Business

Tinubu’s tax reforms and ending overreliance on borrowing to fund expenditure

Abuja Bureau Chief, LEON USIGBE, writes on President Bola Tinubu’s goal to end overreliance on borrowing to fund government expenditure with the establishment of the Presidential Committee on Fiscal Policy and Tax Reforms.

LAST week Tuesday, President Bola Tinubu inaugurated the Presidential Committee on Fiscal Policy and Tax Reforms headed by Taiwo Oyedele, with the task to address the broad fiscal challenges facing the nation’s economy.

The committee, made up of experts from both the private and the public sector, has a mandate divided into three broad areas of fiscal governance, tax reforms and growth facilitation.

Within the scope of this mandate, according to the president, “the committee shall have as its objective the advancement of viable and cost-effective solutions to issues such as the multiplicity of revenue collection agencies, the high cost of revenue administration, the excessive burden of compliance on ordinary taxpayers, the lack of effective coordination between fiscal and other economic policies within and across levels of government and poor accountability in the utilisation of tax revenues.”

Nigeria’s ranking is low on metrics such as the ease of paying taxes and tax to GDP ratio and, as the president pointed out, it is one of the lowest in the world and below the African average. With that in mind, Tinubu is set about improving the country’s revenue profile while hoping to make the business environment more conducive and internationally competitive.

“Our aim is to transform the tax system to support sustainable development, while, at the same time, achieving a minimum of 18 per cent tax to GDP ratio within the next three years,” he asserted.

The inability of the government to efficiently raise revenue is a worry for the administration as it directly leads to an overreliance on borrowing to finance public spending. But the president is aware that a government that cannot properly fund itself will also lack the flexibility or fiscal scope to sensibly manage the economy or respond to external shocks.

“Instead, debt service begins to consume an ever-greater portion of the government’s already meagre revenues. This traps the economy in a vicious cycle of borrowing simply to service previous debt and leaves almost no scope for socioeconomic development,” he observed. Because of this, he vowed: “As president, I am determined to end this cycle.”

Therefore, the Oyedele committee has been charged to produce a report that covers tax reform, fiscal policy design and coordination, harmonisation of taxes and revenue administration, among others. It is empowered to make recommendations and provide practical support to the government in the execution and delivery of the recommended changes to ensure seamless implementation.

It has a period of one year to achieve its mandate but is required to deliver a schedule of quick reforms which can be implemented within 30 days in the first instance, and recommend critical reform measures within six months, while full implementation will take place within a calendar year.

The government wants to halt tax on investment or production, and it shifts focus on returns, income, and consumption. There will also be a move away from a multiplicity of revenue collection agencies in the country just as effective solutions will be evolved to the excessive cost of revenue administration and the excessive burden of compliance on ordinary taxpayers.

“This government will tax fruits, not seeds,” Tinubu told the committee, adding: “We cannot continue to tax poverty when we should be promoting prosperity. The goal is to promote investment and facilitate economic growth as a sustainable way to grow and diversify government revenue while being mindful to ensure fiscal stability for all stakeholders, including investors and businesses, both domestic and foreign, as well as all tiers of government.”

To achieve the stated objectives, experts say government must deal with outdated tax laws and the trust deficit among citizens and organisations. The Chairman of the committee, Oyedele, has signaled that this is a challenge that will be tackled head-on.

“Public willingness to pay taxes is strained because of a lack of trust in government, both among individuals and businesses, irrespective of size. The burden of tax falls heavily on those who comply, while those who evade often get away with little or no consequences. We need to change this,” he admitted.

There are other challenges such as the protracted and costly process of resolving tax disputes and inadequate mechanisms for many small businesses and vulnerable individuals to seek fair tax resolution as professional services are often beyond their means.

Oyedele is confident that they can be turned around. “Although these challenges may seem daunting, they also represent a unique opportunity for us to create a positive impact. We have the chance to revamp our tax policies for a more equitable system, modernise our laws to be adaptable and forward-looking, revitalise our revenue administration, enhance transparency in revenue reporting and exercise prudence in our spending.

“These challenges further provide a platform for us to mobilise revenue without introducing new taxes, and we can respond swiftly to our most pressing needs including measures to ease the impact of rising prices, reduce pressure on the naira and amend the laws to encourage remote work opportunities and foster job growth in the digital economy, especially for our teeming youths,” he assured.

With the establishment of the Presidential Committee on Fiscal Policy and Tax Reforms, experts believe that the Tinubu administration is in a strong position to develop a sound fiscal policy environment and as the president says, “a fit-for-purpose tax system” critical for the effective functioning of government and the economy.

This can be achieved according to Zaccheus Adedeji, the Special Adviser to the President on Revenue, who says “Nigeria has huge potentials for revenue mobilisation that should be sufficient to cater for our people without resorting to excessive borrowing which often crowds out the private sector and limits our ability to finance sustainable development, create jobs and prosperity for Nigerians.”

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