Nigeria’s President Bola Tinubu will not withdraw four tax bills sent to the National Assembly, a move that enraged a large section of Nigerians including Northern state governors whose buy-in is critical for the implementation of the proposed reforms
The governors who claimed that the proposed model would be at the disadvantage of the northern states and other less industrial regions, were also against the recent Tax Reform Bill the Nigerian government submitted to the National Assembly for approval.
Nigerian 19 state governors, under the auspices of the Northern States Governors’ Forum (NSGF) have rejected the proposed shift to a derivation-based Model for Value Added Tax (VAT) distribution, proposed by the President Tinubu’s government.
The governors who claimed that the proposed model would be at the disadvantage of the northern states and other less industrial regions, were also against the recent Tax Reform Bill the Nigerian government submitted to the National Assembly for approval.
The governors disclosed this a couple of weeks ago in a communique issued after a strategic meeting in Kaduna. The meeting included northern traditional rulers, the Chief of Defence Staff, General Christopher Musa, and other key stakeholders. Demanding for equity and fairness in national policy implementation and no geopolitical zones should be shortchanged.
The governors explained that VAT is currently remitted based on the location of company headquarters rather than where goods and services are consumed.
He stated that the measure would negatively affect the distributed revenue from the Federal Accounts Allocation Committee (FAAC).
“The forum notes with dismay the content of the recent Tax Reform Bill that was forwarded to the National Assembly. The contents of the reforms are against the interest of the North and other sub-nationals, especially the proposed amendment to the distribution of Value Added Tax to a Derivation-based Model.
“This is because companies remit VAT using the location of their headquarters and tax office where the services and goods are consumed. In view of the foregoing, the Forum unanimously rejects the proposed Tax Amendments and calls on members of the National Assembly to oppose any bill that can jeopardise the well-being of our people.
“For the avoidance of doubt, the Northern Governor’s Forum is not averse to any policies or programmes that will ensure the growth and development of the Country.
“However, the forum calls for fairness in the implementation of all national policies and programmes to ensure that no geopolitical zone is short-changed or marginalised.
“On the present economic hardship affecting the Country, the Forum is appealing to all citizens to remain calm, as the states and Federal Government are working hard to implement measures that will cushion effects of the hardship,” the communique stated.
Certainly, the Tax Reform Bill proposed by President Tinubu has stirred significant debate among stakeholders in Nigerian politics, economics, and civil society. While the bill purports to enhance the nation’s revenue system, stimulate economic growth, and create a more equitable taxation framework, it raises several concerns that merit critical examination.
The objectives of the proposed bill include broadening the tax base, increasing the efficiency of tax collection, and reducing the reliance on oil revenues. However, the fundamental questions arise: will the reform actually achieve these goals, and at what cost to the populace?
One of the most substantial criticisms of the Tax Reform Bill is the assumption that broadening the tax base will lead to increased revenue generation. The bill proposes to extend the tax net to include more citizens and businesses, particularly those in the informal sector, which are notoriously difficult to capture. Rather than expanding the tax base effectively, this approach could lead to increased tax compliance burdens on small businesses and individuals who are already struggling to make ends meet.
Moreover, the methodology for estimating potential revenue increases lacks transparency and realism. Revenue projections depend heavily on an assumption that the formalization of the informal economy will occur swiftly and seamlessly. Given the entrenched nature of informality in Nigeria, such optimism may be misplaced. The historical context shows that previous efforts to bring informal businesses into the tax net have met with significant resistance and minimal success. This could lead to disappointing revenue outcomes and heightened frustration among taxpayers.
The Tax Reform Bill is ostensibly aimed at stimulating economic growth and attracting investment. However, the National Economic Council (NEC) and many experts argue that the timing and nature of the proposed tax changes could yield the opposite effect. Increasing tax rates, particularly for small and medium-sized enterprises (SMEs), might deter entrepreneurship and stifle innovation at a time when Nigeria needs to cultivate a robust private sector.
Additionally, the bill’s incremental adjustments to corporate tax rates and the introduction of new tax categories may create uncertainty within the business environment. Investors typically seek stability and predictability, and the prospect of fluctuating tax obligations could discourage both local and foreign direct investment. The Nigerian economy, which has been grappling with challenges such as power shortages, inadequate infrastructure, and insecurity, may find it difficult to attract capital if tax reforms add to the complexity of doing business.
Another critical issue with this obnoxious Tax Reform Bill is its potential misalignment with principles of equity and social justice. The bill appears to emphasize broadening the tax base at the expense of equitable taxation. Increasing the tax burden on the lower and middle classes, while potentially providing loopholes for wealthier individuals and larger corporations, could exacerbate existing inequalities and hardship.
The proposal fails to include comprehensive measures aimed at addressing tax evasion and avoidance by the affluent sectors of society. Without a serious commitment to tackling these issues, the reform risks perpetuating a system that disproportionately taxes the vulnerable while enabling the wealthy to navigate around their obligations. This dynamic undermines public trust in the tax system and could lead to social unrest, as citizens perceive the system as unjust.
The administrative capacity of Nigeria’s tax authorities has been questioned repeatedly. The implementation of the Tax Reform Bill will require significant improvements in the efficiency and effectiveness of tax collection mechanisms.
Given the historical context of inefficiency and corruption within tax administration in Nigeria, there is skepticism about whether the proposed reforms can be executed successfully. If the necessary institutional frameworks and trained personnel are not in place, the bill may result in even greater compliance burdens without achieving tangible benefits in revenue collection.
Notably, stakeholders, including civil society organizations, business representatives, and ordinary citizens, have expressed concerns over the lack of adequate public consultation and engagement. Tax policy inherently affects a broad spectrum of society, and without meaningful dialogue, the government risks alienating its citizens and failing to incorporate valuable insights into the reform process.
Transparency is a critical aspect that has been overlooked. The opaque nature of the legislative process can lead to mistrust and skepticism regarding the government’s intentions. Nigerians are more likely to accept tax reforms when they perceive them as fair, well-informed, and evidence-based. The existing approach, characterized by top-down policymaking, does not inspire confidence and may lead to public resistance against the proposed reforms.
