Tinubu’s tax reforms and imperative of fiscal federalism|Editorial Board
The seemingly unending contentions trailing the federal government’s tax reforms are to be appreciated as a manifestation of Nigerians’ diversity and the multiplicity of conflicting interests. These may ultimately signpost a necessity of decentralising rather than generalising fiscal and monetary issues, including tax reform and tax collection. The resurging issues on tax incidence, revenue collection and corporate or individual responsibilities in this tax reform issue indicate the wide divisions in the country concerning who pays tax and who benefits among others.
The core issue is that the size of the cake or tax collection has not been large enough, and every stakeholder wants to be on the receiving side and not on the paying side. These have been the emerging issues in the public hearings on the four tax reform bills, namely the Nigeria Tax Bill, the Joint Revenue Tax Board Bill, the Tax Administration Bill and the Nigeria Revenue Service Bill.
Major contentions that have come from the Nigeria Customs Service (NCS), the Trade Union Congress (TUC), the Manufacturers’ Association of Nigeria (MAN) and the Supreme Council for Shariah in Nigeria (SCSN), among others indicate some of the differing perspectives on the country’s fiscal federalism and thus indicate that over-centralisation of fiscal and revenue matters need to be looked into as the current situation of unproductive contentions constitute a cog in the wheel of progress for the country’s economy cutting across the various tiers of government.
According to statistics from the multilateral organisations as well as from official sources within the country, tax collection in Nigeria is still at a very low level. The ratio of tax to the gross domestic product (GDP) which was approximately 9.4 per cent in 2023 according to the Chairman of the House of Representatives Committee on Finance, James Faleke but has fallen to as low as six per cent presently given the address of the Speaker of the House of Representatives, Tajudeen Abbas.
This is a far cry from the World Bank minimum benchmark of 15 per cent that it considers necessary for sustainable development. In comparison to that of other countries within Africa, the tax-to-GDP ratio is lower than South Africa’s 21.6 per cent, Senegal’s 19.1 per cent and Kenya’s 14.1 per cent. So, there is this obvious challenge of generating more revenue into the public coffers, and the key issue is that the various pressure groups are clamouring for how it can pay less tax while, in the same vein, maximising its benefits from the government.
Emanating from the hearings of the House of Representatives Committee on the Tax Reforms is the fact that only nine per cent of companies registered in Nigeria are captured in the tax net and that only about 35 million Nigerians actually pay tax. The frequent resort to borrowing is accentuated by this sorry state of a humongous shortfall between what is required to service the workings of government in the delivery of public services and the collections from the various types of taxes. That is the dilemma of the government tax reforms, and the Oyedele Presidential Committee indeed had its work clearly cut out for it. However, some of the contentions by some of the stakeholders appear self-serving.
Overall, the clear issue agreed to by everyone is that Nigeria’s tax laws have remained largely unchanged for so long and are thus no longer in tune with current economic realities. However, divergent issues based on religion, such as the imposition of tax on properties inherited by adherents of the religion, may not be accepted by all.
The adoption of technology in facilitating the revenue collection process, which was also questioned based on religious and regional viewpoints, clearly indicates that the quest to enhance national revenue through taxation will continue to suffer setbacks until the decentralisation of the tax collection process is pursued vigorously.
The viewpoint by some that many Nigerians lack the necessary skills and technological know-how to comply with digital Value-Added Tax (VAT) returns appears unnecessary and thus suggestive that the provision in the Nigeria Tax Administration Bill that mandates the adoption of advanced technology for tax assessment and collection is not relevant.
This assertion should not be sustained as the deployment of technology currently cuts across the various aspects of human endeavours, and the country’s tax administration should not be left out in this. The position of the NLNG on the avoidance of double taxation in relation to contract agreements, already subjected to VAT and the use of stamp duties to collect revenue appears plausible while the fear by the NCS that the tax reforms could legislate it out of existence appears the adoption of posture by the NCS to resist change. On the other hand, the position of the TUC and the SCSN opposing the increase of VAT from 7.5 per cent to 15 per cent are all issues of concern.
As a country, what should be of major concern is to first accept that the reforms are necessary and second that the decentralisation of the tax collection process should be prioritised in the final document. This should also reflect in the tax benefit derivation process such that states would be forced to look inwards in revenue generation, knowing that their economic fortunes would be tied to their revenue collection efforts. This tax reform process should be a necessary first step in revamping the country’s fiscal federalism structure such that competition and not contention for resources would be given the upper hand in the country’s fiscal administration.
Overall, the critical issue is for the government to conduct economic government by enhancing the business climate and not adopting a “tax and spend” economic strategy, which often is counterproductive. The promotion of a conducive business operating environment is more important than generating all the required revenue, which invariably could enhance corruption in the management of public resources as well as create a bogus structure of an enhanced and unproductive high cost of governance. Tax reforms alone cannot give the required boost to the economy. It needs to be complimented by other economic strategies to salvage the economy from its current unstable state.
Credit:The Guardian