By Chris Okpoko
President Bola Tinubu on September 3rd, 2024, transmitted four tax reform bills to the National Assembly for consideration following the recommendations of the Taiwo Oyedele-led Presidential Committee on Fiscal Policy and Tax Reforms.
The bills include the Nigeria Tax Bill 2024, which is expected to provide the fiscal framework for taxation in the country, and the Tax Administration Bill, which will give a clear and concise legal framework for all taxes in the country and reduce disputes. Others are the Nigeria Revenue Service Establishment Bill, which will repeal the Federal Inland Revenue Service Act and establish the Nigeria Revenue Service; and the Joint Revenue Board Establishment Bill, which will create a tax tribunal and a tax ombudsman.
The proposed reforms are expected to streamline tax administration processes and frameworks, increase overall government revenue, and stimulate sustainable economic growth among others. As one of Africa’s most populous nations, Nigeria faces numerous economic challenges, chiefly among them being the need to diversify its revenue sources away from oil dependency. Tax reforms are paramount to this effort; however, they are often contentious and complex, presenting potential benefits and significant hurdles.
This critique will delve into the various issues surrounding President Tinubu’s tax reform initiatives, while also assessing their implications for Nigerian citizens, businesses, and the overall economy.For decades, Nigeria’s reliance on oil revenues has left the economy vulnerable to fluctuations in global oil prices, leading to budget deficits and economic instability. In response to dwindling oil revenues, successive governments have attempted to implement tax reforms aimed at broadening the tax base, improving compliance, and increasing overall tax revenue.
However, these efforts have frequently been hindered by institutional corruption, a lack of infrastructure, and the general public’s skepticism toward government initiatives. President Tinubu’s tax reform agenda is rooted in a commitment to address these long-standing issues. The proposed reforms aim not only to enhance revenue generation but also to ensure equity and justice in the tax system, mitigating the burden on the poor while targeting high earners and large corporations.
The key issues with the tax reforms are: Implementation Challenges: One of the most pressing issues facing Tinubu’s tax reform is the challenge of implementation. Nigeria’s tax collection agencies, such as the Federal Inland Revenue Service (FIRS) and state tax authorities, have historically struggled with inefficiencies and corruption. A lack of skilled personnel, inadequate technology, and poor record-keeping systems complicate the scenario. A major point of contention is the absence of comprehensive data and analysis to support the proposed changes. Without substantial investment in human capital and technology, even well-designed reforms could fail at the execution level.
Reaping revenues from tax requires effective tax administration. Raising revenues through base expansion requires even better administration. New taxpayers must be identified and brought into the tax net through technology-driven collection. The best tax policy in the world is worth little if it cannot be implemented effectively. Also, the most important ingredient required for effective tax administration is clear recognition at high political levels of the importance of the task and willingness to support good administrative practice
Public Resistance: Public perception of taxation in Nigeria is fraught with mistrust. Many citizens view taxes as government-sanctioned theft rather than a civic duty to support societal development. This sentiment is exacerbated by the perception that tax revenues do not translate into tangible benefits for the populace, such as improved infrastructure or social services.
Thus, despite senators’ intensified lobbying for public acceptance of the proposed tax reform, the Coalition of Northern Groups (CNG) and the Northern Elders Forum, recently insisted on the withdrawal of the tax reform bills. Similarly, at a one-day town hall meeting at the Gombe State University on ‘Tax reform bill: A catalyst for economic growth or a burden on the people?’ The CNG Gombe Coordinator, Mustapha Deba, noted that the coalition had meticulously analysed the bills, and observed that if allowed to scale through, they would have far-reaching adverse effects on the northern region. President Tinubu must therefore engage in extensive public awareness campaigns to foster a culture of tax compliance and highlight the positive impacts of increased tax revenues.
Equity Concerns: While the proposed reforms aim to create a more equitable tax system, critics argue that certain measures may disproportionately affect them. For instance, according to critics from the North, the proposed reforms emphasise derivation, which favours states with higher value-added tax (VAT)-generating activities predominantly in the South, such as Lagos. This shift could significantly reduce the revenue shares allocated to Northern states, where economic activities are comparatively lower. The resultant financial shortfall would impede the region’s development initiatives and exacerbate existing disparities. The proposed changes to Value Added Tax rates, and distribution of VAT revenues, could exacerbate existing economic hardships, and without adequate safeguards, the reform risks widening the economic gap between the North and South. Ensuring that tax reforms do not exacerbate existing inequalities is imperative for the success of this initiative.
Impact on Businesses: Another significant concern regarding Tinubu’s tax reforms is the potential impact on local businesses. Increased taxation on corporations could hinder growth, leading to reduced investments and job losses. Before now, businesses suffered from a multiplicity of taxes, and small and medium enterprises (SMEs), essential for economic growth and job creation in Nigeria, may struggle with any tax hikes. Meanwhile, a member of the National Assembly, Kingsley Chinda, was reported in the media to have criticized the N50m Company Income Tax Exemption proposal as a far cry from the economic reality of the times.
According to him, given the current inflation rate, increasing the tax-free benchmark from N25m to N50m is a far cry from reality. He opined that the tax-free benchmark should not be below N100m today. He also disagreed with increased taxation, suggesting the government should rather increase the tax net and the leakages plugged before we can decide if there is a need for increased taxes. Thus, striking the right balance between raising revenue and fostering a conducive business environment is vital. According to research, there is a significant negative relationship between taxes and the business’ ability to sustain itself and expand. Therefore, to obtain a vibrant and flourishing SME sector, the tax policy needs to be appropriate such that it will neither be an encumbrance to the Small businesses nor discourage voluntary compliance
Legal and Regulatory Framework: The existing legal framework governing taxation in Nigeria is often convoluted and inconsistent. Reforming this legal framework is crucial to enable smooth tax operations and to reduce loopholes that allow tax evasion. Clarity in tax laws will also bolster investor confidence, facilitating a more conducive environment for economic development.
The Implications of the Tax Reforms include:
Economic Growth – If implemented effectively, the tax reforms could result in improved national revenue, enabling the government to fund critical infrastructure projects, healthcare, and education. These investments could stimulate economic growth, creating jobs and fostering entrepreneurship, ultimately reducing poverty levels in the country.
Enhanced Public Services – Increased tax revenue could lead to enhanced public service delivery. Citizens would likely see improvements in transportation, healthcare, and education funding, which could contribute to a better quality of life. The government’s ability to utilize tax revenues effectively will be scrutinized, and transparency will be key in ensuring public trust.
Strengthened Governance – A comprehensive tax reform agenda provides an opportunity to reinforce governance structures within tax agencies. It necessitates accountability, oversight, and improved audit processes, which can help to combat corruption. A clean and efficient tax administration can fortify public confidence in the government.
Stimulation of Foreign Investment – A robust tax reform programme that promotes fairness and transparency may enhance Nigeria’s attractiveness as an investment destination. Foreign investors are increasingly seeking stable and predictable environments; clear and fair tax policies could serve to draw in much-needed foreign capital, creating additional economic opportunities.
Social Equity – Successful execution of the tax reform could promote social equity, addressing the pervasive inequality in Nigerian society. By ensuring that wealthy individuals and corporations contribute a fair share, the government can redistribute wealth more effectively and invest in programmes that benefit the underprivileged.
President Tinubu’s tax reform initiative holds immense potential for revitalizing Nigeria’s economy and improving the lives of its citizens.
However, it is fraught with challenges that must be tackled head-on. For these reforms to be successful, they must be accompanied by a rigorous implementation strategy, public engagement, and a commitment to equity and transparency. As Nigeria navigates these reforms, the hopes of millions rest on the government’s ability to foster a tax culture that values contribution and ensures that the benefits of revenue generation extend to all citizens. With careful planning and execution, Tinubu’s tax reform could indeed be a transformative force in the quest for sustainable economic growth in Nigeria.