Authored By: Oladosu Praise Rereloluwa
University of Lagos
Abstract
This paper critically examines the legal and policy frameworks financing tertiary education in Nigeria, focusing on the Tertiary Education Trust Fund (Establishment, etc.) Act 2011 (TETFUND Act). It traces the evolution of education funding from the colonial ordinances to the repealed Education Tax Act 1993 and analyses the imposition of the 2% tertiary education tax and its relationship with other tax laws. Using a doctrinal approach and policy analysis, the paper highlights key reforms such as the non-deductibility of the tax for petroleum companies. However, it addresses significant limitations, including the exclusion of some tertiary institutions and the narrow tax base. This paper recommends expanding the scope of chargeable entities and bringing up alternative funding models like student loans and specific consumption taxes.
Keywords: Tertiary Education, Education Tax, TETFUND Act 2011, Nigeria, Public Funding, Legal Reform, Higher Education Policy
Introduction
The undeniable underfunding of Nigeria’s education sector, especially at the tertiary level, has geared up successive legislative interventions aimed at establishing sustainable financing structures. Over the years, the Nigerian government was solely responsible for funding higher education, which proved to be fiscally unsustainable and institutionally inadequate. In response, forward-thinking legal frameworks were introduced to bridge these financial gaps.
The very first early intervention was the establishment of the Longe Commission in 1990, which reviewed the state of higher education and identified systemic underfunding as a core concern. The Commission recommended, inter alia, the imposition of a 2% tax on the profits of all companies operating in Nigeria to finance tertiary education. This recommendation culminated in the enactment of the Education Tax Decree No. 7 of 1993, intended to support all levels of education through corporate taxation. Despite this intervention, the 1993 Act failed to meaningfully ameliorate funding deficiencies, ultimately leading to its repeal.[1]
To address these shortcomings, the legislature enacted the Tertiary Education Trust Fund (Establishment, etc.) Act No. 16 of 2011, hereinafter the TETFUND Act. This statute moved the focus primarily to tertiary education by introducing a dedicated fund for the rehabilitation, restoration, and enhancement of higher institutions across Nigeria.[2]
This paper delves into a detailed legal and policy analysis of the TETFUND Act as a purported reform mechanism; assessing the statutory framework, implementation issues, legal constraints, and the extent to which this Act reflects a substantive reform or merely recycles political rhetoric. Through this inquiry, the paper aims to determine the effectiveness and future viability of the TETFUND Act as a sustainable mechanism for financing tertiary education in Nigeria.
Legal Framework of Education Tax in Nigeria
Historical Overview of Education Funding
The evolution of education funding in Nigeria can be traced to colonial legislative efforts. The 1882 Education Ordinance for British West African Territories marked the first formal state engagement, offering grants to schools based on performance criteria.[3] This was refined by the 1887 Nigerian Education Ordinance, which introduced an Education Board and specified funding conditions.[4] The most expansive reform came with the 1916 Education Ordinance, instituted under Governor-General Lord Lugard, which unified education policies across Northern and Southern protectorates and formalised state control and funding of education.[5] This ordinance allocated grants across specific domains: moral instruction (30%), staff efficiency (20%), periodic assessments (40%), and infrastructure (10%).[6]
At the pre-tertiary level, funding was largely non-governmental until the mid-20th century, with the state offering occasional grants-in-aid. In contrast, tertiary education was almost entirely state-funded for decades. However, economic strains and expanding enrolment soon exposed the limitations of sole reliance on public financing.
In response, the Longe Commission on Higher Education, established in 1990, identified underfunding as a fundamental impediment to quality education.[7] It recommended the imposition of a 2% education tax on the profits of all companies operating in Nigeria and the creation of a National Higher Education Fund, to be administered by a Board of Trustees.[8]
The Education Tax Act (1993) and Its Repeal
Following the Longe Commission’s recommendations, the federal government enacted the Education Tax Decree No. 7 of 1993, which came into effect on 1st January 1993.[9] It mandated a 2% tax on the assessable profits of all Nigerian companies to fund education at all levels.[10] The proceeds were distributed among primary, secondary, and tertiary institutions based on a statutory formula.
Despite its initial promise, the Act failed to deliver sustainable outcomes. Infrastructure decay, inadequate learning facilities, and insufficient staffing persisted across institutions. These shortcomings exposed the inadequacy of the broad distribution mechanism and eventually led to the Act’s repeal.[11] The legislative failure set the stage for a more focused approach to funding higher education, culminating in the enactment of the Tertiary Education Trust Fund (Establishment, etc.) Act 2011.
Establishment and Provisions of the Tertiary Education Trust Fund (TETFUND) Act (2011)
The TETFUND Act No. 16 of 2011, which took effect on 3rd June 2011, repealed the Education Tax Act and established the Tertiary Education Trust Fund to manage and disburse proceeds from a 2% education tax to public tertiary institutions in Nigeria. This marked a shift from the broader scope of the previous Act to a targeted focus on higher education. The Fund is a corporate body with perpetual succession and legal capacity.
The Board of Trustees, which includes representatives from universities, polytechnics, and colleges of education, ensures transparency and oversees tax collection, project approvals, and fund disbursement. Unlike the former Act, local government institutions are excluded. Funds are allocated for infrastructure, teaching materials, research, publications, and staff development. The disbursement follows a 2:1:1 ratio. Universities receive 50%, while Polytechnics and Colleges of Education each receive 25%.
Tax-Based Mechanisms for Financing Tertiary Education
Imposition and Collection of Tertiary Education Tax
The Tertiary Education Trust Fund (Establishment, etc.) Act 2011 imposes a tertiary education tax of 2% on the assessable profits of all companies registered in Nigeria.[12] The Federal Inland Revenue Service (FIRS) is the designated authority for assessing and collecting this tax.[13] Assessment is conducted concurrently with the company’s Companies Income Tax (CIT) or Petroleum Profits Tax (PPT) within an accounting period, and payment is due within 60 days of receiving the notice of assessment.[14]
This reflects the government’s strategic decision to institutionalise a predictable and enforceable corporate contribution to the higher education sector.
Scope of Chargeability: Nigerian vs Foreign Companies
A significant limitation of the TETFUND Act lies in its tax base: it restricts liability to companies registered in Nigeria, thereby excluding foreign corporations operating within the country but not formally incorporated under Nigerian law.[15] This diverges from the broader scope of the Companies Income Tax Act (CITA), which subjects both resident and non-resident companies to tax on profits accruing in, derived from, brought into, or received in Nigeria.[16]
Multinational companies profiting from Nigeria but not locally incorporated are exempt from the education tax. This exclusion undermines equity, limits revenue potential, and creates an imbalance between foreign and local companies, weakening the fund’s overall impact.[17]
The Petroleum Profits Tax Act and Deductibility of Education Tax
One of the most notable innovations introduced by the TETFUND Act is found in Section 1(4), which provides that Section 60 of the Petroleum Profits Tax Act (PPTA) shall not apply to the assessment or collection of tertiary education tax.[18] This provision effectively renders the education tax non-deductible for companies in the petroleum sector, ensuring that the full 2% levy is paid without reduction from taxable profits.
Prior to this amendment, petroleum companies often claimed the education tax as an allowable deduction under PPTA, thereby diminishing the intended financial benefit to the education sector. The express override of Section 60 by the TETFUND Act constitutes a significant legal and fiscal reform, particularly given the dominant role of oil companies in Nigeria’s economy.[19] It ensures that one of the country’s most profitable sectors contributes directly and fully to the development of higher education.
This legal clarification aligns with global trends in tax earmarking, where specific sectors are legally mandated to fund public services without recourse to standard tax reliefs.[20] The inclusion of this provision demonstrates the legislature’s commitment to ring-fencing resources for education, especially from high-earning industries.
Implementation Challenges and Criticisms of the Current Framework
Exclusion of Certain Institutions
One of the most prominent criticisms of the TETFUND framework is its exclusion of Colleges of Agriculture from the list of eligible beneficiary institutions. Although the long title of the Act refers to “all public tertiary education institutions in Nigeria,”[21] Section 7(3) restricts the definition of tertiary institutions to Universities, Polytechnics, and Colleges of Education.[22]
This exclusion is widely regarded as inconsistent with the Act’s stated intent and has serious implications for agricultural education, which is central to food security and sustainable development.[23] Colleges of Agriculture are also not represented on the Board of Trustees, compounding the marginalisation of this critical sector.[24] The narrow institutional scope of the Act thus undermines a holistic national education policy and calls for urgent legislative reform to broaden eligibility.
Limitations on the Tax Base
As discussed earlier, the TETFUND Act confines tax liability to “companies registered in Nigeria,” thereby excluding foreign companies operating within the country but not incorporated locally.[25] This limitation effectively exempts highly profitable multinational corporations from contributing to the fund, even when they derive substantial income from the Nigerian market.[26]
While these companies are subject to other tax obligations under the Companies Income Tax Act (CITA), their exemption from the tertiary education tax creates a gap in revenue generation and constitutes a significant policy shortfall.[27] Amending the TETFUND Act to adopt a source-based taxation model which is similar to CITA would address this disparity and enhance financial equity.
Other Criticisms and Loopholes
Presidential Discretion in Fund Allocation
The TETFUND Act grants the President of Nigeria considerable discretion in the allocation of education tax proceeds. Although the Board of Trustees is empowered to manage and disburse funds, the final decision-making power often rests with the Executive.[28] This discretionary latitude may result in inconsistent funding, particularly during political transitions or periods of competing fiscal priorities. As noted by scholars, this risks undermining the independence and predictability of the funding regime.[29]
Penalties for Non-Compliance
The Act imposes penalties on companies that fail to remit the tertiary education tax. Offenders are liable for the unpaid tax plus a penalty of 5% of the outstanding amount.[30] While this enhances accountability, concerns remain about the effectiveness of enforcement and the administrative capacity of the Federal Inland Revenue Service (FIRS) to prosecute defaulters consistently.[31]
Best of Judgement” Assessments
Another innovation in the TETFUND Act is the authorisation of “best of judgment” assessments. If a company fails to file its returns, the FIRS may assess its profits based on available information.[32] While this tool enhances enforcement, it raises concerns about fairness, especially where such assessments are not subject to adequate oversight or transparent dispute resolution mechanisms.[33] Legal scholars argue that safeguards should be introduced to prevent abuse and ensure that assessments are based on objective criteria.[34]
Comparative Analysis
The Tertiary Education Trust Fund (Establishment, etc.) Act 2011 (TETFUND Act) represents a significant legal shift from the repealed Education Tax Act 1993, not only in terms of institutional focus but also in fiscal strategy and tax law interactions. A comparative legal analysis reveals key reforms, distinctions, and policy implications when contrasted with both its predecessor and other taxation frameworks in Nigeria.
Shift in Institutional Focus
The most apparent transformation is the strategic narrowing of the fund’s scope. While the Education Tax Act 1993 provided for the funding of all levels of education; the TETFUND Act exclusively targets public tertiary institutions.[35] This pivot reflects a policy decision to concentrate limited resources on higher education, where infrastructural decay and academic quality challenges have been particularly pronounced.
However, critics argue that the wholesale exclusion of lower educational tiers risks further entrenching disparities, particularly in foundational learning.[36]
Fiscal Regime and Deductibility of Education Tax
A major reform lies in Section 1(4) of the TETFUND Act, which unequivocally overrides Section 60 of the Petroleum Profits Tax Act (PPTA).[37] Prior to this amendment, petroleum companies often treated the education tax as a deductible expense, thereby reducing their tax burden. By explicitly rendering the 2% tertiary education tax non-deductible, the Act ensures full and direct contributions from oil companies, which constitute Nigeria’s most lucrative industry.[38]
This represents a statutory override of a sector-specific tax relief, highlighting the government’s intent to ring-fence education funding against erosion through corporate tax planning. This provision also diverges from general principles under the Personal Income Tax Act (PITA) and Companies Income Tax Act (CITA), where business expenses including levies and taxes are often deductible.[39]
Companies’ Liability: Local vs Foreign Entities
Another comparative element is the limitation of education tax liability under the TETFUND Act to companies registered in Nigeria.[40] This contrasts sharply with the broader scope of the Companies Income Tax Act, which imposes tax obligations on both resident and non-resident companies earning income from Nigerian sources.[41]
This restrictive formulation in the TETFUND Act creates a regulatory inconsistency, whereby foreign companies despite benefitting from the Nigerian market are exempt from contributing to the education tax.[42] The implication is a narrow tax base, with reduced revenue potential and arguably an unfair burden on Nigerian-registered companies. Comparative best practices in tax law advocate for source-based taxation, ensuring that all economic actors benefitting from a country’s resources contribute equitably to public goods.[43]
Reform Proposals and Recommendations
To elevate the TETFUND Act from a partially effective fiscal measure to a truly transformative legal framework for educational development, several reforms are urgently required. These include legislative adjustments to broaden the tax base and institutional reforms to expand access to funding. Additionally, supplementary financing mechanisms such as student loans and consumption taxes, should be explored to ensure the long-term sustainability of tertiary education funding in Nigeria.
Expanding the Tax Base
The current scope of the TETFUND Act is unduly restrictive. By limiting liability to “companies registered in Nigeria,” [44] the Act exempts foreign companies that operate and generate profits within the country but are not locally incorporated.
To rectify this disparity, the TETFUND Act should be amended to adopt a broader definition of chargeable entities, mirroring the language and logic of CITA. This would ensure that foreign corporations benefiting from Nigeria’s economic environment are required to contribute to its educational infrastructure. The resulting expansion in the tax base would significantly enhance the fund’s revenue capacity.
Additionally, the explicit inclusion of other public tertiary institutions, particularly Colleges of Agriculture, is essential. Their exclusion from the list of beneficiaries undermines efforts to foster national food security and agricultural innovation.[45] Legislative reform should amend Section 7(3) of the Act to accommodate all accredited public tertiary institutions, regardless of classification.
Exploring Alternative Funding Sources
Recognising the limitations of relying solely on the education tax, the government must consider diversifying tertiary education funding through complementary models. These include:
Student Loan Schemes
Student loan programmes offer a long-term mechanism for educational cost-sharing. By allowing students to “fund their education retrospectively”—i.e., repay after graduation—such schemes promote equity and access.[46] However, in Nigeria’s context of high unemployment and widespread economic precarity, any loan scheme must be well-regulated, interest-subsidised, and supported by robust recovery infrastructure.[47] Provisions for repayment deferrals, income-based thresholds, and loan forgiveness for vulnerable graduates may also be necessary to balance access with sustainability.[48]
Consumption Tax Allocation (VAT)
Another avenue for funding expansion lies in the Value Added Tax (VAT) system. Introduced in Nigeria in 1993, VAT is administered by the FIRS and apportioned between Federal, State, and Local Governments in the ratio of 15:50:35 respectively.[49] Allocating a fixed percentage of VAT revenue specifically to tertiary education could provide a predictable and scalable revenue stream, especially as VAT collection continues to improve.[50]
However, this option must be assessed for its regressive implications, as consumption taxes disproportionately affect low-income households. Therefore, a dedicated education VAT component should be carefully designed with exemptions for basic goods to mitigate unintended social burdens.[51]
Conclusion
The Tertiary Education Trust Fund (Establishment, etc.) Act 2011 represents a deliberate legislative shift towards addressing the chronic underfunding of tertiary education in Nigeria. By narrowing its focus from basic and secondary education to exclusively target public tertiary institutions, and by establishing a dedicated funding mechanism through a 2% education tax, the Act has introduced commendable structural reforms. Notably, its override of Section 60 of the Petroleum Profits Tax Act (PPTA) ensures full compliance by oil companies without tax relief, securing revenue from a dominant sector of the Nigerian economy.[52]
However, despite these advances, the Act is not without significant shortcomings. Its limitation of tax liability to “companies registered in Nigeria” excludes foreign companies that derive substantial profits from Nigerian operations, thereby weakening its revenue-generating potential.[53] Additionally, the exclusion of critical public tertiary institutions, such as Colleges of Agriculture, undercuts national development goals, particularly in sectors like food security and environmental sustainability.[54]
Further concern arises from the potential for presidential discretion in fund allocation, which risks politicising what should be an objective and needs-based funding process. The absence of robust mechanisms for monitoring compliance, enforcing penalties, and ensuring fair assessments under the “best of judgement” principle also undermines the system’s transparency and accountability.[55]
In light of these findings, this paper concludes that while the TETFUND Act represents a substantial improvement over the repealed Education Tax Act 1993, it still falls short of the comprehensive reform required to ensure the sustainable financing of Nigeria’s higher education system. Ultimately, Nigeria must move beyond rhetorical commitments to education reform and embrace legally enforceable, inclusive, and innovative financing strategies that reflect international best practices and respond to domestic developmental needs.
Reference(S):
[1] Education Tax Decree No 7 of 1993 (Repealed); see also A Ojedele, ‘Education Funding in Nigeria: Challenges and Prospects’ (2018) 23 Journal of Education Law and Policy 14.
[2] Tertiary Education Trust Fund (Establishment, etc.) Act No 16 of 2011.
[3] A O Uche, Education and Colonialism in Nigeria (Ibadan University Press 1985) 72.
[4] Ibid
[5] A Adepoju and K Ajayi, ‘Historical Perspectives on Education Policy in Nigeria’ (2000) 4(2) African Journal of Educational Management 23.
[6] Ibid 24.
[7] Federal Republic of Nigeria, Report of the Longe Commission on Higher Education (Government Press, Lagos 1991).
[8] Ibid.
[9] Education Tax Decree No 7 of 1993.
[10] ibid, s 2.
[11] T Akinyemi, ‘Financing Education in Nigeria: Problems and Solutions’ (2009) 5(1) Ilorin Journal of Educational Studies 12.
[12] Tertiary Education Trust Fund (Establishment, etc.) Act 2011, s 1(2).
[13] Ibid, s 2(1); see also Federal Inland Revenue Service Act 2007.
[14] TETFUND Act 2011, s 2(2).
[15] Ibid, s 1(2); see the critique in F Odiase, ‘Corporate Taxation and Educational Funding in Nigeria’ (2021) 7 Nigerian Journal of Legal Studies 118.
[16] Companies Income Tax Act Cap C21 LFN 2004, s 9.
[17] M Adebayo, ‘Expanding Nigeria’s Tax Base for Education: Legal Imperatives’ (2022) 33 NIALS Journal of Law and Development 45.
[18] TETFUND Act 2011, s 1(4).
[19] Petroleum Profits Tax Act Cap P13 LFN 2004, s 60 (now overridden); see also A Yusuf, ‘Petroleum Taxation and Education Funding in Nigeria’ (2020) 5 Journal of Energy Law and Policy 89.
[20] J Owens, ‘Earmarked Taxes: Theory, Practice and International Trends’ (OECD, 2019) https://www.oecd.org accessed 22 July 2025.
[21] Tertiary Education Trust Fund (Establishment, etc.) Act 2011
[22] Ibid, s 7(3).
[23] A O Ekpu, ‘Neglect of Agricultural Education in Nigeria: Legal and Developmental Implications’ (2021) 8(2) African Journal of Public Policy 60.
[24] Ibid.
[25] TETFUND Act 2011, s 1(2).
[26] F O Odigbo, ‘Taxation and Multinational Corporations in Nigeria: An Unfair Exemption?’ (2020) 12 Nigerian Journal of Tax Law 88.
[27] Companies Income Tax Act Cap C21 LFN 2004, s 9.
[28] TETFUND Act 2011, s 3; see also A Ojo, ‘Executive Control of Statutory Funds in Nigeria: A Constitutional Review’ (2019) 45 Nigerian Bar Journal 42.
[29] Ibid.
[30] TETFUND Act 2011, s 4(2).
[31] M Akinola, ‘Revenue Enforcement and the Role of FIRS’ (2022) 17 Tax Policy Journal of Nigeria 101.
[32] TETFUND Act 2011, s 4(3).
[33] Ibid.
[34] B O Aluko, ‘The Legality and Fairness of Best-of-Judgement Taxation in Nigeria’ (2023) 9(1) Journal of Legal Theory and Practice 27.
[35] Tertiary Education Trust Fund (Establishment, etc.) Act 2011, s 7(3); cf Education Tax Decree No 7 of 1993, s 2.
[36] E A Adeboye, ‘The Impact of Uneven Educational Funding on Nigeria’s Basic Education’ (2021) 6 African Journal of Educational Policy 34.
[37] TETFUND Act 2011, s 1(4).
[38] Petroleum Profits Tax Act Cap P13 LFN 2004, s 60 (prior to amendment); see also A Olaniyan, ‘Taxation of the Oil Sector in Nigeria: A Review of Recent Reforms’ (2020) 12 Journal of Energy Law and Development 78.
[39] Companies Income Tax Act Cap C21 LFN 2004, s 24; Personal Income Tax Act Cap P8 LFN 2004, s 20.
[40] TETFUND Act 2011, s 1(2).
[41] Companies Income Tax Act 2004, s 9(1)(b).
[42] F O Umeh, ‘Foreign Companies and Tax Obligations in Nigeria: An Unjust Exemption?’ (2022) 18 Nigerian Review of Tax Law 91.
[43] OECD, Principles of International Taxation (OECD Publishing 2020) ch 3.
[44] Tertiary Education Trust Fund (Establishment, etc.) Act 2011, s 1(2).
[45] A O Ekpu, ‘Neglect of Agricultural Education in Nigeria: Legal and Developmental Implications’ (2021) 8(2) African Journal of Public Policy 60.
[46] H Chapman and A Ryan, Financing Tertiary Education: Student Loan Models and Social Equity (Oxford University Press 2019) 86.
[47] O A Ogunyemi, ‘Challenges of Implementing Student Loan Schemes in Nigeria’ (2021) 13 African Journal of Higher Education Policy 41.
[48] World Bank, Financing Higher Education in Africa (World Bank Publications 2010) 122–24.
[49] Value Added Tax Act Cap V1 LFN 2004, ss 7–9; see also Federal Inland Revenue Service (FIRS), ‘VAT Revenue Reports’ https://www.firs.gov.ng accessed 23 July 2025.
[50] J Ekanem, ‘VAT as an Instrument for Social Investment in Nigeria’ (2020) 6 Nigerian Tax Journal 58.
[51] S Uwalaka, ‘Consumption Taxes and Inequality in Sub-Saharan Africa’ (2022) 15 Global Fiscal Review 17.
[52] Tertiary Education Trust Fund (Establishment, etc.) Act 2011, s 1(4); see also Petroleum Profits Tax Act Cap P13 LFN 2004, s 60.
[53] Companies Income Tax Act Cap C21 LFN 2004, s 9; see FO Umeh, ‘Foreign Companies and Tax Obligations in Nigeria: An Unjust Exemption?’ (2022) 18 Nigerian Review of Tax Law 91
[54] A O Ekpu, ‘Neglect of Agricultural Education in Nigeria: Legal and Developmental Implications’ (2021) 8(2) African Journal of Public Policy 60.
[55] B O Aluko, ‘The Legality and Fairness of Best-of-Judgement Taxation in Nigeria’ (2023) 9(1) Journal of Legal Theory and Practice 27.
