Nigeria's lower house of parliament passed four tax reform bills proposed by President Bola Tinubu on Thursday, marking progress in the government's efforts to overhaul the country's tax system, but several proposed measures were watered down.

Nigeria, Africa's most populous country, has one of the world's lowest tax-to-GDP ratios, at 10.8%, forcing the government to rely on borrowing to fund the budget.

After ending costly subsidies and twice devaluing the naira currency in his first year in office, Tinubu has shifted his focus to reforming the tax system to boost revenue and efficiency.

The new tax system seeks to raise value-added tax (VAT) to 12.5% by 2026, streamline tax collection, and overhaul revenue-sharing between federal and state governments.

But lawmakers retained VAT at 7.5%, rejecting the original proposal, and excluded minimum wage earners from income tax to ease the tax burden on lower-income earners.

Additionally, instead of a 60% VAT revenue allocation for high-revenue states, which drew backlash from northern states over inequality concerns, lawmakers passed a 30% cap. The remaining 70% is split, with 50% shared equally among all states and 20% based on population.

The provisions passed by lawmakers also replace the 85% petroleum profit tax with a 30% corporate tax rate on gains from oil industry operations.

Lawmakers included a global minimum tax on multinational companies with turnover of at least $970.80 million and more than doubled the minimum tax threshold for domestic businesses to 50 billion naira ($32.66 million).

Entities in free zones exporting 75% or more of their goods and services will be exempt from the minimum tax.

The bills are expected to be passed by the upper house of parliament next week. They will take effect as soon as Tinubu gives his assent.