The Federal Government should adopt a more methodical approach to convince Nigerians of the genuineness and public interest nature of its proposed tax reform, which has unfortunately been embroiled in controversies.

Going by the explanation of the government through the Chairman, Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, that the reforms are well intended, there is a need for a more holistic approach.

Oyedele had said that the proposed reforms are aimed at enhancing efficiency and ensuring equity among States in the sharing of Value Added Tax (VAT). Certainly, as the Speaker of the House of Representatives, Tajudeen Abbas, also noted, “in every modern state, taxes are the bedrock of public revenue, providing the resources required to deliver education, healthcare, infrastructure, and security.”

In early October, President Bola Tinubu transmitted to the National Assembly a bill seeking to repeal certain taxation laws, consolidate the multiple legal frameworks and streamline transactions and related matters. Expectations were that the reform would deliver an efficient tax administration system that is acceptable to all.

However, the proposal has generated a wave of controversy and distrust, which may not be unconnected with the present economic hardship in the land, coupled with perception that the government is more interested in generating revenue at all cost and without commensurate consideration for the average Nigerian. That shouldn’t be if extensive conversations were held and relevant segments carried along, and the gains sufficiently explained.

Incidentally, Abbas has said that the House is yet to take a position on the four tax reform bills transmitted to the parliament, promising that the House would scrutinise the proposed legislations thoroughly to ensure they align with the interest of Nigerians. The lawmakers should be professional in their scrutiny and play less politics.

What is important, as the Speaker observed, is that the tax bills are aimed at diversifying the country’s revenue base, as well as fostering a conducive environment for investment and innovation. Earlier, Oyedele had assured that the extant legal framework is complicated and retards economic growth without clear and consistent policy guidelines. The system is also old and weak and fraught with multiple levies.

The highlights of the proposed reform are: to seek to reduce tax burden on individuals and businesses and promote ease of doing business; reduce tax to single digit number; harmonise revenue administration for efficiency; increase tax to GDP ratio; enhance competition in the economy and remove low-income earners from the tax net.

In all, four executive bills were drafted to actualise the reform process: the Nigeria Tax Bill 2024, to provide the fiscal framework for taxation in the country; Nigeria Tax Administration Bill, to provide a clear and concise legal framework for all taxes in the country; Nigeria Revenue Service (Establishment) Bill, to repeal the Federal Inland Revenue Service Act and the Joint Revenue Board (Establishment) Bill, to create a tax tribunal and a tax ombudsman.

President Tinubu had promised in his inauguration address to correct cases of multiple taxation and inefficiencies in tax administration in the country. He promised to dismantle hurdles that impede investment and introduce ease of doing businesses for individuals and corporate organisations. However, citizens have become wary of government reforms, having suffered repercussions on similar reforms in energy and power sectors.

It is a fact that the government has demonstrated a flair for tax collection, which makes more money available for the government to share, but appears to leave the people poorer. Reforms should be clearer in motivation and philosophical basis. At a time companies and individuals are groaning under economic tax reforms should be designed not just to collect more taxes, but also to grow the economy.

Moreover, Nigerians are already burdened by sundry tariffs in different sectors. Tariffs in electricity are already too high without commensurate supplies. Port tariffs in the country are reported to be the highest within the ECOWAS sub region, thus making prices of goods prohibitive. Nigerians should enjoy the dividend of taxes in terms of access to quality motorable roads, potable water and safe environment, among other basic duties of government. It is therefore not surprising that the planned tax reform is viewed with suspicion.

Yet, the reform proposes exemption of small businesses (with revenue below N50m) from Corporate Income Tax and larger corporations would have a rate of 27.5 per cent in 2025, reducing to 25 per cent from 2026.

The most contentious aspect of the Nigeria Tax Bill 2024 perhaps is the Value Added Tax (VAT) component, and the new sharing emphasis based on jurisdictions where goods and services are consumed, rather than where tax-withholding companies are headquartered. Some states fear this derivation model for VAT distribution would reduce their share of VAT.

In particular, Northern governors and monarchs have rejected the proposal. They decried the contents of the bill, stating it was against the interest of the North and other sub nationals. In rejecting the Tax Reform Bill, chairman of the Northern Governors’ Forum said companies remit VAT using the location of their headquarters and tax office and not where the services and goods are consumed. They called on their representatives in the National Assembly to reject the planned reform.

Similarly, the National Economic Council (NEC) has told President Tinubu to withdraw the bill to allow for consensus building and more understanding by Nigerians. However, the President rejected the position of the 36 governors and insisted the reform bills should go through the legislative process while inputs can be made at public hearings.

It remains curious that despite claims by the Presidential Tax Reform Committee on due diligence in carrying onboard all relevant segments before the draft bills, including holding consultations with the Nigeria Governors Forum, Federal Executive Council, states’ finance commissioners, students and others, there is still dissent in the final stages of passing the law.

Obviously, these disagreements are manifestations of a flawed and dysfunctional federal system. There ought to be a decentralised tax administration that will seek to stimulate competitiveness and economic growth among states, rather than revenue sharing without productivity. That is not acceptable when practically all states have resources they can develop optimally for their benefits.

Considering that the tax reforms are crafted and touted to be progressive, President Tinubu should summon courage to embark on wholesale restructuring of the federal system, not just the revenue aspects that will yield more money for the government to spend; but a retooling of the entire fiscal governance infrastructure that supports true federalism.

States should be empowered to utilise consumption taxes in their respective jurisdictions in addition to other fiscal opportunities accruable to them in the federal system. The Federal Government should not be seen to be empowered by the Constitution to dictate taxation to sub national governments. The recommended solution is true federalism. (The Guardian Editorial)