’s intergovernmental relations.

Redefining VAT Sharing: A Win for States

Under the new formula, states will now receive 55% of the total VAT revenue, up from the previous 50%. The federal government’s share has been reduced from 15% to 10%, while local governments continue to receive 35%. This shift is not merely statistical; it marks a historic sacrifice by the federal government in favor of empowering states—a rarity in Nigeria’s politically polarized environment.

Breaking down the distribution mechanism, 50% of VAT proceeds to states will be shared equally, 20% will be based on population, and 30% will reflect consumption patterns (formerly known as derivation). This method is both equitable and incentive-driven, encouraging states to stimulate economic activity within their borders. Though incremental, this adjustment represents significant progress toward genuine fiscal decentralization.

Strengthening States’ Financial Autonomy

By voluntarily reducing its own share of VAT, the federal government has enabled states to retain more resources for grassroots development initiatives. This move aligns with one of the most meaningful gains in fiscal federalism in recent history—second only to the Supreme Court ruling that reinforced local government autonomy. Through this change, the states are better positioned to respond to local needs, build infrastructure, and fund social programs.

Integrating the Informal Sector into the Tax Net

Another transformative aspect of the new tax policy is its strategic focus on integrating Nigeria’s vast informal economy into the formal tax system. The informal sector contributes over 57% to Nigeria’s GDP and provides more than 80% of jobs. Yet, it contributes very little to national tax revenues, primarily due to its unregulated nature.

While previous administrations have acknowledged this challenge, none took substantial action. The current reform is different. It includes withholding tax waivers on transactions under ₦2 million for bank accounts linked to valid Tax Identification Numbers (TINs). This provision sends a powerful message to small business owners: formalization is not just about tax obligations—it comes with tangible financial incentives. By making it easier and more rewarding for informal enterprises to join the formal economy, the law offers a blueprint for sustainable revenue growth without overburdening vulnerable entrepreneurs.

A Practical Interpretation of “Let the Poor Breathe”

When then-President-elect Bola Tinubu declared, “Let the poor breathe,” many dismissed it as political rhetoric. However, the new tax law demonstrates a genuine commitment to easing the financial strain on low-income Nigerians. Individuals earning ₦800,000 or less annually are now fully exempt from personal income tax. This decision effectively lifts a heavy burden off the shoulders of millions and is a bold, people-centered fiscal move.

Moreover, the law zero-rates VAT on essential goods and services—including staple food items, medications, agribusiness inputs, and transportation. These exemptions provide direct relief to everyday citizens and reflect a policy designed with empathy, equity, and impact in mind.

Empowering Taxpayers Through Justice and Redress

Accountability is a critical component of any fair tax system. Recognizing this, the new tax framework introduces mechanisms that protect and empower taxpayers. Most notably, it establishes an Independent Tax Ombudsman to handle complaints such as refund delays, incorrect assessments, and misconduct by tax officials. This institution aims to ensure that taxpayers are treated fairly and can seek redress without unnecessary bureaucracy or intimidation.

Further strengthening this accountability framework is the expansion and digitalization of the Tax Appeal Tribunal. With clearly defined timelines for rulings and streamlined access, the tribunal system now promises faster and more transparent dispute resolution. This transformation reflects a legal and technological modernization effort that aligns with global best practices in tax governance.

Conclusion: A Visionary and Inclusive Fiscal Roadmap

Nigeria’s new tax laws are not merely a collection of revenue-generating tools—they represent a vision for economic recovery, equity, and institutional reform. From rebalancing VAT allocations to formalizing the informal sector, from shielding low-income earners to empowering taxpayers with redress mechanisms, the reforms are comprehensive in scope and thoughtful in design.

Perhaps most importantly, these laws showcase a rare instance of political leadership willing to take difficult but necessary steps in pursuit of a greater good. While the road to economic stability remains long, the foundation laid by these policies offers a promising start. President Bola Tinubu and his team have earned due credit for this effort—not just for making promises, but for delivering on them in ways that could reshape Nigeria’s fiscal future for the better.