Tinubu’s governance faces efficiency test over tax reform goals

Onome Amuge

President Bola Tinubu rode to power on the wings of ambitious economic reforms that promised to lift the fortunes of Nigerians, yet his tenure has been marred by skyrocketing fuel prices, a weakening naira, and rising inflation, all serving as persistent reminders of the unfulfilled promises that have come to characterise his presidency.

However, amid the turbulence, Tinubu’s administration has unveiled an ambitious four-part legislative package, the tax reform bills, a series of far-reaching tax reforms that aim to overhaul the country’s tax collection and administration.

In a decisive step toward addressing the fiscal challenges facing the nation, President Tinubu inaugurated the Fiscal Policy and Tax Reforms Committee in July 2023 and appointed Taiwo Oyedele, a tax specialist and former Africa Tax Leader at PricewaterhouseCoopers (PwC), as its chairman.

After about four months of deliberations and consultations with relevant stakeholders across the country, the 38-member committee introduced 20 key policy recommendations known as “quick wins” for immediate implementation. This birthed the tax reform bills transmitted to the National Assembly by the President in September 2024.

The panel’s economic stabilisation bills (ESBs) comprised four documents: The Nigeria Tax Bill, The Nigeria Tax Administration Bill, The Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill.

The tax reform bills feature several proposals, including the increase in VAT distribution to subnational governments to 55 per cent, with the federal government’s share reduced to 10 per cent.

The bills also propose zero VAT on exports and essential goods for the masses, as well as input VAT credit on assets, services, and goods consumed by businesses, intending to lower production costs.

The committee responsible for drafting the bills laid out a set of ambitious objectives that aim to boost the country’s revenue, improve the business environment, and reform the tax system for sustainable development.

The primary goal, it stated, is to increase Nigeria’s tax-to-GDP ratio, which, at only between 6.7 and 10.8 per cent, lags far behind many other countries in Africa and around the world, including Ghana and South Africa. The target is to reach at least 15 per cent by 2030, according to the committee.

The committee also noted that the bill was designed to balance the need for increased revenue with the need to provide support for low-income earners and struggling businesses.

To achieve this, the proposed legislation seeks to reduce income taxes for low-income earners and even eliminate them for those earning minimum wage. Moreover, corporate income tax will be lowered from 30 per cent to 25 per cent, providing a much-needed boost for businesses.

Among the key proposals in the bills is the elimination of nuisance taxes, which will simplify the tax system and reduce the administrative burden on both taxpayers and the government. The bills also seek to implement progressive taxation, ensuring that the wealthy contribute their fair share of taxes, while also expanding the tax base by capturing revenue from digital and e-commerce sources.

The Senate’s recent passage of the tax reform bills for the second reading has however sparked a heated debate, particularly concerning the proposed changes in the VAT revenue-sharing formula among the federal, state, and local governments.

The heart of the controversy centres around Section 77 of the Bill, which seeks to shift the allocation of VAT revenue in Nigeria to a consumption-based model that prioritises derivation over population or equality.

Discussions around this issue indicated that optimism surrounding the tax reform bills has been marred by the widespread distrust and disappointment in the president’s unfulfilled promises.

Criticism of the proposed legislation has ranged from allegations of regional bias, with some arguing that the proposed changes to the VAT revenue-sharing formula are designed to primarily benefit the Southern states, particularly Lagos, which is considered President Tinubu’s home turf and a primary beneficiary of the proposed changes to the VAT revenue-sharing formula.

Governor Zulum of Borno State, a prominent figure among the opposition, expressed his reservations about the impact of the bills, claiming that the state would be unable to pay salaries, a situation that he warned could lead to a collapse of the entire northern economy.

Governor Zulum argued that the southern states, particularly Lagos, would reap the benefits of the reforms while northern states would be disproportionately disadvantaged.

Even as the tax reform bills remain the subject of intense debate, analysts and experts have weighed in with their perspectives, urging the Nigerian people to refrain from introducing ethnic and regional biases into the discussion and instead focus on holding the government accountable for its actions and prioritising the interests of all Nigerians.

Samuel Agbeluyi, president of the Chartered Institute of Taxation of Nigeria (CITN), in a recent press conference with members of the Finance Correspondents Association of Nigeria in Lagos, voiced his support for the tax reform bills, characterising them as crucial measures that will address Nigeria’s ongoing revenue challenges.

While Agbeluyi recognised that the proposed bills are not without their fair share of concerns, he expressed confidence that they have the potential to bring about much-needed improvement to the country’s tax system, ultimately benefiting both the government and the citizens.

“The bill is a clear and positive one. I doubt if anybody is seeing it from a negative perspective. I also agree that there are issues that have been raised in the bill but overall, the bill is what we need,” he stated.

Agbeluyi also addressed the importance of synchronising national identification systems, such as the National Identity Number (NIN) and Bank Verification Number (BVN), to enhance the collection of tax-relevant data with greater efficiency and accuracy.

The CITN president underscored the gravity of the revenue crisis facing Nigeria, stating that over 90 per cent of the nation’s revenue is currently devoted to servicing debt, a situation he described as “a recipe for disaster.”

With a pressing need for reform to improve the nation’s financial standing, Agbeluyi pointed to the current tax structure as a major source of inefficiency, highlighting the existence of more than 60 different types of taxes, of which only a small number contribute significantly to government revenue.

Responding to the public’s apprehensions regarding third-party involvement in tax collection, Agbeluyi reiterated the necessity of private sector contractors in this process, provided that the engagement is executed with the utmost levels of accountability and transparency.

He noted that third-party contractors can bring invaluable expertise and innovation to the table, particularly in the areas of data gathering and revenue generation, where their contributions have already proven instrumental in enhancing the efficiency of tax collection.

Agbeluyi highlighted the indispensable role that data can play in driving tax reform, stating with conviction that “data don’t lie.” He suggested that by conducting simulations using various VAT allocations and applying attribution methods, stakeholders could leverage data to gain a more accurate understanding of the potential impact of the proposed reforms.

The Nigeria Employers’ Consultative Association (NECA), a prominent business advocacy group, also expressed its support for the Tax Reform Bills, asserting that the passage of these bills into law would result in far-reaching positive consequences for the country.

Wale-Smatt Oyerinde, the director-general of NECA voiced his disappointment at the level of opposition that the Tax Reform Bills have faced in the political arena, despite the many potential benefits that the bills could bring.

“NECA affirms its support for the Tax Reform Bills because of the far-reaching positive consequences of its enactment. It is instructive to note that the organized private sector is a member of the Committee and plays a very important role in the engagements with various stakeholders. It is thus worrisome that a Bill that should ordinarily attract a warm welcome from the political elites is facing unnecessary criticism and backlash,” he stated.

Paul Alaje, chief economist at SPM Professionals, has also lent his support to the tax reform bills, particularly advocating for an increase in the VAT rate from the current 7.5 per cent to 15 per cent in the medium term.

Alaje underscored Nigeria’s comparatively low VAT rate on the global stage, pointing out that a higher VAT could generate much-needed revenue to fund essential public services while also aligning the country with international standards in this area.

Implications of the Tax Reform Bill

Nigeria’s former Attorney-General of the Federation and Minister of Justice, Mohammed Adoke, in an opinion article published by Punch Newspaper, highlighted the implications of the reform as follows:

Increased Tax Burden: The VAT tax rate increase is not in the interest of Nigerian consumers and small businesses. The proposed increase in VAT from 7.5 per cent to 10 per cent is potentially an increase in the prices of products. For a tax system to be used as an instrument to uplift the welfare and living standard of the people, put smiles on their faces and direct the course of the economy towards growth and development without losing its traditional grip of revenue generation, it must strive to balance the need for revenue generation against the desire to preserve the taxpayer. In other words, the Nigerian taxpayer must not be taxed to death. The VAT rate increase is ill-timed, coming in the heat of the effects of the withdrawal of subsidy on petrol. The redistribution of income argument, where higher taxes are imposed on the rich to provide social services in favour of the poor, is not even obtainable under a regime of a general increase in VAT rate as proposed. VAT as a consumption tax can only be imposed in favour of the poor, where the increase is aimed at taxing the rich at a higher rate and not a flat rate as proposed.

Increased Administrative burden: The proposed reforms could also lead to an increased administrative burden on both tax authorities and businesses and impact negatively on the economy in the following ways. Clause 8(2) of the Nigeria Tax Administration Bill 2024 makes the provision of a Tax ID a mandatory requirement or precondition for opening a new bank account or operating an existing account. This provision, though, has the advantage of identifying taxpayers in the country; it may discourage banking habits, particularly for those employed in the non-formal sector. A lot of money may circulate outside the banking system. Clauses 20, 23 and 24 of the Nigeria Tax Administration Bill 2024 have proposed to make filing of monthly returns mandatory for specific categories of businesses, including Air Transport and Mining. This can increase the operational cost of businesses, which will be transferred to customers.

Addressing the challenges

Speaking on how the challenges can be addressed, he said, “A cursory reading of the Tax Reform Bills will reveal a commendable effort by the government to revolutionise the national economy, bring to an end the era of liquidity crises, and promote a genuinely competitive environment for businesses, irrespective of the sizes or structures, to seamlessly thrive. However, despite the laudable objectives of the Reform Bills, it has not been received with the requisite enthusiasm from the sub-national governments. The Bills have been criticised as ill-timed, regressive and antithetical to the aspirations of the people, as well as detrimental to the interests of other segments of the federation. The Nigeria Economic Council (NEC), a constitutional body established by section 153 of the Constitution, has called on the president to withdraw the bills before the National Assembly for further consultations. The Governors Forum and the Northern Governors Forum have all asked for a stand down of the Bills for further consultation. Despite these calls, the Executive branch is in favour of a process that allows for public engagement with the National Assembly presently considering the Bills.”