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  • Tax reforms: Background, imperatives, highlights and outcomes

    Tax reforms: Background, imperatives, highlights and outcomes

    The National Assembly’s intensive session on the President Bola Tinubu’s tax reforms turned out to be a compelling conference on Nigerian macroeconomic outlook. In this report, Deputy Group Business Editor, Taofik Salako and Ekaete Bassey highlighted the national discourse, as presented by the Chairman of Presidential Fiscal Policy and Tax Reforms Committee, Mr. Taiwo Oyedele

    Background

    First is to look at Nigeria’s socioeconomic reality. A study done by the National Bureau of Statistics (NBS) showed that 133 million Nigerians live in multidimensional poverty. The reason why they live in poverty are four dimensions. The first one is they are deprived of education, and this is just basic education, about first nine years of learning.

    They are deprived of access to health, including nutrition and food security. They are also deprived of living standards, basic things like safe drinking water. They do not have access to sanitation as well as water reliability.

    The fourth dimension of poverty that Nigerians are having to deal with is around underemployment, unemployment, and insecurity. The economy has not been growing well enough. Over the past 10 years, the growth rate, on the average, has been under two per cent below the population growth rates.

    And this means that more people get into poverty every day than the previous day. The inflation is very high, so is unemployment. Government revenue is very low and public debt is rising, as well as the cost of servicing the debts.

    Investment in the country is declining. In the whole of second quarter 2024, Nigeria only attracted about $29 million in foreign direct investments.

    The country has seen a number of companies exiting. She has seen those that have closed down, and some that have scaled down their operations from having about five plants to about two, including some local companies.

    On the other hand, the country has significant areas of improvements and taking Nigeria to a place where Nigerians all aspire for the country to be.

    We are beginning to see positive results. These include our exchange rate of the naira and the stability of the naira. We are also reining in inflation, as well as the cost of doing business, particularly our young population.

    Our interest rate is very high, almost impossible to do any legitimate business, 40 to 50 per cent . We also have efficient public financial management, efficient coordination of government policies across different levels of public communication. Another area we are beginning to see improvement is balance of trade and current account surplus.

    We are beginning to see inflation slowing down in developed markets, which means as they cut their rates, more investment will come in our direction. We are seeing a decline in budget deficits. We are seeing rising revenue, though it remains small.

    And we are seeing crude oil local refining in Nigeria, which is good news. And we have our capital markets not doing badly, could be better. And these are some of the context about what led to the reforms.

    So, Mr. President set up the Presidential Fiscal Policy and Tax Reforms Committee last year, August. The team comprised of over 80 Nigerians from all the six geo-political zones across Nigeria, including over 45 young people from 22 universities, head of internal revenue services, including more than 22 government institutions, including the organised private sector from Manufacturers Association of Nigeria to Small Business Association to Chambers of Commerce, as well as professional bodies, ICAN, ANAN, CITN, Nigerian Bar Association etc. 

    We’ve done a lot of public consultation in developing the proposals before the National Assembly. These consultations included the private sector, trade associations, civil society, as well as governments.

    We are grateful for the opportunity to have a two-day retreat with Senate last year. We had one meeting with the Governors Forum, we had two with the National Economic Council, we’ve had meetings with some of the state governors individually with their cabinets, we’ve had meetings with investors community, local and foreign, we had meetings with Nigerians with disability, we had meetings with Nigerians in the diaspora. More than 40 sectors were engaged as part of these proposals.

    We also conducted requests for submission of surveys, and I’m pleased to inform the Senate that we received submissions from all the 36 states in Nigeria. There was no single state that was left out, so we are grateful for the trust that the Nigerian people have in the work of the committee.

    National incomes and expenditures

    Some of the findings driving our recommendations is that our budget is very low, it’s not enough to fund our development. For the year 2024 that is coming to an end, the total of the budget of the federal government, including the amendment to the Appropriation Act, and all the 36 states of the federation, comes to about N51.1 trillion only. If we convert this , it is just barely $32 billion.

    This amount is the size of the budget of Kenya, that has only 54 million people, a lot of poverty in the land as well. This amount is less than one quarter of the budget of South Africa $130 billion is their budget, and they have about 60 million people. Even by African standard, we are not doing well.

    Even as much as the budget is very low, our revenue is even lower. The entire revenue that we generated from taxes is barely N18 trillion in 2023. This amount is not even enough to fund half of the budget across the federation. And if you look at individual tax contributions from personal income tax, for example, in the whole of last year, Nigeria only collected N1.53 trillion in personal income tax. In that same year, South Africa collected N50.5 trillion equivalent. That is more than 30 times what Nigeria collected.

    Even Kenya, with 54 million people, collected N5.8 trillion, almost four times what Nigeria collected. It is instructive to note that in South Africa, you do not pay personal income tax until your income is up to N660,000 per month. Below that level, you are totally exempted. In Kenya, you will not be liable to pay personal income tax until you earn more than N282,000 per month equivalent. But in Nigeria, you are asked to pay personal income tax once you earn N30,000 per month. That’s N1,000 a day. Nigeria is taxing its poorest people. We are taxing poverty. And it’s not showing in our tax collection because in our analysis, we could not find any country in the world where they place so much burden on their poorest and most vulnerable population. That’s not where our revenue will come from.

    The N50 trillion equivalent that South Africa collected from personal income tax alone is more than twice all our revenues combined from taxes, as well as from proceeds from oil.

    This N50 trillion that was collected, 90 per cent of it came from the top five per cent of their population. So we believe that the time is right for us to provide exemption for our poorest citizens given that they live in multi-dimensional poverty. They have no ability to pay taxes. And to ask some of us who are not so poor to pay a little bit more so that we can reduce the size of budget deficits and not have any need to print money to spend to fund the government.

    In every country that they have decided to print money to spend, the outcome is predictable. In Zimbabwe, a few years back, there was a 100 trillion Zimbabwe dollar and I used to have the note but I didn’t bring it here. That note of 100 trillion was barely enough to buy a loaf of bread because they kept printing money.

    When government cannot raise revenue rightly and they print money to spend, the value of the money in everybody’s pocket reduces proportionately. Unfortunately, this way of imposing taxes without legislation further imposes more burden on the lower end of the ladder and this will promote inequality and further fuel insecurity because of the social tension, hopelessness, and not caring for our people enough.

    The question we ask ourselves is that if we do not do these reforms now, then when should we do it? If it’s not us, then who should do these reforms?

    We conducted a national study trying to find out from the Nigerian people their perception towards paying taxes because you know that tax is at the heart of the social contract, it is the reason why societies can exist. It turned out that only 17 per cent of Nigerian adults believe that they should pay their taxes and that tax evasion is wrong and punishable. About 83 per cent of Nigerian adults will do anything but pay their taxes.

    This is the lowest that we have seen of any country where this study has been conducted. When we asked them why is it they don’t want to pay taxes, they gave us three very important reasons. The first one was that they they did not trust governments. Number two was they said: even the ones we pay, what are we getting in return for those taxes we pay? Number three was they said: even when they want to pay the taxes, the process is complex and corrupt. Two in three adults said they were asked to pay a bribe in the process of wanting to pay their taxes. When we asked them what government should prioritise in terms of spending, they said government should prioritise spending on education, health, electricity and security.

    These requests from the Nigerian people are very consistent with the reason why they live in multi-dimensional poverty. So the voice is clear from our people about what we must do.

    Many of the laws we have in Nigeria today around taxation were inherited from our colonial masters. For example, the stamp duty law is a law of 1939. In 1939, the world had not envisaged that there would be the internet. Trying to apply a law of 1939 in 2024 does not show that we are people that are ready for the next generation.

    Because of this, we decided that instead of amending our old laws that we inherited from the colonial masters, why don’t we write new ones for ourselves? And this has been done in many countries across the world. This is what led to us trying to harmonise so many taxes that we have in Nigeria into a few high revenue yielding broad-based taxes and eliminate those taxes that impose burden on our poorest people and small businesses so they can have the opportunity to thrive. It is when our people are prosperous that you have the ability to pay taxes.

    Our finding is that the fiscal system we have today inhibits growth. And in my private sector experience before my current role, I was involved for over a decade in looking at tax systems in more than 180 countries worldwide. And I can tell you with all sense of responsibility, Nigeria’s tax system is one of the most backward in the world.

    This cannot help us with our ambition of a great country which is what we desire and truly deserve. We also find that government can do much better in terms of the priority and quality of spending as well as how we borrow, in addition to issues around harmonisation of taxes.

    Multiplicity of taxes

    We decided to put all the official levies and taxes collectible in Nigeria today- by the federal government, by states, by the local government; altogether, more than 60 taxes and levies are imposed on our people today, yet we have no revenue to show for it. Whereas countries where they collect multiples of what we collect, they collect all those taxes from less than 10 taxes. So we believe that if we continue to do the same thing and expect a different result, the result will not be different.

    We believe it is time for us to take a step back and say what taxes should we be collecting today? If you go into the constitution, you find collection of taxes on wheel barrow, taxes on bicycle, produce, television and radio. In the days when those laws were written, having a television is an indication of wealth. Today, it  is not, and we believe it’s time for us to do the reforms. So this leads to the four major bills before the National Assembly.  I’ll give the highlights of the bills one by one.

    First and foremost, there’s a structure that we use to develop the bills. We focus on some principles to guide our recommendations. Those principles include simplicity, harmonisation, alignment with our economic objective. We cannot want to grow manufacturing and then we are taxing investments in manufacturing. It’s inconsistent. We thought it’s important for us to make sure that our taxes and fiscal policies are consistent with our growth and development aspirations.

    Tax neutrality, so that tax does not become a headache for those who are doing business. Competitiveness, can we attract investment to Africa, just within Africa? What we are beginning to see from our analysis, Nigeria’s income tax rate for companies ranks in the top 10 in the world.

    Now if anybody wants to start a business in Africa today, under the African continental free trade area, or under the ECOWAS treaty, the analysis will conclude that Nigeria is the least preferred location for you to set up your investments. If we don’t address this issue urgently, the crisis we have will get worse, because what will happen is even Nigerian companies will decide to go and set up in Ghana and bring the produce to come and sell in Nigeria, since they have a more favourable environment.

    For example, Nigerian businesses are forced to pay tax even when they made losses. When you force a company to pay tax when they have made losses you’re asking them to pay tax out of their capital. It’s the fastest way to kill any company in the world.

    One of the reasons why America is one of the greatest countries in the world today is they support their businesses. Even when a business has made a loss, America allows you in some states to go and sell the loss and collect money, so you can continue to fund your business. Some of the largest tech companies in the world made losses for more than 10 years before they began to make profit. We want to do the same thing in Nigeria.

    Today, if you want to set up a factory and you buy equipment and assets, you pay VAT on those assets. You will not be able to get credit for those VAT you have paid.

    If you go to Ghana, even though their VAT rate is higher, every amount you pay on VAT you will get it back from the government. We want to do the same thing in Nigeria.

    We do not want to tax capital anymore. We do not want to tax investments. We do not want to tax poverty. Of course, we do not want to tax seed. We will wait and tax the fruits when people have invested and they are making prosperity.

    We also want to modernize our system because we are beginning to lose our tax base to other countries. Within the international community, there’s a project going on that we call base erosion and profit shifting.

    And if we don’t respond quickly, as other countries are taking care of themselves, we will be losing our tax base to those other countries. So, this is why this is very urgent, among so many other reasons.

    The work we have proposed before the National Assembly is data-driven. We ensure that we focus on data and we prioritize what is good for our country in the national interest, over and above everything else. It is our belief that if Nigeria works, every group, every segment, every association will find a space under a Nigeria that is working. So we have four bills.

    The first one is the Nigeria tax bill. The Nigeria tax bill brings all the major taxes in Nigeria together in one piece of legislation once it’s enacted. It will cover things like companies’ income tax, personal income tax, capital gains tax, value-added tax, excise duties tax, stamp duties.

    The idea is why do we have to repeat things in different laws and it’s difficult for the taxpayer to find out what they should pay. It’s already hard to pay taxes. It should not be harder trying to find out the taxes you need to pay.

    Our belief is bringing these taxes together in one piece of legislation, write it in simple language that people can understand, will help us significantly.

    The second bill, before I go into some of the provisions in the bills, assessments, payments, tax audits, using technology in revenue administration, all of these are covered under the tax administration bill.

    Number three is the Nigeria Revenue Service Establishment Bill. This bill is seeking to replace the current Federal Inland Revenue Service. More major reason is because the Federal Inland Revenue Service is not the revenue agency of the federal government. So the name that we have for FIRS today is inconsistent with its mandates. The taxes that the FIRS collects are shared. So we believe that a better name for the FIRS will be the Nigeria Revenue Service.

    But beyond a name change, we also believe that the FIRS needs to be able to connect with other agencies of government collecting revenue so that taxpayers will not have the opportunity to explore loopholes because of information asymmetry.

    For example, if I import goods and I need to pay duties, I have a selfish interest to under-declare the goods so that I do not pay the right amount of duties. On the other hand, when I’m submitting my returns to the FIRS, I have another interest to overstate my expenses so I can reduce my profit and not pay taxes. This is happening in Nigeria today and sometimes we never find out. If we do, it takes years.

    We are saying why can’t we connect all the systems together? Why can’t we even connect the system at the center with the sub-national? In the United States of America that we like to refer to for a good federalism or federation, if you file by the way in the U.S., you pay federal income tax and you also pay state income tax. If you file your returns with the federal, it replicates immediately to the states.

    So by connecting together, we have not in any way compromised our federalism. We have strengthened it because now we have more information accessible to government at all levels to carry out their mandates.

    The last one is a joint revenue board establishment bill. This bill is trying to replace the current joint task board to become the joint revenue board. Why is that important? The joint task board that we have today was envisaged to just only help us with personal income tax matters. But what we now know today is that the issues we are dealing with go beyond personal income tax. In fact, those issues go beyond taxes to broader revenue matters. Therefore, we think that a better name is joint revenue board.

    In addition to that, we are expanding the scope of that joint revenue board to help us ensure that there’s harmonisation across Nigeria, to help us ensure that there’s collaboration between tax authorities, because we are stronger together. To ensure that we can share information, exchange of information, that we can build capacity together. That in fact, it is possible for us to do audits together. Why can’t federal and state decide to audit a company at once? Sit down there as a group of people who are working for Nigeria. You reduce the cost of doing audits, both for the government as well as for the taxpayer.

    Another thing that we have in this fourth bill is a tax happy tribunal. This tax happy tribunal today is established under the Federal Inland Revenue Service establishment act, and that gives the impression that the tax happy tribunal is only a federal matter.

    We leave out our taxpayers whenever they have disputes with states and with local governments. We believe that it’s better to set up this tribunal in a way that it can deal with all tax disputes across Nigeria, and therefore is appropriate to set up this body under the joint revenue board establishment bill.

    The third very important element of this fourth bill is the setting of the tax ombudsman office. Today in Nigeria, over 30 million small businesses do not understand the taxes they need to pay, because they don’t need to be. They don’t need to be finance experts before they can do their small business. They do not have the resources and the means to hire accountants and lawyers or tax consultants. Therefore, when they are faced with tax assessments from the tax authorities, they are left out in the cold. They have only two options. One option is to fight, a fight that they can never win.

    The second one is to negotiate, and sometimes when they negotiate, they are made to pay taxes under the table. They are meant to pay more than they’re supposed to pay. There’s nobody to protect them. We believe that setting up the office of the tax ombudsman will provide the opportunity for us to protect our taxpayers, particularly small businesses and vulnerable taxpayers.

    As a result of following what I’ve just given as an overview of all the four bills, I will quickly go through each of them.

    The first and the major bill is the Nigerian tax bill. By the way, these bills have more than 200 proposers trying to reform different aspects of our tax system and our economy, so that Nigeria can begin the journey towards greatness. That we believe that every Nigerian truly deserves. So this Nigerian tax bill is the major bill of the four that has all the major taxes in Nigeria. It has nine chapters and it has schedules.

    Important provisions of tax bills

    The first one is to eliminate the minimum tax that we impose on companies when they have made losses.

    This is not right, and we cannot continue to do that to our businesses. The other thing is that because globally every country is trying to protect their base, we are proposing in the bills before you a 15% effective tax rate on profit. This time around is on profit, so we cannot be said to be taxing capital, and this is what many countries in the world are currently doing.

    If any country, if any company is able to find their ways, muscle their ways to get laws passed in their favour or policies in their favour, and they pay almost next to nothing in taxes, and it’s a big company, we turn over at least 20 billion Naira in a year, or a multinational, they will be asked to pay at 15% of their profit to the government so that they do not extract ball the profit from Nigeria without paying their fair share.

    The second one is today, we have a lot of young people with knowledge in technology and we speak good English more than many countries around the world but Nigeria can barely boast of up to $100 million a year that our people earn by working remotely for multinationals across the globe. In the Philippines in 2023, they earned $35 billion from this. India is the leader in the world, they made over $200 billion. Nigeria did not even make up to $100 million.

    When we looked at it, it turns out the major impediment why multinational and international companies will not hire Nigerians to work for them is down to our tax laws and regulations. One of it is that if you hire a Nigerian, it doesn’t matter where you are in the world, whether you have been to Nigeria or not, that individual will pay tax, which is okay. But even you that hired them, you must come to Nigeria and pay tax. So those companies are going to be asking them what’s so special about Nigerians when I can hire Kenyans, South Africans, Filipinos and Indians. So we thought it’s important to address this problem. Imagine that today, we have just 1000 million Nigerians working remotely in the entire international value share, earning $1000 per month. Those will not only get themselves out of poverty, they will lift their families out of poverty. It will bring foreign exchange to Nigeria that will help us strengthen the naira and government will collect taxes trom those income that they earn. Whichever way you look at it,  it’s a win-win for our economy, our people, particularly our young people.

    Another very important proposal is that VAT today is charged on investments, capital, basic consumptions.

    We believe that we should allow businesses operate on minimal costs because if we reduce the cost of doing business, we have more businesses, we create more employment. When you create more employment, you reduce poverty. And by the way, those who will pay personal income tax, they will consume and pay VAT. So, whatever we are losing by the way of tax if anything, we will make multiples of those from the economic activities that will be generated.

    We are proposing that companies will be allowed to claim input credit for any amount they spent on VAT for their investments and capital. We are also proposing that the company’s income tax rate in Nigeria be reduced from 30% to 25% over the next two years. Like I said before, we currently tank top 10 highest tax burden for companies in the world. The logic for many countries is to bring down company income tax to be very low to attract investments. And when you do come, they now collect personal income tax from your staff. They collect VAT and that works

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    In the OECD, the average income tax rate, the company income tax rate is even under 20%. So, we need to do the same thing for our country. We also, like I showed you earlier on, we have more than 60 official taxes and levies. Unofficially, those taxes and levies are more than 200. We believe it’s time to address that problem. One of the ways we are proposing to address that problem is that we have too many air mar taxes. We have taxes for education, we have taxes for engineering and science. We have another tax for information technology. We have for police and it’s a long list.

    Normally, when companies pay their income tax, people pay VAT, individuals pay personal income tax, stamp duties, it is for the government to try and prioritise how they spend the money. It is not right for them to introduce new taxes for every area we want to develop. At the end of the 9th National Assembly, one of the exercises we did was we went through all the bills, they were over 250. We found 40 bills with levies and taxes here and there that have not been passed. This is a real danger to our economy because once we keep passing these taxes and the amount of tax you need to pay exceed 100 per cent, nobody doing legitimate business will continue anymore. We will only have criminals doing businesses because they just ignore the taxes you ask them to pay, they won’t pay anyway. And when the Auditors show up, they’ll settle themselves. We don’t want to build a country that reward criminality and punish who want to do the right thing. And in that regard, we are proposing a single tax that we call levy of four per cent.

    Once a company has paid that amount let it be shared to the agency that we believe, based on the National Assembly’s approval, should benefit. And that over time those agencies should present their budget to the National Assembly for appropriation. Let companies and businesses just pay the major taxes, let government decide how to spend the money.

    We also believe that we should review incentives because we’ve seen a lot of abuse, we lose trillions of Naira and the National Assembly has raised these issues many times. We lose a lot of money to abusive incentives to subjective incentives that are not available to everyone. Apart from the money that we lose, we also create distortion in the economy such that if I have access and I can get those incentives, I can outprice the other person who does not have access if I don’t like their face. This again we believe is a matter we must correct.

    Another proposal we have in this bill is the fact that we want Nigerian companies to become multinationals so that we stop panicking every time that there’s a problem with price of oil or volume. We believe that we can have multinationals in Nigeria today that will bring billions of dollars back from the money they ear globally. But our framework in Nigeria today does not encourage that, it’s almost impossible. One of the proposals we have in the bill before you is to allow Nigerian companies that have operations abroad to get unilateral tax relief. If they earn income abroad and they pay tax on it and they are bringing it back to Nigeria and there’s another time on it we should give them credit for the tax that they have paid abroad. This is what countries that want to attract headquarter companies to their jurisdiction have to do and I believe that Nigeria is ripe to be that center, that destination, that choice location in Africa first and foremost for investment.

    If any company wants to invest in Africa, they will normally think about Nigeria first. While I was in the private sector, I advised many multinationals, local companies and small businesses, nine out of 10 times, when they ask questions about… I also answer question about a company that wants to set up car manufacturing, one of the largest in the world that eventually went to another country. When they ask you the basic questions and you answer them, they usually don’t come back and it’s because the numbers don’t add up. So, beyond our aspiration to be a great country, beyond the population that we have, we must have the right framework and environment that is conducive for investment.

    10 compelling reasons for the bills

    There are 10 compelling reasons why these bills will not only prevent further economic decline but also catalyse a rapid economic turnaround for our country.

    1. Strengthening national growth: Nigeria’s tax reform is a bold step toward building a self-re economy. By enhancing revenue generation we reduce dependence on external borrowing and pave the way for sustainable growth and development, fair and inclusive system.

    2. The reforms are designed to create a tax system that is equitable, ensuring that every individual and business contributes their fair share.

    3. Nigeria is supporting sectors like agriculture,.solid minerals, manufacturing and technology, helping to diversify the economy and reduce over reliance on oil

    revenue.

    4. Boosting investor confidence: a transparent and predictable tax system instills confidence in both local and international investors

    creating an environment conducive to business expansion and job creation

    5. Encouraging compliance and efficiency with streamlined processes and technology-driven system tax collection is becoming simpler, more efficient and less prone to abuse encouraging, voluntary compliance.

    6. Empowering state and local governments: tax reforms strengthen the fiscal autonomy of states and local governments enabling them to fund critical infrastructure and deliver better Public Services directed to their people

    7. Ivesting in the future: increased revenue from reforms will be channed into vital sectors like education, health care and infrastructure, ensuring a better quality of life for all Nigerians.

    8. Global competitiveness: With a modernised tax

    regime, Nigeria positions itself as a competitive player in the global market, fostering trade Innovation and economic partnerships.

    9. A collective responsibility: taxation is a shared duty of citizenship. Through these reforms every Nigerian, plays a critical role in nation building, contributing to a stronger more prosperous country.

    And lastly, a pathway to prosperity: this is not just about raising revenue, it is about creating an economy that works for everyone. The tax reform represents a collective effort to secure Nigeria’s future and unlock the potential of our country.

    The VAT question 

    Another proposal we have is that we looked at what Nigerians consume. You know the multi-dimensional poverty index that we started with, we said health, food, education, living standard. It turns out that most of these consumptionsthat people need for survival carry tax in Nigeria today, VAT. We believe that it is time for us to remove VAT from this essential consumption. Nobody should have to think about making a choice between eating bread or garri because of the VAT. So, our proposal is that food should no longer carry VAT. Our proposal is that education should not carry VAT whether it’s hidden or revealed VAT. Our proposal is that health should not carry VAT. Transportation of course, if you hire a car, you know you pay the VAT but if you enter public transportation you should not have to pay that because you need that for your survival going back and forth. The same thing with accommodation, let people be able to put a roof over their head.

    So, when we look at the consumer purchasing index by the Bureau od Statistics, all the consumption in Nigeria are classified into 12 categories. These very essential consumptions, they constitute 82% of where our people spend their money particularly the low-income earners. We have proposed in the bill before you to remove the VAT on these essential items. In other words, four out of every five consumption by the masses will no longer carry VAT, only one will carry VAT. And that one that is carrying VAT is not the most basic thing which means, people at the high income end are the one who tend to spend a lot of money on those things. While we are not saying they should not spend money to enjoy their lives we’re saying they should please give us a little for us to fund government.

    Then, we also believe that we should allow businesses to restructure their organisation. So, there are people who start businesses accidentally. They cannot find a job, they start selling something before they know it, you have five companies and they’re operating inefficiently. What you see everywhere in the world is, at a point, you reorganise your business to become efficient.

    Today, our tax law come in the way of you restructuring your business to be efficient. It’s almost like a crime for you to want to restructure your businesses to be efficient. We believe we must address that, allow businesses to operate efficiently. The more efficient they are, the more value they can create, the more value they create, the more taxes they can pay to the government.

    And last but not the least of the important highlights on this Nigerian tax bill is that our small businesses are overburdened with taxes they have to pay. They have to do VAT, they have to do withholding tax, company income tax and endless amount of levies and charges particularly at the local government level. We believe that it is time for us to create a threshold that is high enough to protect these small businesses.

    For example, the average household in Nigeria today spend 52% of their income just to eat. The lower you go down the ladder the higher that percentage is, so we do not think that anybody should have to suffer hunger because of taxes. So, I’ll leave that slide and speak to an issue that has been very hotly debated since these bills have been presented to the National Assembly. And that is to do with the revenue sharing formula for VAT. And if you permit me, I’ll spend a minute or two just to give some background.

    In 1986, the military introduced the sales tax decree and it was collected by states across Nigeria. Five years, they did not make progress. In 1991, the military set up a committee and asked the committee, help us look at why is this sales tax not working. Should we be considering value added tax because at that time, more than 100 countries in the world had introduced VAT and they were very successful. So this committee came up with a finding and advised the government that VAT is a better tax than sales tax.

    Sales tax create what we call cascading effect. Every state that you go through in producing, the sales tax will pile up so that when you are done then product is too expensive. So VAT is a better tax but the committee advised that if you must Implement VAT, it should be implemented centrally but the money should be shared to the subnationals, with federal keeping the cost of managing that tax.

    In 1993, the military introduced the Value Added Tax decree and in 1994 the implementation commenced. By 1999 when we got into the Fourth Republic, we needed a constitution. If you read the constitution of 1999 and 1979 they have a lot of similarities. We believe that the 1999 constitution because it was fashioned after the 1979 Constitution, they did not remember to put VAT in the 1999 constitution because in 1979 there was no VAT. Because VAT has not been mentioned specifically in the 1999 Constitution and we have seen judgment even as recent as last week about Gaming Lottery that says it has to be House of Assembly of the States. Before then, we had one on hospitality and tourism. It also said the Supreme Court said, it is the state. That is why Rivers State went to court, Lagos State has been to court on VAT and they have won that VAT should be tax of the state but the final appeal is at the Supreme Court, a final determination has not been made.

    We see danger that if we wait for the court to tell us the answer to this problem, that answer will create chaos for us. Number one, every state will collect less than half of what they are getting now. Number two, businesses will struggle because you bought something in Kaduna and you are selling it in Ekiti. They will not allow you for the input and the more the cost piles up, the more businesses will struggle. In addition to that, in the US today, they do sales tax and is collected by state but the state cannot collect sales tax on Imports or International Services because that is the exclusive preserve of the federal government.

    If states should begin to collect VAT today, they will not be able to collect import VAT. Import VAT and international VAT is about half the VAT we collect in Nigeria today. If anybody will benefit at all it will be the federal government.

    We believe that the right solution is for us to address the concerns that those states have so that we can have a political solution to this problem rather than the one that says let’s wait for the Supreme Court. Therefore, we looked at the current formula for sharing VAT and it says federal government should take 15 per cent, the state should take 50 per cent and local government should take 35 per cent that is the vertical distribution.

    But among the state which is the horizontal distribution, it says at least 20 per cent of the VAT revenue should be on derivation. The derivation for VAT is not the same thing as derivation for oil and gas. Every single state in Nigeria has derivation of VAT. When a state awards contract for their infrastructure, there’s VAT; that’s derivation. When any business there invoices for goods, that’s derivation. But that derivation today is lopsided in favour of Lagos State because Lagos State is where the head offices of major companies in Nigeria are located.

    Today, VAT is attributed to the state where the VAT is paid to the government. For example, the largest VAT payer in Nigeria is MTN ,followed by Dangote. When MTN remit VAT in Lagos, they are remitting VAT on all the calls that are made in Nigeria. Why is that credit given to only Lagos State? We believe that’s lopsided.

    If Dangote sends cement across Nigeria to their distributors, Dangote’s head office is in Lagos, they will pay the VAT in Lagos all the VAT on Dangote cement, BUA cement, Lafarge cement are credited to Lagos.

    We said number one problem we must solve is to correct this lopsidedness of how VAT is attributed to States. Our proposal before you is that going forward, if we have your approval for the bills, every state will receive credit for the consumption within their territory.

    MTN will tell us these are the state where they made calls and they can tell us from their mast; they have equipment. If I call here now, the call cannot go through until it connects. So, they know where I am and making a call. When Dangote does not sell one bag of cement to retailers, they send it to their distributors. Their distributors have addresses that can be tracked to states. So, Dangote can tell you I’ve sold 10 million bags of cement and I sold 1 million in Kaduna, 10,000 in Ekiti, they can give you that information. So, every state will get credit for the economic activities within their jurisdiction.

    We believe that once that correction has been done, we should then allow states to keep more of the economic activities that they have generated within their jurisdiction. One, because it is fair to do so. Number two, to discourage any state from going to the Supreme Court to get a judgment that they want to administer VAT on their own which is not what we want

    So, this is the summary of the proposal we have that is creating a lot of debate but we do appreciate those debates. But we believe and we appreciate and we are grateful for this opportunity to explain the reason for our proposal to the Nigerian people and of course to this distinguished Senate.

    Personal income tax

    I will take a few of the other important provisions in those bills that I haven’t explained. One of it is personal income tax and like I said in my opening remarks, today, we are taxing people that earn N30,000 a month that’s N1,000 a day. How can anybody survive, earning N30,000 a month? Even if they live alone, they will do transport, they will buy food, they will pay rent, they’ll pay electricity bill, they cannot survive. So, we are proposing in the bill before you that anybody earning N800,000 per annum, including an extra N200,000 for rent, about N1 million a year, should not pay personal income tax. By the way this threshold is not even the highest in Africa; it’s still lower than many small African countries but it’s a good start for us to show that we are considerate of our poorest people.

    In addition to that, people who earn about N1 million, N1.5million a month and less than that will see a reduction in their personal income tax bill because it’s hard for everybody. We need to protect even the low-middle-income earners. These proposals if approved by the Senate will reduce the tax on 90% of our workers both in the private and the public sector and it will exempt more than 30% of our citizens who earn about minimum wage around 50, 60, 70,000 naira. Then the remaining 10% who are not so poor will now pay a little bit more.

    The top rate today is 24% in the law and we are proposing it goes to 25%. We’re doing some other reforms around allowances and relief. So effectively, if somebody earns N100 million a month, clearly not a poor person, the maximum they will pay even under our proposal is only 25%. If they were in South Africa they’ll be paying 41%, if they were in Kenya they would pay 35%. Of course, if they are in the UK or the US, they’ll be close to 40%, but we are doing only 25%. One other reason we believe it’s important to adjust that rate for high net worth individuals is to encourage formalisation.

    Today, Distinguished Senators, if I’m doing a business, and I call it Taiwo Enterprises, I did not register it with CAC and I’m honest to pay my taxes, the maximum personal income tax I’ll pay is 19%. If I make a mistake to register that as a company, the following day, from next year, my company income tax is more than 40%. We are trying to correct this so that businesses will be encouraged to formalise their businesses. When they formalise their businesses, they open the door for growth and then because they grow, they pay taxes.

    I will move on to the second bill. The second bill is the Nigeria Tax Administration bill. This is the bill that is seeking to set up a minimum standard for how we administer taxes across Nigeria including harmonisation of our tax identity. Today, someone like me can have about three IDs in Nigeria.

    So for someone like me, I reside in Lagos but I do most of my work in the FCT and I also have a number with joint tax board. I have like three identities. So, we’re saying let’s harmonise it, let Nigerians have just one identity.

    So, we also as part of this proposal for the Nigerian Tax Administration Bill, we are proposing that we use technology to administer taxes in a way that is efficient and to be able to connect intelligence across Nigeria so that if there’s anyone who is evading taxes we can find out and if there’s anyone who is too poor to pay tax we can exempt them. We also have provisions for exchange of information between and among tax authorities. We have proposals for tax refunds. So if companies have overpaid their taxes, we should allow them to get a refund so that they do not have to borrow at 30-40% to pay government instead of doing their businesses.

    The third bill is the Nigerian Revenue Service establishment bill. This bill, as I explained earlier on, is trying to make the FIRS play its proper role as the Revenue Agency of the Federation that collects money for the Federation and to then connect with other agencies as well as subnational in terms of tax intelligence use of technology capacity building and collaboration and exchange of information.

    The last bill is the Joint Revenue Board Establishment Bill. I already explained this bill is trying to reform the Joint Tax Board to play a bigger role. It’s trying to set up the Tax Appeal Tribunal in a way that can handle tax dispute across Nigeria. Of course, taxpayers have the right to appeal to the court if they are not happy with the decision of the tax appeal tribunal which the National Assembly has set up but under a different framework.

    And the last one is a tax ombudsman, to protect our small businesses and vulnerable taxpayers. Our belief is that revenue is only a means to an end, it is not an end in itself and our policies, tax fiscal policy, monetary policy must facilitate sustainable growth and development for shared prosperity. Which means that our economy must be organised in a way that is conducive and investment friendly.

    Our fiscal and tax policies must be purposeful and coherent, easy to understand and administer. Our laws must be enabling of businesses and dynamic, and governance must be simple and efficient. I’ll conclude with our prayers to the distinguished Senate and the National Assembly. Our prayer is that our distinguished Senators will go through these bills and help us consider them based on their merits and national interest in the light of the challenges that we face today. We stand ready at any time that we are given the opportunity to come and explain, even to committees or any groups as the Senate may so desire. We pray before the Senate that these proposals be favourably considered.

    Like I said, there are over 200 proposals trying to reform different areas of our tax system and the economy. We thank you very much for this opportunity today. We do not take it for granted and once again Mr. President and distinguished Senators, thank you very much for the opportunity.

    Nigeria’s gross domestic product stood at $493 billion, the highest in Africa at the time. Today however, it is projected to decline by 40% to $363 billion in 2024 with a further alarming drop of 19.6% to $241 billion by 2025, if no corrective action is made. This means that within a decade our economy would have lost over half of its value, a staggering 51% decline from 2015 to 2025.

    This administration is determined to halt this economic slide. A critical step has been the removal of subsidies that disproportionately benefit the wealthy, redirecting those funds to strengthen public sector investments in critical infrastructure and service delivery across federal, state and local government. The results are already evident. Last month’s Federation account distribution set new records in allocations to the three tiers of government.

    The tax reform bills before the National Assembly represents the next pivotal step in this economic recovery process. These reforms aim to consolidate the gains made so far to ensure sustainable revenue generation and lay the foundation for a robust inclusive economy.

  • Tax reforms imperatives and citizens’ expectations

    Tax reforms imperatives and citizens’ expectations

    About 1 year ago, President Bola Ahmed Tinubu set up the Presidential Committee on Fiscal Policy and Tax Reforms with a mandate to overhaul the fiscal policy framework and system and also the overhaul of Nigeria’s Tax structure and system for better socio-economic performance and accountability. The decision by Mr. President came at a time that all Nigerians know that we are facing the vagaries of having to use about 96% of national income on payment of a rising debt stock over the past 10 years culminating in where we are today which largely due to corruption, dwindling revenue, lack of fiscal discipline, inefficient and unfair tax policy framework and system, and wasteful style of governments at Federal and state levels,  which lead to our inability to manage our resources and budgets and spending. The strategic objective is to bring in a significant increase in tax collections considering the fact that only about 40% of Nigerians and Nigerian businesses are taxed. 

    For almost 1 year since the inauguration of the Presidential Committee, the Committee has been doing its work under the Chairmanship of Mr. Taiwo Oyedele. The Committee has been briefing and enlightening Nigerians on the rationale behind the reforms and the benefits thereof. Interestingly until about one month ago, almost 11 months later, and only last month after Mr. The President transmitted the Bill for consideration of the National Assembly, the Nigerians Governors Forum and the National Economic Council asked that the Bill be withdrawn for “further consultation. In addition, the Northern States Governors, some legislators, politicians, and the northern elite have also suddenly been kicking against the Fiscal Policy and Tax Reforms proposal.

     I am from the North and I am very disappointed with the outlook and mindset of the leadership of the northern elites. In this particular instance, the northern governments have a highly transactional mindset and are not strategic. For instance, if you look at some of the arguments, particularly the issue of derivation; I am a proponent of the allocation of resources based on derivation. That is the only thing that will drive productivity. This rent-seeking commission collection attitude cannot move us forward in this nation. Allocation by derivation is the only principle that will chase out people who have no business in government. That way, anyone that wants to lead in Nigeria, must have the mindset of value creation, value protection, and value innovation, to successfully lead the people. Otherwise, there is no intelligence, brilliance, or value addition, if all that politicians can do is just go to Abuja and collect monthly allocation (FAAC), in many cases is not even utilized for the citizens of this Country.

    Read Also: Tinubu, Macron foster economic ties at Nigerian-France Business Council in Paris

     Part of the argument that is being canvassed with regards to derivation that I am very okay with, as a Muslim, is for example, we say in Islam consumption and trading or benefiting from the trade in alcohol is forbidden (haram). But the governors go and collect it in the Agbada and put it and go away. Right? And if we are going to follow that Islamic doctrine, we will say oh some States that claim to be practicing some form of Shari’a, oh, in that case, they also eat “haram”? Or is it not haram anymore? In my view, this kind of position appears like double standards. It is also worthy of note that taxable components like betting and gambling, have been given a high notch of tax collection, which I consider a welcome provision. So in essence, overall, I see some kind of balance in the proposal. Are there areas that need some tweaks, deletion, or negotiation within the proposed Bill? My answer is YES. And that is why I expect the Governors through the Senators and members of the House of Representatives to push for those necessary points to be made so that there will be robust debates and intense negotiations to arrive at new Fiscal Policy and Tax reforms that will be acceptable to the majority of Nigerians, for the greater good. But the outright refusal to even read, digest, and debate this matter even at the Governors level in my opinion is not good for our polity.

     I expected that Governors, political leaders and elites to discuss at a subnational level, and push the actual people’s positions.  I was expecting robust and highly intelligent discussions, debates, and negotiations either through the Senate or through the stakeholders so that we can have a better tax system. For example, we should be having conversations about yes, how we should tax the rich more than the poor and ensure that it is truly and fairly applicable within the framework of that bill. For example, I disagree that 25% from someone who earns a monthly N1.5million is not supposed to be because as far as I’m concerned with what has happened since President Tinubu came to power, is that the value of N1.5 million is less than $1,000. So, these are the issues I would have loved to see us debating and trashing out and upscaling and finetuning. But we should throw the entire Bill out. It will be like throwing away the baby with the bath water.

     Meanwhile, let me offer some advice for the northern governors. Northern Nigeria is the food basket of the nation. Why don’t you sit down and look at the entire food value chain of the food Northern Nigeria produces for Nigeria, i.e. Grains, Mutton, Beef, vegetables like Onions, fresh pepper, etc.? About 65% or more of the food is consumed in Nigeria and also some parts of the West African sub-region. So why don’t we extract value out of that from a derivation point of view, for example, get consumption tax value from the food items out so long as the item is going out of a State like Kano, Kaduna or Borno or Benue or Niger for example? Those are the kind of conversations I would like us to be having. 

    That being said, I align with the position of Mr. President that the National Assembly should process the Bill in line with the provisions of the 1999 Constitution of the Federal Republic of Nigeria, as amended. We cannot reinvent the wheel. The Governors and all Nigerians have representatives at the Red and Green Chambers of the National Assembly. Nigerians are keen on the Governors or the “Elites” can influence the Legislators are representatives of Nigerians to ensure that whatever it is they want to happen in the interest of Nigerians, happens

     Urgent and drastic institutional reforms which hitherto could not be done by previous administrations of the past 10 years must be undertaken as a matter of priority, for any meaningful progress to be achieved in this dispensation.  The commendable decisive actions taken so far by President Bola Ahmed Tinubu are good step in the right direction as part of the steps to institutional reforms in the right direction, that could ensure that we get out of this socio-economic logjam and the best way forward for Nigeria.

      TAX COLLECTION WILL NOT BE ENOUGH

    However, it is worthy of note that the issues of revenue, debt, and resource management are beyond the FIRS. Therefore, to my mind, the issue of revenue collection and management should be expanded beyond tax. This is because when we focus so much on tax, it will appear that in the end the downtrodden citizens of this Country will be made to pay more. The strategy should be all-encompassing. The strategy should be all-encompassing.

     Increasing the tax net to go beyond the current 40% of the population, but by applying the principle of equity, fairness, and justice in considering the informal sector which constitutes almost 80% of Nigerians, albeit they are constrained by the current global and national insecurity and socio-economic headwinds. And to also note the over 133 multidimensionally poor Nigerians.

     The worries citizens and their expectations

    Dividends of Democracy: People need to see that the Government is actually using the taxes collected and other national and state incomes to add value to the quality of life and properties of citizens, add value to governance, and to and for the progress of and for the growth and development of Nigeria.

     The Communication Strategy of Mr. President and the MDAs in this case the FIRS should be transparent, show clarity, and be concise on what they are doing with revenues collected., That will engender confidence and trust in the citizens which will encourage citizens to see reasons why they should pay taxes

      Transparency and Accountability: Here again, transparency is critical, impactful projects and initiatives are critical, and constructive engagements with the citizens are key. If the big businesses and corporations pay the appropriate taxes people know that they are paying, and the government is delivering dividends or democracy, it is easier to make individuals, Nano, small, and medium-scale enterprises (NSME) pay taxes.

  • Kwankwaso misinformed Nigerians on Tinubu’s tax reforms, says group

    Kwankwaso misinformed Nigerians on Tinubu’s tax reforms, says group

    A political support group, Nationwide Agenda for Tinubu (NAT), has criticised a chieftain of the New Nigeria Peoples Party (NNPP), Senator Rabiu Musa Kwankwaso, for allegedly misinforming Nigerians about President Tinubu’s Tax Reform Bills before the National Assembly.

    It said: “Kwankwaso’s comments while addressing students of Skyline University during their convocation in Kano recently, demonstrate either a lack of understanding of the tax reforms or a deliberate attempt to politicize President Tinubu’svisionary initiative. 

    “It is evident that Senator Kwankwaso is still grappling with the fallout from his abysmal performance in the 2023 presidential elections. This lingering disappointment seems to have influenced his repeated reliance on divisive rhetoric and unfounded accusations against the administration of President Tinubu.

    “Rather than engaging in constructive dialogue or offering meaningful contributions to national development, Kwankwaso appears to have chosen a path aimed at inciting division and casting aspersions on initiatives designed to benefit all Nigerians. Such actions are not only unhelpful but also risk undermining the unity and progress of the country at a critical time when inclusive leadership and national cohesion are paramount.

    “President Tinubu’s tax reforms are a necessary step toward addressing the economic challenges facing the country and ensuring equitable development for all Nigerians, including those in the north especially the President’s initiative to tackle the disproportionate distribution of revenues from the Value Added Tax to all 36 states of the Federation and the FCT. 

    “It is unfortunate that former Governor Kwankwasochose to use the platform of the convocation to mislead the youth by claiming that President Bola Ahmed Tinubu is scheming to undermine the economy of the north through his tax reforms.

    “Rather than presenting the facts, Kwankwasoneglected to tell the students the truth: that currently, 70% of Value-Added Tax (VAT) proceeds are allocated to just Lagos, Rivers, and the Federal Capital Territory (FCT) with the other 34 states left with the short end of the stick simply because of the provision in the Act that says chunk of VAT goes to states where the headquarters of companies are located and not where goods are consumed. President Tinubu’sreforms aim to address this imbalance and ensure fairness for the remaining 34 states, including northern states, by promoting equitable distribution of the Value Added Tax. 

    “Such reforms are a critical step toward national economic justice and inclusivity, and it is imperative for leaders to educate, not misinform, the public, especially the youth, on these important issues.

    “However, due to the influence of toxic politics, Kwankwaso chose not to inform the students of Skyline University about other important provisions of the tax reforms, especially the introduction of critical Value-Added Tax (VAT) exemptions for essential items that directly impact the daily lives of Nigerians, including food, healthcare, education, and transportation. These exemptions are a clear demonstration of President Tinubu’s commitment to alleviating the cost of living for ordinary citizens across the country. 

    “It is regrettable that instead of providing students with the full and accurate picture of these positive reforms, Kwankwaso resorted to politicizing the issue, depriving the youth of a clearer understanding of policies that aim to improve their lives and futures. 

    “President Tinubu deserves nothing but accolades for the bold and visionary initiatives he is implementing to promote balanced development across all regions of Nigeria. However, such progress has clearly rattled individuals like Senator Kwankwaso, who, instead of supporting national development, resort to desperate measures to mislead and misinform the public. Kwankwaso’s attempts to hoodwink gullible Nigerians through divisive rhetoric only serve to undermine the collective effort toward a more prosperous and unified Nigeria.

    “The focus must remain on supporting President Tinubu’s reforms, which are designed to uplift every part of the country, and ensuring that all citizens, regardless of their region, experience the benefits of true national progress.

    “We urge the people of Northern Nigeria to disregard the unfounded claims and divisive rhetoric being spread by Kwankwaso against President Tinubu. Kwankwaso’s reaction to the President’s visionary initiatives, particularly the Tax reforms, reflects a misguided attempt to misinform the public and undermine efforts aimed at fostering fairness, unity, and national development.”

  • Reps will not rush passage of Tax Reforms bill – Doguwa

    Reps will not rush passage of Tax Reforms bill – Doguwa

    House of Representatives Committee Chairman on Downstream Petroleum, Ado Alhassan Doguwa, stated on Monday that President Bola Tinubu’s Tax Reforms Bill is beneficial for the country.

    He, however, said that lawmakers will not rush its passage into law.

    “We will certainly not rush the passage of these bills to avoid making hasty legislations or laws that would in the end not be able to address our practical economic realities as a nation,” he stated in a telephone interview with a group of reporters from Kano.

    Doguwa, who is the Leader, of the Northern Regional Caucus of the House of Representatives, added “We must commend in the first place the wisdom of the leadership of the House for coming up with this interactive session to further enlighten and clarify the contents and intents of the proposed tax reforms bills.”

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    He said: “Building on this good initiative we will continue to hold further consultations at the levels of state and regional caucuses to create sufficient awareness amongst our members and other relevant stakeholders.”

    “These proposed bills are obviously to do with fiscal federalism as it relates to the sharing of resources to federating units and key government institutions.

    “Therefore, we must be careful in studying the bills diligently, considering them clause by clause, to make justice to the bills in the overall interest of the people and country.”

  • EXPLAINER: What will the 2024 tax reforms do?

    EXPLAINER: What will the 2024 tax reforms do?

    President Bola Ahmed Tinubu, on October 3, 2024, submitted four tax reform bills to the House of Representatives for consideration and quick passage.

    In a letter read at plenary by Speaker Abbas Tajudeen on Thursday, the President said the bills were designed in line with the objectives of his administration.

    The bills are the Nigeria Tax Bill 2024, which is expected to provide the fiscal work for tax in the country and tax administration bill which will provide clear and concise legal framework for all taxes in the country and reduce disputes.

    The National Economic Council (NEC) recommended the withdrawal of the Tax Reforms Bill from the National Assembly to President Bola Tinubu to allow for wider consultations.

    Tinubu, however, said there was no need to withdraw the bill and that the legislative process will move ahead.

    Here’s what the 2024 Tax Reform Bills are expected to do:

    The new tax reform bills are made up of four major components, each tackling a specific aspect of tax administration:

    1. Nigeria Tax Bill: This bill brings together various tax laws into a single, comprehensive document, simplifying the tax process for taxpayers. This simplification is especially beneficial for small businesses, which often find it challenging to navigate Nigeria’s intricate tax regulations.
    2. Tax Administration Bill: Designed to create a clear and efficient legal framework, this bill seeks to minimize disputes between taxpayers and the government. By enhancing tax enforcement and clarifying taxpayer responsibilities, it aims to encourage greater compliance and increase tax payments.
    3. Nigeria Revenue Service (NRS) Bill: This bill replaces the Federal Inland Revenue Service (FIRS) with the Nigeria Revenue Service (NRS), modernising the nation’s tax collection agency. The NRS will focus on efficient and transparent tax collection, leveraging modern technologies to enhance accountability.
    4. Joint Revenue Board Bill: This bill will create a Joint Revenue Board, incorporating a Tax Appeal Tribunal and a Tax Ombudsman to address disputes and complaints from taxpayers. This initiative represents a significant step toward ensuring fairness in tax administration and building trust between the government and the public.

    How does It affect Nigerians?

    These reforms will have a significant impact on both businesses and individual taxpayers in Nigeria.

    For Businesses: The streamlined tax system will simplify compliance for businesses, particularly small and medium-sized enterprises (SMEs). By reducing the time spent on complex tax procedures, companies can concentrate more on growth and innovation.

    Read Also: BREAKING: NEC recommends withdrawal of tax reforms Bill from NASS

    For Individuals: Technology will streamline tax filing and payment processes, providing individuals with clearer guidelines on their tax obligations. This clarity will reduce the chances of disputes with tax authorities. Additionally, the creation of a Tax Appeal Tribunal offers a fair platform for resolving any disagreements that may arise.

    While the 2024 Tax Reform Bills offer significant benefits, it hasn’t been well received by some Nigerians.

    Some have pointed to the fact that there may be delays in fully implementing the reforms. Resistance to change from certain sectors may also slow down the process.

  • Tax reforms

    Tax reforms

    •Using regressive and progressive tools to reach fairer taxation is good thinking

    The most startling, from the proposed tax reforms, might well be the announcement that whoever earns N1.5 million a month — and below — would pay less tax, regressing from the cap of N1.5 million, to the very base of N70, 000: the new national minimum wage.

    The in-built egalitarianism in that thinking is laudable.  But that is not the news.  The news is that the N1 million to N1.5 million bracket — a month — hitherto represented the elite tax-paying class.  That bracket should have come under progressive taxation.

    So, why is it now regressive?  That is perhaps the government’s own realisation of the havoc Naira devaluation is wreaking on the economy.  For all the hankering after the dollar, the government itself might be realising that the Naira is getting undervalued.  It will therefore do well to think out some balancing act, for a better equilibrium.

    Another thing: with N70, 000 as national minimum wage, it’s a moot point how many in the public sector earn over N1.5 million a month, even with the consequential adjustments on the salary scale.  So, if the majority of public servants pay regressive tax — less tax, in real terms than at present — where is the revenue harvest, which the tax reforms are targeting, coming from?

    Before going public on these proposals, Taiwo Oyedele, chair of the Presidential Committee on Fiscal Policy and Tax Reforms and his committee members, must have done their homework; and probably now boast a tax data base to support this current thinking. 

    Perhaps that base has been widened enough to capture much of the huge informal market, which clearly drives this economy but which pays little or no tax — in any case, not anything near its volume, spread and depth?  We wouldn’t know for sure, until the Oyedele Committee throws more information into the public space.

    But even with limited information, it would appear a new dawn in Nigerian taxation, with the government combining both progressive and regressive tools to strike a sensible balance.  This concept is not new per se.  But an aggressive implementation may make all the difference.

    Read Also: Jibrin Ndace: Nigeria’s Voice in VON

    While the N1.5 million cap for “low earners” headlines the regressive leg of the tax proposal, N100 million-a-month headlines the progressive segment of it.  Hitherto, tax on that bracket — and above — was capped at 19 per cent.  By the new proposals, the tax is up by six per cent to berth at 25 per cent. 

    So, everyone in that group would pay 25 kobo from every N1 they have accumulated, up from 19 kobo.  We can’t say, with certitude, what awaits even higher earners, in the range of N500 million a month and above.  But by the principle of progressive taxation, those — very few, though — should pay higher than the 25 per cent threshold.

    “If you earn N1.5 million a month or less, your personal income tax bill will go down,” Oyedele explained. “But if you earn more than that amount, you see it going up incrementally up to 25 per cent.”

    That is good news for advocates of tax as effective tool of wealth re-distribution, particularly if the extra cash is splashed on social and physical infrastructure that enhance citizens’ quality of living.  Arch-capitalists may demur however, claiming — not altogether unjustified — that high percentage of tax on income, paid by the rich class, is a disincentive to industry, innovation and productivity.

    Still, across the board, these proposals are progressive in thinking, corrective by philosophy and equitable by fiscal policy goal.  That is praise-worthy. 

    By the ugly present, low income earners seem to carry the heavier bulk of taxation.  In any case, they are “trapped” in pay-as-you-earn (PAYE), a form of withholding tax. Their employers, public or private sector, “withhold” their tax, pay the workers their net salaries, but send their tax dues to the tax authorities. 

    Though that appears to capture everyone in the pay system, those below have little or no powers to tweak the process and pay less. That unfortunately can’t be said of those above, with a ringing culture of sundry abuse in the system — as other Nigerian systems.

    The tax proposals also thrust a new Value-Added Tax (VAT) basket of policies — again primed at stimulating small-scale ventures.  It proposes, for instance, to fully refund businesses the VAT they had paid on assets and services.  In these times of spiralling energy and sundry costs, that’s cheery news.  The reduced costs could also help to tamp down inflation.

    Another leg of the proposals is a new withholding tax policy that exempts small businesses and manufacturers, excludes food and transport from taxes — another fiscal strategy to tame inflation — and introduces tax identification for workers in the financial services sector.

    Since these proposals are incorporated into 10 new bills already before the National Assembly — bills seeking to ring constitutional changes in Nigeria’s tax laws — we suggest that the National Assembly give those bills accelerated treatments.

  • Leveraging tax reforms to overhaul Nigeria’s revenue system

    Leveraging tax reforms to overhaul Nigeria’s revenue system

    President Bola Tinubu, on Thursday transmitted four Bills to both chambers of the National Assembly. The Bills are part of his administration’s broader effort to reshape Nigeria’s fiscal landscape and boost government revenue in an economy that has long been heavily reliant on oil. Already, deliberations on the proposed reforms have started after Senate President Godswill Akpabio read Tinubu’s letter of request on the floor of the Red Chamber. However, the proposed changes have sparked a national conversation among various stakeholders about their potential impact on businesses, consumers, and the overall economy. Assistant Editor NDUKA CHIEJINA looks at the four Bills, exploring their objectives, key provisions, and the reactions they have generated.

    The President Bola Tinubu-led administration is leaving nothing to chance in its quest to reform Nigeria’s tax regime. With the transmission of four Bills to both chambers of the National Assembly on Thursday, the President left no one in doubt of his resolve to leverage reforms to modernize the nation’s tax administration, broaden the tax base, and ensure a more equitable distribution of the tax burden among Nigerians.

    The four Bills, which are part of his administration’s broader effort to reshape Nigeria’s fiscal landscape and boost government revenue in an economy that has long been heavily reliant on oil, come as the Federal Government seeks to address a widening fiscal deficit, rising debt levels, and the need for funding critical infrastructure and social services.

    The game-changing Bills include Nigeria Revenue Service (NRS) Establishment Bill, Nigeria Tax Bill, Nigeria Tax Administration Bill, and Joint Revenue Board (Establishment) Bill. The Nigeria Revenue Service (NRS) Establishment Bill proposed a rebranding of the Federal Inland Revenue Service (FIRS), renaming it as the Nigeria Revenue Service (NRS).

    According to a former staff member of the FIRS, the word “Federal” in the FIRS name gives the impression that the Service only handles federal tax and revenue matters. However, with “Nigeria” in its name, the NRS would be positioned to handle taxes and revenue collection across all tiers of government—federal, state, and local—creating a unified tax administration system across the country.

    The Bill renames the Federal Inland Revenue Service (FIRS) as the Nigeria Revenue Service (NRS), symbolizing a broader scope of responsibility. The NRS would be responsible for assessing, collecting, and accounting for all revenues accruing to the Nigerian Government, at both the federal and sub-national levels. This includes taxes that were previously the purview of state and local governments.

    The Service is expected to create a centralized system that integrates tax collection from multiple levels of government, reducing administrative overlap and creating more transparency in revenue management. The NRS will likely leverage modern technology, including Artificial Intelligence (AI) and machine learning, to streamline tax collection, enhance compliance, and combat tax evasion more effectively.

    The Nigeria Tax Bill, on the other hand, is a sweeping piece of legislation that seeks to provide a consolidated fiscal framework for taxation in Nigeria. This Bill aims to streamline tax collection by centralizing the process under a single agency, thus reducing the fragmentation that has characterized Nigeria’s tax system for years.

    Under this framework, various revenue-generating agencies, such as the Nigeria Customs Service (NCS) and the Nigeria Ports Authority (NPA) and others, would focus on their primary functions while relinquishing their revenue collection duties to a specialized agency equipped for this role.

    The goal is to create a more coordinated, efficient, and transparent system for revenue collection across the country. By consolidating tax administration and removing the revenue collection functions from multiple agencies, the government hopes to eliminate redundancies, minimize leakages, and improve accountability in the management of public funds.

    The third Bill in the series of President Tinubu’s tax reform proposals is the Nigeria Tax Administration Bill. This Bill is pivotal in establishing a clear and concise legal framework to ensure the fair, consistent, and efficient administration of all tax laws across the country.

    The overarching objective of this Bill is to enhance the ease of tax compliance for individuals and businesses, reduce the incidence of tax disputes, and optimize revenue collection for the government. The Bill addresses one of the long-standing issues in Nigeria’s tax system: the complexity and lack of coherence in the administration of tax laws.

    Over the years, taxpayers—especially businesses operating across different regions of the country—have often faced inconsistent enforcement of tax laws, leading to confusion, compliance challenges, and a significant number of disputes between tax authorities and taxpayers.

    The Nigeria Tax Administration Bill will remedy these problems by providing a well-defined and uniform legal framework for the administration of taxes at all levels. It proposes a standardized approach to administering all tax laws in Nigeria, including those governing corporate income tax, personal income tax, value-added tax (VAT), excise duties, and other taxes.

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    The fourth and final Bill, the Joint Revenue Board (Establishment) Bill, aims to establish critical institutions for the effective harmonization, coordination, and dispute resolution in Nigeria’s revenue administration system.

    This Bill is one of the most strategic in the tax reform agenda, as it seeks to address the structural issues that have long impeded the efficiency and fairness of revenue collection and tax dispute settlement in Nigeria.

    The Bill seeks to establish three pivotal bodies: The Joint Revenue Board; The Tax Appeal Tribunal and The Office of the Tax Ombudsman. Together, these institutions will play a crucial role in streamlining the processes for revenue collection, addressing disputes, and ensuring taxpayers’ grievances are heard and resolved in a timely and equitable manner.

    At the heart of this Bill is the establishment of the Joint Revenue Board (JRB), a coordinating body tasked with harmonizing tax administration across all tiers of government—federal, state, and local.

    One of the persistent challenges in Nigeria’s tax system has been the lack of synergy between the various revenue collection agencies at different levels of government. The JRB is designed to bridge this gap and foster cooperation among these entities to improve revenue mobilisation.

    The Tax Appeal Tribunal (TAT), another key institution to be established under this Bill, will serve as the primary forum for resolving tax disputes in Nigeria. Tax disputes have been a significant challenge in Nigeria’s revenue system, often leading to protracted legal battles and delayed revenue collection.

    The establishment of the TAT is intended to provide a specialized mechanism for addressing such disputes in a fair and timely manner. This will not only speed up the dispute resolution process but also ensure that taxpayers and tax authorities have a clear avenue for addressing grievances. The Tribunal will be staffed with tax experts who have a deep understanding of Nigeria’s tax laws and the complexities of tax administration.

    This specialised knowledge will allow the TAT to handle complex tax cases with greater efficiency and accuracy. The TAT will operate as an independent body, ensuring that disputes are resolved fairly and impartially. This is especially important in building trust between taxpayers and tax authorities, as the Tribunal’s rulings will be seen as objective and unbiased.

    The Office of the Tax Ombudsman is another significant innovation introduced in this Bill. The Tax Ombudsman will act as an independent intermediary between taxpayers and tax authorities. It will serve as a voice for taxpayers, ensuring that their concerns and complaints are heard and addressed by the relevant authorities.

    This office will be empowered to investigate complaints related to tax administration, such as unfair treatment by tax officials, delays in processing tax refunds, and other administrative challenges.

    In cases where disputes arise between taxpayers and tax authorities, the Ombudsman will act as a mediator, helping to resolve conflicts before they escalate into formal disputes. This mediation role is seen as a way to reduce the number of cases that end up in the Tax Appeal Tribunal or regular courts.

    The Office of the Tax Ombudsman will also play a key role in promoting transparency and accountability in the tax administration process. By providing an independent oversight mechanism, the Ombudsman will ensure that tax authorities are held accountable for their actions and that taxpayers are treated fairly.

    The Ombudsman will be required to submit an annual report to the National Assembly, outlining the nature of complaints received and how they were resolved. This report will provide valuable insights into the performance of Nigeria’s tax system and highlight areas where improvements are needed. The creation of the Office of the Tax Ombudsman is expected to build trust between taxpayers and tax authorities, as it provides an independent avenue for addressing grievances and ensuring that tax administration is carried out in a transparent and accountable manner.

    Initial reactions to the Joint Revenue Board (Establishment) Bill have been largely positive, with many stakeholders viewing the Bill as a necessary step in improving Nigeria’s tax administration system. Tax professionals, in particular, have praised the Bill for its focus on creating specialized institutions for dispute resolution and taxpayer advocacy, which they believe will lead to a more transparent and efficient tax system.

    However, some concerns have been raised about the capacity of the proposed institutions to carry out their mandates effectively. There are questions about the funding and staffing of the JRB, TAT, and the Office of the Tax Ombudsman, as well as the need for extensive training to ensure that these bodies are able to fulfill their roles effectively.

    In transmitting the Tax Reform Bills to the National Assembly, President Tinubu emphasised their importance in reshaping Nigeria’s fiscal framework, particularly in relation to tax administration, revenue collection, and dispute resolution.

    He reiterated that the proposed reforms are not just about renaming institutions or tweaking policies, but about creating a comprehensive and efficient tax system that can drive the nation’s economic growth.

    Tinubu explained that the reform Bills would help achieve several critical objectives: improving taxpayer compliance, strengthening Nigeria’s fiscal institutions, and fostering a more transparent and equitable fiscal regime. He noted that a well-structured tax system is the backbone of any thriving economy and is essential to unlocking Nigeria’s full economic potential.

    His words: “I am confident that the Bills, when passed, will encourage investment, boost consumer spending, and stimulate Nigeria’s economic growth.” Tinubu further pointed out that the consolidation of tax laws, simplification of tax administration, and enhanced dispute resolution mechanisms embedded in these Bills would make it easier for individuals and businesses to comply with tax obligations, which in turn would enhance revenue generation for the government.

    The President also highlighted how the Bills align with his administration’s broader goal of economic reform, particularly in light of the current challenges facing Nigeria, such as inflation, unemployment, and the need for sustainable revenue streams outside of oil.

    He described the Bills as part of a more extensive strategy to create an enabling environment for investment and reduce the burden of taxation on individuals and businesses.

    Other government officials have echoed the President’s optimism regarding the potential impact of these reforms. Finance experts within the administration, as well as the FIRS leadership, are in agreement that the harmonization of tax laws and the establishment of new institutions will not only improve efficiency in revenue collection but also significantly reduce tax evasion and corruption.

    The President’s team has described the Bills as a “game-changer” for Nigeria’s fiscal policy, offering long-term benefits that could transform Nigeria’s economy by ensuring that revenue flows are more predictable, transparent, and capable of meeting the country’s development needs.

    The reaction from the public, business community and economic experts to the proposed Tax Reform Bills has been largely positive. Many see the reforms as a much-needed intervention to streamline Nigeria’s tax system and enhance revenue generation.

    Key stakeholders have noted that for too long, Nigeria’s tax collection system has been burdened with inefficiencies, multiple taxations, and a lack of coordination between different agencies. These Bills, they argue, offer a path toward resolving these issues.

    Despite the overwhelming support, some concerns have been raised. A few critics argue that the success of these reforms will depend heavily on the government’s ability to implement them effectively. They warn that unless the new institutions are well-funded, well-staffed, and given the necessary independence to carry out their mandates, the benefits of the reforms may not be fully realised.