Tinubu’s Tax Reform Bill Conundrum: A Chance to Reform Nigeria Tax System

TINUBU’S TAX REFORM BILL CONUNDRUM: A CHANCE TO REFORM NIGERIA TAX SYSTEM.

By Saifullahi Attahir Wurno

In October 2024, President Bola Ahmed Tinubu sent a bill to the National Assembly seeking their approval to adopt a comprehensive reform on Nigeria taxation system. The bill titled ‘Presidential Committee on fiscal and Tax reform’ headed by Mr. Taiwo Oyedele. Many Economic intellectuals have referred the bill as one of this administration’s golden effort that showcase it’s willingness to address Economic problems in the country. Despite this effort by the President, surprisingly the bill has generated so much tension and debate leading to National Economic Council recommendation to withdraw the bill now until further deliberations.

As it can be seen, much of the uproar arises from the Northern part of the country.

Many blocs and high level individuals have voiced out their concerns and sense a motive to alienate the North economically if such bills were allow to see the light of the day. Among those that protested included Presidential Aspirants, some Governors, Senators, Islamic clerics, Politicians and some traditional rulers. The issue was that some of these politicians have ulterior motive to block anything good that come from a government as far as they are not the ones in charge.

The other section of protesters were some Clerics whose probably out of sympathy to the masses were seen during sermons cursing the government initiative to impose more taxes on the poor. Ironically, the bill was not about increasing taxes, but about regulating the existing laws, ways of redistribution, and even reducing the tax burden on the poor.

It’s obvious the North was sentimental against the bill. But it’s evident that most of those flaming the controversy were either unable to clearly analyzed the bill or were just motivated to push away anything that comes from Tinubu whether good or bad.

I was glad last week when the highly articulated House of Reps member from Kano, Abdulmumini Jibrin Kofa, who was a former House Committee Chairman on finance, and budget voiced out his opinion. Hon. Kofa was strongly in favour of the bills and was further able to explain it for about 30 minutes while discussing with Charles Anioglu on Arise TV.

If you could remember Hon. Jibrin Kofa was a three times House of Reps with vast experience on Finance, Appropriations, and Budget. He was the person that exposed the budget-padding scandal during the Buhari Administration. Abdulmumini was not only pro-North, but also a member of the opposition party NNPP. His ability to voice his opinion despite been an opposition member testify his strength of character.

Due to the heat generated by these bills, the Senate invited the Presidential chairman of presiding then bills Taiwo Oyedele, and the Director General Budget Office Tanimu Yakubu Kurfi to publicly enlighten the public and the respected Senators.

Taiwo’s presentation could remind you of Nasir El-rufa’i or Sanusi Lamido Sanusi in their youthful days. He was brilliant and experienced on tax policies working several years with big global Accounting Firms including the prestigious PwC (Price water Cooper). Tanimu Yakubu was also the former President Umaru Musa Yar’ adua Chief Economic Adviser. A very brilliant Katsina-born Economist.

In 2019, when there was public outcry about how the government was incessantly borrowing money to fund it’s projects, The former Nigeria Minister of Finance Zainab Shamsuna Ahmed stated that Nigeria has revenue problem not debt problem.

This is true because the government was always under pressure to spend more on the people and fund project they have falsely promise during campaigns. I think it’s better to actually come out and tell the masses the truth on how poor the government source it’s fund.

In 2023 budget of Buhari to the National Assembly, out of the N19 trillion budgeted, only N7 trillion was generated from revenue, while the remaining N12 trillion would be source as deficit, that’s a staggering 63% of our budget would be funded through loans! Ideally budget deficit should not be more than 3% of GDP ( gross domestic product), but in this case (2023) ours was more than 5%.

In comparison, during 2022 budget, Kenya with an economy of $150 billion, makes a budget of $29 billion, financed by about $20 billion through revenue they generated. So their budget deficit was $9 billion, that’s 25% while Nigeria’s was 63% !

The federal government has a duty to look at how it could carry out the huge projects it has promise although some are unnecessary for now.

Main source of Government revenue apart from natural resources extraction are mostly from taxes, rents, rates, export/import duties, fines, fees, and levies.There was also investment in bonds and mortgages.

Even our most reliable source of fund as a country, the crude oil was becoming a problem. Crude oil assets like Bonny, Bonga,and Forcados are already bleeding. Nigeria loses about 1 million barrels of crude oil per day through vandalization and illegal refineries.

During the 2006 debt crisis under President Obasanjo, we owed about $35 Billion, we paid $12 billion and $18 billion was cancelled for us after pleading. Today, 18 years later, our debt is close to $50 billion to foreign and another about $50 billion to domestic lenders.

Even Government-owned Enterprises ( GOEs) like Nigeria Railway Corporation, Nigeria Postal Services, Central Bank of Nigeria, Nigeria Television Authority, National University Commission, etc, were spending on themselves what they generated. In this kind of situation if you were the President how do you fund those projects.

The wise idea should be either to reduce the budget which usually lead to further devaluation of Naira, or to improve our sources of revenue generation making them more effective. It’s obvious that President Tinubu who was also the author of a 2012 book called ‘ Financialism: water from an empty well..’ chose the later.

So what was contained in this tax reform bill that generated such controversy ? In my little knowledge and from what I have gathered through reliable experts I would try to highlight on the key issues including the debate areas.

The bills presented were four; (1) Nigeria Tax Bill. (2) Nigeria Tax Administration Bill. (3) Nigeria Revenue Service Establishment Bill. And (4) Joint Revenue Board Establishment Bill.

Bill 1 and 2 is where all the neccesary measures to improve how revenues and taxes are collected including adjustment and exemption of tax payment from certain individuals or companies. It also discussed how the revenue would be shared after collection. It also discusses about value added tax ( VAT) new sharing formula. Below is the summary of the bills;

– Section 56 state the collection of 27.5% VAT as Company income tax but not on smaller companies with annual turnover of less than N20 billion. ( This is a welcome development as it would allow smaller companies to thrive rather than be burden with taxes).

– Section 59 talks about imposition of 4% development levy on companies to fund the NELFUND, National Information Technology Development Fund( NITDF) ,and the National Agency for Science and Engineering Infrastructure( NASENI)

-Section 62 talks about imposition of 5%/exercise tax on lottery, gambling and gaming income. This is a welcome idea, because sport betting today in Nigeria is one of the thriving businesses especially among the youth with turnover of several billions daily.

– The collection of VAT would be exempted on oil and gas, petrol , humanitarian goods, military equipment for security, electricity from TCN to DisCos, and many locally made products.

-Section 146 state the increase on VAT from 7.5% to 10% between now and 2026,and up to 15% by 2030. (Remember that currently Nigeria collect VAT of less than 5% which is already below even poorer neighboring countries).

– There was imposition of 5% telecommunications tax. If you could remember in 2022, the then Minister of Finance Zainab Ahmed suggested the increase in Telecommunication companies VAT to 5% which has generated tension and backlash including support to withdraw the bill by the then Hon. Minister Prof. Ali Fantami.

But looking at the amount of money generated from this sector, there is need for government to revisit the tax collected from such companies. In 2019 alone, Nigeria spent N3.2 trillion on calls and Data subscription. So collecting a 5% tax could amount to about N162 billion, this is not a huge burden on the companies profit, and in the long run would help Nigeria to bridge the gap between the huge budget deficit.

– On personal income tax, people earning less than N800,000 annually were exempted. Only those earning above N50 million get to pay 25% of personal income tax. There was also zero VAT on food, education healthcare, and some form of rents in the clause.

– On small and medium enterprise (SMEs), 90% of them were exempted from paying income tax, because only those with turnover rate of above N25 million annually were to pay the taxes. This tax too were to be collected only base on profits not the sole capital.

– – There was harmonization of education tax, NITDA tax, and NASENI tax to single 2% to fund NELFUND until 2030, this would reduce the companies burden of tax payment from 33.75% to 27% of their earnings.

– The most controversial area was on the VAT revenue sharing formula. The new proposal was for Federal Government to take 10%, States and FCT to take 55%, and Local Governments 35%.

-The VAT derivation model was for 60% to be shared to States based on derivation of the revenues, 20% to be shared based on population, and 20% to be shared equally between the 36 States.

– The VAT revenue would now be attributed based on actual location of consumption of the goods and services rather than based on place of remittance ( Headquarters). For example, Formerly, most of the aggregate tax payed by MTN, Dangote companies, or Banks was to the Lagos State because their headquarters were located there. And this is not in many States favour. But in this new arrangement, revenues would be shared based on the number of consumers that use MTN in their respective States.

The highest VAT collectors would be Lagos with 42%, Rivers with 16%and Abuja with 10%. Those in the bottom are Cross River and Imo State. Henceforth, VAT would be derived based on consumption and the current headquarter system would be abolish.

The other two bills 3 and 4 mostly discussed how the various Agencies responsible for revenue generation and tax collection would be consolidated in to one and federal Inland Revenue Services (FIRS) would be change to National Revenue Services (NRS). Hence all the revenues collected through Customs, NUPRC, NPA, and NIMASA would be harmonize.

The opinion of many intellectuals was that this Tax reform bill should be properly negotiated rather than be discard entirely loosing the chance to deal with the matter now and for all, despite the many good things it carried.

People were quite concern because of the bitter experience we are going through due to oil subsidy removal, and they were quite true and need to be sympathize with. Removal of oil subsidy was a child of necessity, It should not serve as the yardstick to measure Tinubu. We should have remove this subsidy since 2012 but same politicians Buhari,Tinubu, Fantami and Co protested against President Goodluck. Now we are paying it dearly.

I support subsidy removal on oil but not on education, healthcare, and agriculture.

I’m also not in support of Tinubu for not putting some measures to cushion the hardship caused by Subsidy removal like investment on public transportation, regulating the PMS price at least to a certain threshold. Our people should have learn from oil subsidy protest in 2012, where the whole country block the chance to early reform the matter since then.

I’m neither Pro Washington (Capitalist) nor Beijing ( communist) , but I do support Nigeria and Nigerians becoming more productive and responsible than our current state. That is possible when appropriate revenues are generated not only through oil but from all citizens too. If we all pay our taxes we find it more necessary to hold government responsible. But our current careless attitude of “who steal what” and “I’m waiting for my turn” is because we think the oil money is coming from somewhere.

In this current situation, Government have to look in overlook directions that may not necessarily impact the poor directly. Luxury taxes should be effected, Sin taxes have to collected on cigarette, alcohol, gambling, plastic bags,sugary drinks, betting, and Aluminium cans. A report have shown how several billions of Naira were spend on betting daily in Nigeria. Betting business is booming, So why not government to regulate the game and collect appropriate tax.

Nigeria remains the country with the cheapest alcohol and cigarette.Our tax to GDP on tobacco and alcohol in was 2.3% : 0.1% compared to Kenya where they impose 12.3% : 3.2% .

Exercise duties should be improved, like wise property taxes. People acquired several billion dollars Estates and properties in Kano, Abuja and Lagos without paying appropriate dues.

Over speeding on our roads too should be fined, this would not only reduce the accidents but be a source of revenues. Fines on environmental pollution should be in place. In Kenya Government use to tax politicians even on posters and bill boards during campaigns.

Wurno wrote from Federal University Dutse.

saifullahiattahir93@gmail.com