Speed up fiscal and tax reforms

ONE of the most significant moves by the Bola Tinubu administration is the inauguration of the Presidential Committee on Fiscal Policy and Tax Reforms in August 2023. The committee is headed by Taiwo Oyedele, a former Fiscal Policy Partner and Africa Tax Leader at PwC. Its mandate is tax reform, fiscal policy design, coordination, and harmonisation of taxes, and revenue administration.

Economic experts point out that Nigeria has 62 official and 200 unofficial taxes. This is unwieldy and entrenches Nigeria’s poor ease of doing business.

According to the President, the target includes improving Nigeria’s revenue profile, making the business environment more conducive and internationally competitive, transforming the tax system to support sustainable development, and achieving a minimum of 18 per cent tax-to-GDP ratio within the next three years. Nigeria’s tax-to-GDP ratio, at 10.8 per cent, is below the African average of 16.5 per cent and one of the lowest in the world.

The reforms are overdue. Nigeria has failed to maximise the benefits of taxation due to large-scale evasion and non-compliance, multiple taxation, insufficient database, tax touting, high cost of collection, and gross inefficiencies in the system. In the first seven months of 2024, the Nigeria Customs Service, Federal Inland Revenue Service, and Nigerian Upstream Petroleum Regulatory Commission spent N533.11 billion on revenue collection.
 Nigeria has one of the highest rates of companies’ income tax in the world, which overburdens businesses and undermines investments.

Taxation is a fundamental pillar in modern economies. Tax revenues are essential to finance public services, education, health, infrastructure, and social programmes. Taxes are used to redistribute wealth, reduce social inequalities, and promote economic equity. It confers ownership of government by the people. Thus, any effort to strengthen the tax system should be considered prudent at the very least.

So far, the reform committee has given a picture of what is to come. The overarching principle is to jettison “nuisance taxes” with very low revenue yield, high cost of collection, and ultimate burden on the poor and small businesses. The focus is on high-revenue yield taxes that are broad-based and easy to collect. The aim is to “promote competitiveness, prevent tax avoidance, detect tax evasion, and close the tax gap that reflects what is happening globally.”
Among other proposals, manufacturers and companies earning less than N50 million annually can forget about withholding tax. Another notable proposal is the pegging of customs duty at N800 per US dollar. This metric has been an importer’s nightmare as it has remained as volatile as the naira exchange rate.

Overall, the committee’s work has been comprehensive and points to a new, more positive direction in fiscal management.

However, it is time to start implementation to reap the anticipated gains as quickly as possible. Nigerian corporates are reeling under a punishing regime of high costs amid waning demand. Several manufacturers including multinationals have closed shop. The fresh hikes in fuel prices will deepen the crisis.

There is still confusion concerning the Right of Way levies with some states insisting on collection while others have cancelled it.

Oyedele has pointed out that the reforms are geared towards correcting the structural imbalances in the tax system which has seen the poor overburdened with taxes while the elite and middle class routinely evade, avoid, or underpay taxes. That defeats the principle of wealth distribution, a fundamental pillar of the tax system. The government should muster the political will to end this charade.

While it is understandable that all the proposals cannot be implemented immediately and some will require some fine-tuning, it is appropriate to start from somewhere.

Some of the tax exemptions for manufacturers, small businesses, and low-income earners should kick in immediately. That needs no further debate.