The contested tax reform bills

THE Presidential Committee on Fiscal and Tax Reforms chaired by Taiwo Oyedele recently presented a reform bill to the Federal Executive Council, which was approved and submitted to the National Assembly for passage. The committee, tasked with harmonising multiple taxes and levies across various levels of government, aims to streamline revenue collection, modernize tax administration, and integrate technology to enhance revenue generation. The committee’s goal is to raise Nigeria’s tax-to-GDP ratio to at least 18 percent by 2026, fostering sustainable development. Subsequently, on October 3, President Bola Tinubu sent four tax reform bills to the National Assembly, intending to revise and modernize Nigeria’s tax laws. These bills were referred to the House Committee on Finance for review. The bills include: 1. Nigeria Revenue Service (Establishment) Bill, 2. Nigeria Tax Bill 3. Nigeria Tax Administration Bill 4. Joint Revenue Board (Establishment) Bill.

These bills have attracted controversy, with the third bill, 0titled “An Act to Repeal Certain Acts on Taxation and Consolidate the Legal Frameworks Relating to Taxation and Enact the Nigeria Tax Act to Provide for Taxation of Income, Transactions and Instruments, and for Related Matters,” encountering strong opposition from stakeholders. Recently, northern governors and traditional rulers convened a meeting where they unanimously rejected the bill, claiming that it did not adequately serve the interests of the northern region or other sub-national entities within Nigeria. The Northern Governors’ Forum led by Governor Muhammed Yahaya of Gombe State articulated their concerns particularly regarding the derivation-based model for Value-Added Tax (VAT) distribution. They argued, quite strangely in our own view, that this model could disproportionately disadvantage their region, leading to potential economic imbalances.

The ongoing debate highlights the complexities of tax reform in a diverse country like Nigeria, where regional interests often collide with national fiscal policies. As discussions continue, the government may need to consider alternative approaches to addressing these concerns while still pursuing the necessary reforms. Section 146 of the bill proposes a gradual VAT increase from 7.5 percent to 10 percent in 2025, reaching 12.5 percent between 2026 and 2029, and 15 percent by 2030. VAT calculations would include the total consideration in monetary transactions and market value in non-monetary exchanges. In cases involving related parties or non-monetary exchanges, the taxable value would be determined by equivalent market rates. Government entities would be required to withhold and remit VAT to the tax authority. Certain supplies, such as oil and gas exports, baby products, and humanitarian aid, would be exempt from VAT. The National Economic Council (NEC) led by Vice President Kashim Shettima and comprising the 36 state governors has advised the withdrawal of these Tax Reform Bills to allow for broader consultation. Following the council’s 145th meeting in Abuja, NEC recommended engaging with stakeholders to better align with the interests of the constituent states.

At the heart of the ongoing debate surrounding a derivation-based revenue model for Value Added Tax (VAT) lie issues of equity and the fair distribution of national resources. We believe that adopting a fair, derivation-based approach to VAT is more aligned with the fundamental principles of federalism. The model promotes better resource control at the sub-national levels, ultimately fostering growth and development in various states. The Presidency is right to pursue this step, and we categorically reject any suggestion that adopting a derivation-based approach is against the interest of any part of the country.  By allowing state governments to retain a greater share of the revenues generated from resources extracted within their boundaries, this approach could incentivize state governments to invest in infrastructure, education, and health services, thereby enhancing the overall quality of life for their citizens. Such a system is reminiscent of the policies implemented during the First Republic, which emphasised regional autonomy and aimed to promote healthy competition among different areas. This historical perspective underscores the potential benefits of a derivation-based model, as it encourages states to harness their unique resources and strengths effectively. By revitalising these principles, the debate highlights the need for a more equitable framework that not only addresses current disparities but also builds a stronger foundation for sustainable state and local development.

For governors and other public officials, this situation presents a unique opportunity to prioritise internally generated revenue (IGR) through the implementation of innovative policies and strategies, thereby reducing their reliance on federal allocations. By focusing on IGR, state governments can cultivate a more sustainable economic environment, enhancing their capacity to fund essential services and infrastructure projects that directly benefit their constituents. Additionally, this shift underscores the pressing need for a balanced approach that emphasizes mutual benefit and state government accountability, ensuring that all stakeholders, including local governments, are aligned in their efforts to promote economic growth and social equity.              It is a travesty of justice for some sections of the country to foster a culture of parasitism, which undermines the potential for a truly symbiotic relationship among the various components that make up the nation. This lack of mutual support and collaboration not only stifles growth but also perpetuates inequality and resentment among different states and localities. Ideas rule the world, and it is imperative that state governments harness innovative approaches to generate more revenue independently. The current excessive dependence on the federation revenue pool is not only unsustainable but also detrimental to the development of a self-reliant economy.

To rectify this situation, the sharing of revenue among the various levels of government must be carried out in a manner that actively promotes healthy competition in revenue generation among sub-national governments. When states are encouraged to innovate and find unique solutions to their financial challenges, it fosters an environment where creativity and entrepreneurship can flourish. This, in turn, leads to a more robust and diversified economic landscape. A cooperative yet competitive approach to revenue generation will empower all states, allowing them to contribute meaningfully to the nation’s overall prosperity.

It is not  enough to significantly improve tax collection efficiency and broaden the tax base. There must be accountability for every naira of tax revenue spent by public officials. A comprehensive and well-structured tax reform strategy must lay the foundation for a more transparent and accountable government. Only then can Nigeria attain an equitable society, where every citizen has the opportunity to thrive and contribute to national development. Furthermore, it is imperative that these reforms incorporate participatory approaches, allowing citizens to engage in the decision-making process. This will not only enhance transparency but also ensure that the voices of the most affected populations are heard and considered.

READ ALSO: Bode George to Sanwo-Olu: Regulate street trading, don’t treat traders like criminals