Committee Chairman Clarifies Stance on Inheritance Tax

ABUJA – Hon. Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, has unequivocally stated that the proposed inheritance tax will not be reintroduced in the upcoming tax reforms before Parliament.

Oyedele’s statement came in response to concerns raised during a recent public hearing on four proposed tax bills, organized by the House of Representatives Committee on Finance, led by Hon. James Faleke. During the hearing, some submissions suggested that inheritance tax might be included in the new bills under consideration.

In his remarks, Oyedele emphasized that there were no plans to reintroduce the inheritance tax as part of the proposed reforms. His clarification aims to allay any concerns or misconceptions surrounding the tax package.

The four tax reform bills are a key component of the government’s ongoing efforts to overhaul the country’s tax system, aimed at enhancing revenue generation and improving fiscal sustainability.

He clarified, “The section of the law being interpreted as introducing an inheritance tax is Section 4, Subsection 3, of the Nigerian Tax Bill. This particular section addresses family income.

“As an individual, if you own a property and rent it out, you are required to pay tax on the rental income. Similarly, a family can also own a property and rent it out—should they not also be taxed? If we decide that they shouldn’t pay taxes, I can assure you that all properties in Nigeria would eventually be classified as family homes, and no one would pay the tax.

“It’s important to distinguish between income and inheritance. Inheritance pertains to assets, wealth, and cash, while income refers to external funds coming into the family. In accounting terms, income is external, whereas inheritance is a transfer of assets. This provision is not new; it has been a part of our tax laws since Nigeria’s independence.”

“As it stands today, this provision is outlined in Section 2, Subsection 5 of the Personal Income Tax Act.

If family income can be attributed to either the father or the son, the tax will be levied on that individual. However, if the family income cannot be clearly assigned to any particular member, the tax will be imposed on the family unit as a whole.

It’s also important to note that there are taxes on communities and villages. For example, if a community rents out a town hall, they are required to pay tax. Therefore, this provision is not new and does not introduce an inheritance tax in any way.”

Alternatively, “This law was already in place in 1979 when the military introduced the inheritance tax. If that measure had been sufficient, there would have been no need to introduce additional legislation to impose it again.

Furthermore, in 1996, the capital transfer tax, which had imposed inheritance tax, was repealed. Since then, we have made no efforts, either directly or indirectly, to reinstate it. It’s important to note that this is a matter of state income, not federal government policy. So, why would we consider bringing it back?”

Zach Adedeji, the Chairman of the Federal Inland Revenue Service (FIRS), has criticized the practice where investors produce goods in free zones, which operate under a different tax regime, and then attempt to smuggle those products into customs areas.

Adedeji emphasized that no responsible country would allow such actions. He stated, “A responsible government will not turn a blind eye to individuals who either haven’t fully understood the law or have only read it partially, only to resort to litigation or attempt to take their investments abroad. What is the scale of their investments that they would risk undermining the businesses within the customs area, where we are collecting taxes? They produce goods in free zones and then rush to flood the customs area, potentially harming the economy. A responsible country would not tolerate this, and we certainly will not.”

In response to allegations from some stakeholders in the free zones claiming that 70 investors have withdrawn their funds due to unfavorable policies, Oyedele has dismissed these claims as false.

He explained, “What we refer to as ‘cash in circulation’ includes the currency in your pocket or wallet. In Nigeria, this amounts to about four trillion Naira, and it is primarily outside the banking system. This is the cash used for everyday transactions like paying for a bus ride or buying bottled water.

However, the total money supply in Nigeria exceeds 100 trillion Naira, and it remains within the economy. Last year, the value of digital transactions alone reached 1.08 quadrillion Naira. Therefore, the idea that people are withdrawing their money and fleeing Nigeria is unfounded.”

He expressed concerns over the exclusion of tax waivers for profits from manufactured exports in the recently proposed Tax Bill. He noted that such an exclusion could further hinder the growth of the nation’s manufacturing sector, particularly in light of the significant decline in the value of manufactured exports in recent years.

Meshioye pointed out that between 2019 and 2023, the value of manufactured exports had fallen from $6.7 billion to $1.6 billion, a decrease that he attributed partly to the lack of adequate incentives for Nigerian exporters. He emphasized that these incentives are crucial for stimulating growth in the sector and encouraging competitiveness in international markets.

Further highlighting the potential for economic distortion, Meshioye remarked on the absence of legal provisions preventing free zone entities from selling goods within the customs territory, where they could potentially compete with businesses that are paying taxes. “Such practices are the best way to create economic distortions, and that is not the intention,” he said.

The Oil Producers Trade Section of the Lagos Chamber of Commerce has expressed concerns that if the current draft of the tax bill is passed, the oil and gas sector could lose some of the VAT benefits it currently enjoys, particularly with regard to the Petroleum Profit Tax.

Its representative from the section emphasized that the proposed tax reform should include clear incentives for oil production.

They also pointed out that if Section 87 of the bill is enacted as is, the stabilization fund will no longer be accessible to companies under the Petroleum Industry Act. In such a scenario, the companies would be left to fend for themselves in case of unforeseen circumstances, without the safety net of the fund.

He said, “In passing the bills, there is a need for caution to ensure that the cost of doing business does not increase significantly, as this could drive entrepreneurs to invest in other countries.

The Oil Producers Trade Section (OPTS) expressed support for the core principles behind the bills, while also hoping that any concerns raised will be adequately addressed.

Francis Meshioye, President of the Manufacturers Association of Nigeria (MAN), commended the government for its courage in introducing the bills. However, he raised concerns about the lack of incentives for manufacturers who focus on export production.

He expressed strong opposition to the proposal allowing 100% sail into the Export Free Zones, emphasizing that no country, except Nigeria, permits such a practice. He pointed out that Ghana, for instance, only allows a 30% sail.

The association has recommended that the law should limit sail of goods into the free zone to just 25%.

He also commended the government for its plan to reduce company income tax, as outlined in the proposed bills. He noted that across the globe, reducing company income tax is a common practice aimed at boosting production and stimulating economic growth.