In Nigeria, education has been pushed to the margins, and this has had a negative influence on the country’s human capital growth. 

Over 10.5 million Nigerian children aged 5 to 14 are out of school, as reported by the United Nations Children’s Fund (UNICEF). This is in addition to the millions of people who are half-educated due to a failed educational system. 

The government has adopted a number of policy changes that have had an impact on the advancement of the educational sector.

In 2021, Section 23(1)(c) of the Companies Income Tax Act (CITA) was amended and it is the current policy change-(FA21). Educational institutions in the country were removed from the income tax exemption list under Section 23 (1) (c).

However, this amendment has sparked discussion among stakeholders and the general public. The consequences of this policy on a larger scale are a major reason for the outcry.

In the previous policy, profits from companies that are engaged in public educational activities were exempt from income tax if the profits were not derived from a trade.

With the new amendment, all educational institutions will be subject to taxation and would be responsible for CIT at a rate of 20% or 30%. 

In 2018, the Best Children International Schools (BCIS) and the Federal Inland Revenue Service (FIRS) were involved in a legal dispute. 

BCIS rejected a tax assessment of around N32.7 million from FIRS for the years 2008-2012, of which 88 percent (N28.9 million) is for Company Income Tax. 

They also claimed that the schools’ activities were tax-exempt at the Federal High Court (FHC). The FHC, on the other hand, ruled in favor of the FIRS because BCIS was unable to establish that it is a public educational institution with public character.

It appears that educational institutions in Nigeria with the ability to distribute earnings to shareholders may no longer be eligible for income tax exemption.

The budget deficit for 2022 is estimated to be N6.25 trillion, which is about 3.39 percent of the country’s GDP. As a result, the government is focused on generating as much revenue as possible from various sectors. 

However, the country continues to have difficulties in the educational sector, as well as a lack of an enabling environment for entrepreneurship. 

Imposing an income tax on educational activities might dissuade potential investors. This would increase the cost of education while lowering its quality and resulting in low government revenue.

It would also result in an influx of entrepreneurs with insufficient resources to meet their needs. Lack of qualified skilled labor, unethical market practices, and difficulty to determine credibility.

One way to avoid these is for the government to create a body that distinguishes between the different types of educational institutions and determines whether or not they require taxation.

A better option is for the government to use tax incentives to encourage educational activity. As a result, investment in the educational sector would increase, resulting in a large turnout of well-educated persons who would be beneficial to the country’s long-term development.

To ensure efficiency, tax incentives should also be implemented across different sectors. Small scale businesses, entrepreneurs and private organizations should be taken into account. Rather than concentrating primarily on education.

Afterall, the sectors have been established to collectively contribute to the growth of the country. 

We believe that Nigeria’s education system would be well on its way to realizing the government’s commitment to its own policies and the United Nations’ Sustainable Development Goals if this measure is successfully implemented.