In an unprecedented bid to address Nigeria’s long-standing revenue challenges, the Presidential Fiscal Policy and Tax Reforms Committee, under the guidance of President Bola Tinubu, has introduced sweeping reforms aimed at reshaping the nation’s tax landscape. These reforms, if implemented successfully, could mark a significant shift in the country’s fiscal policy, impacting both individual taxpayers and businesses.
Background and Motivation
Nigeria has grappled with a low Tax-to-GDP ratio, one of the lowest globally and significantly below the African average. This low tax revenue has contributed to an overreliance on borrowing, placing constraints on public spending and economic growth. Debt servicing now consumes a large portion of Nigeria’s revenue, reducing funds available for essential socio-economic development projects.
In response to these persistent issues, President Tinubu’s administration established the Presidential Fiscal Policy and Tax Reforms Committee. This committee’s mandate is clear: overhaul Nigeria’s tax system to enhance revenue generation, improve the quality of government spending, and introduce sustainable debt management strategies. Additionally, it seeks to make Nigeria a more attractive destination for investors by simplifying tax processes and reducing bureaucratic hurdles for businesses.
Key Objectives of the Reform
The committee has laid out several critical objectives:
1. Harmonizing Multiple Taxes: Simplifying tax collection at all levels of government by reducing the number of taxes and making them broad-based.
2. Unifying Revenue Collection: Moving toward a single agency per government level to reduce administrative costs and improve efficiency.
3. Modernization of Tax System: Using technology for revenue administration to curb evasion, streamline compliance, and enhance transparency.
4. Data-Driven Decision Making: Leveraging data to combat tax evasion and reduce loopholes, encouraging a culture of compliance.
5. Reducing Business Impediments: Removing provisions that hinder economic growth, thus promoting ease of doing business.
6. Enhanced Revenue Utilization: Ensuring that tax revenues are channeled effectively toward public goods, boosting citizen morale and fostering compliance.
One of the primary goals is to achieve a Tax-to-GDP ratio of at least 18% by 2026. If successful, this ratio could potentially double Nigeria’s tax revenue over the next three years.
A Reform Process Rooted in Inclusivity
The committee has emphasized inclusivity throughout the reform process, involving stakeholders from diverse sectors. Over 80 individuals from various government institutions, private sector organizations, professional bodies, and civil society were selected to contribute to this initiative. This broad representation was crucial to gather input from all regions and backgrounds.
To ensure that voices from all walks of life were heard, the committee held tailored sessions with sectors representing over 90% of Nigeria’s economy, as well as focus groups for people with disabilities, young people, and the diaspora. Consultations were also held with financial executives, journalists, tax consultants, and public analysts. The committee received feedback from all 36 states, making the proposals as representative as possible.
Understanding the Controversial VAT Proposal
One of the most debated aspects of the reform is the proposed changes to Value-Added Tax (VAT) administration. Currently, disputes over VAT collection and revenue-sharing have created a fractured system, often leading to court cases. VAT is not directly mentioned in Nigeria’s 1999 Constitution, creating a legal vacuum that complicates its administration.
The reform aims to streamline VAT collection by establishing a central authority. The new formula for VAT distribution is designed to ensure that states benefit equitably, especially those with fewer corporate headquarters. Under the proposed model, VAT will be attributed to the place of consumption rather than the state where the company is headquartered, promoting fairer revenue distribution. This change has met with mixed reactions, as some states fear reduced revenue. To address these concerns, the federal government has proposed a 5% equalization fund to compensate for potential shortfalls.
Restructuring Corporate Taxes to Stimulate Economic Growth
Another key element of the reform is aimed at reducing the tax burden on businesses. The proposal includes a reduction of corporate income tax from 30% to 25% over the next two years, along with the elimination of various earmarked taxes. Small businesses are particularly poised to benefit, with reforms proposing exemptions from Withholding Tax (WHT), VAT, and a zero-percent Corporate Income Tax (CIT) rate for qualifying entities.
Additionally, minimum tax requirements for loss-making companies and those with low profit margins are set to be scrapped. These changes, along with increased VAT credits for business assets and services, are expected to reduce investment costs, enhance business competitiveness, and attract more foreign and domestic investment.
Lower Personal Taxes and Broader Exemptions for Ordinary Nigerians
The reform is not solely focused on businesses; it also includes provisions to reduce the tax burden on low- and middle-income earners. Proposed changes to personal income tax bands and rates will provide relief for many Nigerians. Individuals earning around 1.7 million naira or less per month will pay less in Pay-As-You-Earn (PAYE) tax, while those at the minimum wage level will be fully exempt.
The VAT reform further includes a zero-percent rate for essential items such as food, education, healthcare, and public transportation. These provisions are intended to cushion lower-income households against rising living costs, benefiting about one-third of Nigerian workers.
Technological Integration and the Role of the Tax Ombudsman
A major feature of the reform is the integration of technology into tax administration. This shift is expected to improve transparency, reduce evasion, and streamline compliance. A new role, the Tax Ombudsman, is also set to be introduced to safeguard taxpayer rights, particularly for vulnerable individuals and small businesses, and to ensure the system is fair and responsive.
Addressing Skepticism: What Sets This Reform Apart?
Nigeria has seen various tax reform initiatives in the past, but the current effort is distinct due to its commitment to implementation. Unlike previous reform efforts that focused on recommendations, this committee is actively involved in executing its proposals, aiming to create lasting institutional changes through legal frameworks and technology.
The new policies are underpinned by an evidence-based approach and a strong focus on sustainability. The committee has planned measures such as whistleblower protections and tax amnesties to reduce corruption and tax evasion, which have long undermined Nigeria’s revenue potential.
A Comprehensive National Fiscal Policy Framework
The reforms go beyond tax laws; they are part of a larger National Fiscal Policy aimed at responsible borrowing, fair taxation, and sustainable spending. This policy includes frameworks for cash transfers, environmental and social governance (ESG) standards, and sustainable development goals, aligning Nigeria’s fiscal strategies with broader social and environmental objectives.
Looking Ahead
The proposed tax reforms represent a bold move to address Nigeria’s revenue crisis, enhance economic competitiveness, and reduce the tax burden on citizens and businesses. While there is no guarantee of success, the comprehensive nature of these reforms—rooted in broad-based consultation, modernized processes, and equity-focused measures—marks a promising step toward sustainable economic growth.
For more information, stakeholders and the general public can reach the committee on its social media handles and official website, fiscalreforms.ng. The committee is encouraging all Nigerians to stay informed and engaged in this transformative process, as the success of these reforms depends on the participation and support of the entire nation.
