All over the world, tertiary healthcare institutions are considered as hospitals where state-of-the- art infrastructure exists for investigation and treatment of complex medical ailments, where breakthrough medical research is carried out for the benefit of mankind as well as where seasoned medical experts and consultants are trained. While this is the norm globally, tertiary institutions in Nigeria have however, largely been unable to meet up to these standards due to poor infrastructure, inadequate funding, weak policymaking and implementation. These and other longstanding challenges are also faced by the entire Nigerian health sector. For example, only about 4.3% of Nigeria's 2021 budget is appropriated to the Federal Ministry of Health, which is a far cry from what is required to provide quality health services to Nigerians.

This budgetary allocation for the health sector typically accounts for less than 1% of the nation's Gross Domestic Product (GDP) furthering inevitable geographic inequality, poor motivation and remuneration for healthcare workers, mass emigration of healthcare workers and poor infrastructure, amongst others.

Thus, in a bid to address the current state of the Nigerian tertiary health sector, the Senate of the Federal Republic of Nigeria passed the Tertiary Hospital Development Fund Bill on the 5th of October 2021 ("the Bill'') for the rehabilitation, restoration and consolidation of Tertiary Healthcare in Nigeria. Earmarked taxes such as this one, are not new within the Nigerian tax landscape and the Bill, if it becomes an Act, will be an addition to the numerous earmarked taxes in force in the country.

This article therefore analyses and discusses the meaning of earmarked taxes, an overview of the Bill as well as its potential impact on businesses and the fiscal landscape in Nigeria.

What are Earmarked Taxes?

Earmarked taxes are taxes raised and allocated to specific expenditure programs, often through an extra budgetary fund1 . It typically refers to dedicated taxes or levies introduced by government to generate revenue for specific projects.

Examples of earmarked taxes currently in force in Nigeria include the Police Special Trust Fund Levy, the Tertiary Education Tax, Nigerian Social Insurance Trust Fund Levy, National Information Technology Development Levy and the National Agency for Science and Engineering Infrastructure Levy, etc.

Indeed, many countries utilize earmarked taxes as a means of generating funds for the health sector and also funding key health projects. For example, Ghana currently earmarks 2.5% of value added (VAT) collected to fund its National Health Insurance Scheme. The Philippines also has a public health tax on alcohol and tobacco which is earmarked to achieve subsidized insurance coverage for the poor, amongst many other countries who have adopted a similar approach

Highlights of the Tertiary Hospital Development Fund Bill 2021

The Bill seeks to shift the burden of financing tertiary health institutions from the Federal Government to taxpayers through the introduction and imposition of earmarked taxes, which will be dedicated to the provision and maintenance of health care services and infrastructures.

We have discussed below key highlights of the Bill:

Organizations Liable to Pay Taxes under the Bill

The Bill provides that payments into the Fund shall comprise of take-off grant provided by the Federal Government, money appropriated by the National Assembly as well as money from the sources listed below, namely:

  • 1% of petroleum companies tax paid on total barrels of crude oil produced yearly;
  • 1% of mobile phone services providers' tax paid on airtime and data sold yearly
  • 1% of beverages' and breweries' companies tax paid on profit yearly declared;
  • 1% of cement companies tax paid on profit yearly declared;
  • 1% of paint and chemical manufacturing companies' tax paid on profit yearly declared; and
  • 1% of tobacco companies' tax paid on profit yearly declared.

Consequently, upstream oil and gas companies, telecommunications service companies, paint and chemical products manufacturers, beverages production and breweries companies, and tobacco and cement manufacturers will be required to pay the above stipulated taxes. Failure to comply will, upon conviction, attract a fine not exceeding ₦2,000,000,00 or imprisonment for a term of two years or both. All individuals concerned in the management of any company in breach are liable to be proceeded against and punished for the offence, as if same were committed by them.

Assessment, Collection and Administration of the Taxes

The Federal Inland Revenue Service (FIRS) is empowered to assess and collect the taxes imposed under the Bill. The Bill requires the FIRS to assess and collect the resultant taxes in the same accounting period in which the affected companies are assessed to Companies Income Tax (CIT), similar to the practice adopted in the administration of Tertiary Education Tax. The FIRS is also required to submit details of the taxpayers to the Board including their names, assessable profits for the relevant accounting period, amount collected, and any other information that may be required for the proper administration of the Fund.

Administration of the Fund

The Fund will be administered, monitored and managed by a Governing Board ("the Board") consisting of a Chairman, an Executive Secretary, one (1) representative from the six geopolitical zones and eight (8) other members not below the rank of Director from the Federal Inland Revenue Service (FIRS), Pharmaceutical Society of Nigeria, and the Federal Ministries of Health, Finance and Education, and three (3) representatives of the Committee of Medical Directors of Tertiary Hospitals and Federal Medical Centres.

The Board will be responsible for oversight roles with respect to the administration and disbursement of the money in the Fund to Tertiary Hospitals, specifically for the provision and maintenance of essential physical infrastructure for teaching, learning, research and service; instructional, medical and other services equipment; research and publication; staff training and development, amongst others.

Are Additional Earmarked Taxes the Way to Go?

The healthcare sector of most countries is funded through a combination of budgetary allocation (from tax revenue and other sources), earmarked taxes and payments to health maintenance organizations from companies and private individuals. Generally, therefore, having a dedicated source of funding for the tertiary healthcare sector in Nigeria is a welcome development, given the potential for development and upgrade of our tertiary health care facilities through judicious use of the funds. Linking taxes to specific good causes/benefits such as improvement in healthcare delivery could reduce likely resistance from taxpayers.

Although the Bill is a commendable initiative, a major concern is the increasing practice of government in shifting the burden of funding its activities directly to companies and the private sector. The potential addition of yet another tax will further compound the financial burden of companies doing business in Nigeria. Although, it could be interpreted that this is not an additional tax on the companies, but merely a setting aside of a portion of the taxes paid by the companies.

"Whilst we acknowledge that the private sector has a major role to play in revamping critical infrastructure, such as healthcare, introducing specific taxes should not be the default option for the Federal Government. With appropriate publicprivate partnership structures on mutually beneficial terms, the private sector can mobilise the funding required for investment in healthcare that will deliver better results and increase operational efficiency rather than the easy resort to additional taxes"

Furthermore, the proposed Bill may be viewed as contrary to the Government's efforts in reducing the cost of doing business in Nigeria under its Ease of Doing Business Reform initiatives. The rising cost of doing business in Nigeria has caused a number of large corporations to move their operations out of Nigeria. The growing multiplicity of taxes in Nigeria may negatively impact the performance of affected businesses and the attraction of essential foreign investment into Nigeria. To underscore this, Nigeria ranked 159 out of 190 in the ease of paying taxes in 2020 under the World Bank Ease of Doing Business Rankings, which indicates a continuous underperformance of the country in the global space.

Over the years, when government introduces new tax types, the approach is largely to focus on key identifiable taxpayers, with the effect that the same set of taxpayers are required to bear most of the tax burden. This amplifies the need for policymakers, tax administrators and other relevant stakeholders to re-assess the overall strategy in dealing with the revenue shortfall by deploying creative approaches to widen the existing tax net so that the tax burden is equally shared and additional revenue is generated for the government.

Whilst we acknowledge that the private sector has a major role to play in revamping critical infrastructure, such as healthcare, introducing specific taxes should not be the default option for the Federal Government. With appropriate public-private partnership structures on mutually beneficial terms, the private sector can mobilise the funding required for investment in healthcare that will deliver better results and increase operational efficiency rather than the easy resort to additional taxes.


Given that the Bill is still before the National Assembly, there should be clarity on whether these are additional taxes or merely a contribution from the normal income taxes paid by the companies. Where it is an additional tax, consideration should be given for the treatment of the taxes as deductible against the CIT payable by the relevant companies. This will likely increase compliance by taxpayers and ultimately reduce additional tax burden for compliant companies, however it will ultimately reduce the collection into the general purse (Federation Account). In addition, the Federal Government should increase efforts to manage complaints of lack of transparency and accountability and misappropriation of public funds and also cut exorbitant expenditure in order to facilitate the proper usage of the earmarked funds proposed by the Bill for the tertiary healthcare sector in order to increase public trust in government expenditure.

In conclusion, affected companies are advised to closely monitor developments in respect of the Bill and consult their professional advisers for guidance on how the Bill might impact their business operations, in the event it is enacted by the National Assembly and eventually signed into law by the President.


1 OECD Glossary of Statistical Terms available at

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