Tax Reform Bill: Monumental and Controversial Piece of Legislation

By Michael Olaogun

As the year 2024 was drawing to a close, the Nigeria’s political climate was engulfed with conversations and counter conversations on the proposed tax reform bill that is currently being considered by the Nigerian National Assembly. The imbroglio continues to carry in both religious and ethnic perceptions while the echos of political commendation and condemnation are louder. The proposed tax reform bill, a “brain child” of the executive arm of the government has been seen to hold the prospect for major changes in the Nigerian tax system by some, while others see it as another divisive instrument in letters. On the positive side, one of the major purposes of the bill is to reform Nigeria’s tax system with its colonial components as it is deemed unfavorable and requires reform, hence plundering the nation into revenue losses leading to slow pace of development.

As part of the efforts of President’s Bola Tinubu’s administration in addressing some existential challenges confronting Nigeria, he inaugurated the Presidential Committee on Fiscal Policy and Tax Reforms on the 8th of August, 2023 with a challenging mission – to examine the existing system of taxes and determine modifications that seem necessary. The committee no doubt has pushed forward ideas in a piece of legislation believed to be suitable in modernizing the existing tax system which does not give room for fair shares. The  current VAT law formerly known as the sales tax is part of the relics inherited from the military government. It was introduced in 1993 to succeed the sales tax introduced in 1986. The structure of the VAT sharing formula was meant to be arrived at through derivation of the actual sharing formula by introducing proportionality by population and equality each contributing 20%.

Fundamentally, the reforms are to bring fairness to the taxation system in a way that is most appropriate to the economic status of the country. Thus, the goal of the bill is to achieve a more accurate distribution of the VAT between the regions, and consequently contribute to economic development in the states.The reform bill predicts efficiency of collections of revenues as another benefit, while integrating informal sector that dominates the Nigerian economy but has been an avoidant in the remittance of taxes. This will create an opportunity to widen the tax base to spur the lasting development of the nation and the well-being of the populace.

As the opposing voices speak, the Northern Governors Forum voice is louder, vehemently condemning the proposed bill. TheForum opined that the amendments to the formula of distribution of VAT towards derivation is not a noble idea for the northern states. The governors have urged NASS to pull the bill to enable them to seek broader consultation. The Nigerian Labour Congress (NLC) and some political activists are equallyopposed to the bill urging that the bill be withdrawn for adequate national consultation, claiming that the current proposals can worsen the concentration of income and result in massive inequality.

On the positive, the piece of legislation, if passed could in many ways promote economic growth, especially through the formation of a stable and predictable fiscal environment. The majority of the businesses extend and make their capital investments where they understand the tax system comprehensively. The growth in the tax wedge is likely to lead to better results in terms of tax collection which can be spent to create a more efficient society.

However, the negative perceptions the bill has attracted may have affected the mind of some citizens who may have aligned with the assumptions attributed to it that – the taxes paid by individuals and businesses will have to go up. Though the idea behind the bill is to expand the tax net, there is the fear that it may subsequently result in the introduction of new taxes. If it eventually happened, it could extend pressure on the existing monetary demands of the taxpayers most particularly the SMEsand the low-income earners. While the tax reform bill has the potential to revitalize the economy, if businesses view this as an attempt to impose heavier burden on tax, then investment will be discouraged and the economy will not grow. This aspect is worrisome for Nigeria more than anything since it depends on FDI to power development and provide people with employment opportunities.

In all, the proposed tax reform bill is a way of modernizingNigeria’s tax system and improving the country’s revenue collection, and support of economic growth. Given the above, comprehensive and equitable tax reform needs to have the potential and willingness of all regions and stakeholders. Healthy debates as well as consultations among and between all stakeholders will be highly pertinent so that the bill will bring good change to the country as a whole when implemented.

Michael Olaogun is a researcher and social commentator. He wrote from Abuja, Nigeria. michaelolaogun2014@gmail.com