Nigeria: Let the Tax Reform Bills Be

Ultimately, our advocacy is that a system, which portends a perilous future for the country, should not continue to hold sway.

The tax reform bills from the executive arm of government, now under consideration by the National Assembly, are being opposed by some governors and lawmakers from the North. The four bills scaled Second Reading and were due for public hearing before a 10-member Senate panel was suddenly set up to engage relevant officials of the executive arm on their purported grey areas.

In the House of Representatives, the bills were not debated at all, following a hostile atmosphere there. The resistance to the proposed legislations in the two chambers by some northern lawmakers, suggest the dominant sentiment in the region, which had its provenance in the 28 October meeting of the 19 Northern governors and other leaders of thought from the zone. Participants at that meeting rejected the reforms based on faulty arguments that they are anti-North. But they are actually not!

Since the fiscal tools, prepared by the Taiwo Oyedele-led presidential committee, were unveiled, some opinion leaders have mounted opposition to them. The concerns peaked at the National Economic Council (NEC) meeting of 31 October, presided over by Vice President Kashim Shettima, which resolved that they should be set aside for more consultation. It is our hope that reason will ultimately prevail, and the legislative processes for the passage of the bills would be consummated soon in the interest of the country.

The four tax reform bills: Joint Revenue Board of Nigeria (Establishment] Bill, 20224; Nigeria Revenue Service (Establishment) Bill, 2024; Nigeria Tax Administration Bill, 2024; and Nigeria Tax Bill 2024, taken together, are geared toward a sea change in tax administration – in the collection and distribution to the statutory tiers of government and agencies. Achieving efficiency and increased revenue never experienced in the country are some of the objectives of the proposed reforms. Besides, they will align our tax processes with global best practices. Deficiencies in all of this have delivered fatal punches to the economy and restrained the much-needed foreign direct investments.

Despite its reservations about the tax bills, NEC, “acknowledged that the country is underperforming on all indices as regards yield from major revenue sources, also, tax-to-GDP ratio and so on,.” These are the ills the proposed tax reform will cure by streamlining our tax systems. Multiple taxations have constrained businesses and commercial activities in Nigeria for too long.

The gains of the tax reforms – according to the Tinubu administration – are massive, as they would provide fiscal incentives for businesses, while enabling the growth and development of companies with annual revenue turnover below N50 million due to exemption from taxation. This would be a huge relief to small and medium scale businesses whose profits are heading south, amid headwinds that have forced even big corporations to buckle. There is also the provision of tax relief for those earning less than N1.7 million annually.

One bone of contention in the bills is the derivation-based model that will now be applied in the distribution of Value Added Tax (VAT). Some officials from the North feel that this is not in their region’s best interest. Critically examined, the opposite is however the case. This model is an incentive for every Nigerian state to ramp up productive or economic activities. VAT to states, under this new order, will scale up from 50 per cent to 55 per cent. It should be considered as a stimulus for healthy business competition among the 36 states. This is the prism through which PREMIUM TIMES views it; and it gives a strong meaning to the praxis of federalism. To insist otherwise is to continue to court poverty and indolence, the deepening of economic under-development, the lack of creativity and to entrench rent-seeking behaviour in governance that have ruined the nation this far.

An Islamic cleric, Ahmad Gumi, was right when he recently condemned the opposition to the proposed reform. He urged governors from the North to wake up and create fertile grounds for economic activities to spring up and thrive. He criticised the penchant of northern leaders for “…always applying politics on issues where there is no need for it.” This deserves an applause. Nigeria has had enough of centrifuges in the public space that it behoves all to now do a meaningful rethinking of the future of the country.

The tax reform also seeks a graduated increase in the rate of VAT for goods and services from the present 7.5 per cent, to 15 per cent by 2030, to ensure an enhanced revenue base. The cheery news about this tax is that it will not be paid on food, health, education, accommodation and transportation, whilst sub-national consumption levies would be no more.

Ramping up VAT is targeted at complying with the International Monetary Fund’s recommended threshold of a 15 per cent tax-to-GDP average for countries. Nigeria currently has a tax-to-GDP ratio of between 6.7 per cent to 10.8 per cent, to rank as one of those in the lower crust globally. It has the ambition to make this at least a 18 per cent tax-to-GDP ratio by 2027, for sustainable development. South Africa has a 27 per cent tax-to-GDP ratio.

By 2026, the graduated increase in VAT will be 12.6 per cent. Governor Abdullahi Sule of Nasarawa State has said this is one of the misgivings of Northern governors, and that such a hike is not good for their people in this period of economic difficulties. This cannot easily be dismissed with a wave of the hand. Tinubu’s removal of fuel subsidy and floating of the naira at the same time, which trigerred hyper-inflation, food crises and other indices of high costs of living, have created hardships for many, which are yet to be fixed.

Tax Reform Bills: Gumi backs Tinubu, says proposals wake-up call for northern leaders

Given the plethora of corruption and mismanagement in revenue collection, the envisaged transfer of the tax collection duties of the Nigeria Customs Service (NCS) and the Nigeria Upstream Regulatory Commission (NURC) to a new entity in the Nigeria Revenue Service (NRS), is spot on. But it must be made a fit-for-purpose agency, for the anticipated efficiency to be real.

Nigeria is probably the only country where some billionaires shun tax payments, or they are not properly assessed for this, and therefore underpay, due to corruption. The regular re-examination of import papers by the NCS and assessment of duties of private jet owners are ample evidence, from the declared figures for 2021 and then June this year.

Besides, countless reports of the Nigeria Extractive Industries and Transparency Initiative (NEITI) on billions of dollars of unrecovered revenues from oil companies and legislative inquests bear us out in our support of the necessity of new and efficient revenue collecting structures. Our revenue agencies have shown their lack of capability to enforce regulations. This is unacceptable.

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A former Chairman of the Federal Inland Revenue Service (FIRS), Babatunde Fowler, in a bombshell while in office, revealed how 6,772 billionaires, with between N1 billion and N5 billion in their bank accounts, paid no tax. “First, they refused to come forward in 2016; they refused to come forward under VAIDS (Voluntary Assets and Income Declaration Scheme) and are still operating.” Lamentation should never be the course of action open to FIRS, NEITI, NUPRC or lawmakers, as it has been the case over the years.

This bizarre exposé defines tax payment and collection in Nigeria, which this raft of reform bills seeks to correct. Consequently, the opposition to them needs to be made to see the inherent progressivism in the proposed tax system, which will get the wealthy to pay more taxes, eliminate over 60 multiple taxes that encumber businesses, whilst the poor are protected from unjust tax obligations.

If more of the latter demographic are in the North, as the official tally indicates, then the region will be the bigger beneficiary of the reforms, just as the catalyst they provide would oil the wheels of entrepreneurship and, in turn, create wealth. The Ohaneze Ndigbo and South-South senators have given their support to the tax reforms. We enjoin everyone in our country and beyond to follow this path.

PREMIUM TIMES believes that the proposed tax reforms should be supported by all because our current tax systems are broken. Retaining them portend a perilous future for our country, and should, therefore, be repealed and replaced.

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