Nigeria's tax system has long been a subject of intense scrutiny and debate, with calls for reform echoing across the nation. The Federal Government (FG) has recently reiterated the urgent need for comprehensive tax reforms, emphasizing that the current system is outdated and plagued by inefficiencies.
This sentiment was strongly voiced by Mohammed Idris, the Minister of Information and National Orientation, during a national discourse organized by the Kaduna Chapter of the Nigerian Institute of Public Relations.
Idris highlighted the critical role of public relations in bridging the gap between the government and the public, especially as Nigeria embarks on these essential tax reforms aimed at spurring economic growth.
He stated, "All over the world, effective taxation is important as a source of financial power for governments to provide social services for their citizens." However, he acknowledged that Nigeria's tax administration system is overdue for reform due to design and implementation flaws, as well as the general attitudes of taxpayers toward taxation.
The proposed tax reforms are part of a broader strategy to overhaul Nigeria's fiscal landscape, which has been heavily reliant on oil revenues. This dependency has led to what economists describe as the "Dutch disease," where the non-extractive sectors of the economy have suffered stunted growth.
Despite its oil wealth, Nigeria's economic indicators have been bleak, with high inflation rates, escalating exchange rates, and a massive portion of the population living in multidimensional poverty.
The Tax Reform Bills of 2024 have sparked spirited debates within the National Economic Council (NEC) and the National Assembly. These discussions reflect Nigeria's democratic resilience and the commitment of political actors to build an economy insulated from external shocks. The reforms aim to transition from an archaic tax regime to a more progressive system that places businesses and people at the core of its principles.
One of the key changes proposed in the tax reform bills is the adoption of a derivation principle in the allocation of Value Added Tax (VAT) revenues. Under the current system, VAT revenue is allocated as follows: 15% to the Federal Government, 50% to the States and Federal Capital Territory (FCT), and 35% to Local Governments.
The new proposal suggests a slight adjustment, with the Federal Government receiving 10%, states receiving 55%, and local governments retaining 35%. This change aims to ensure greater equity and a larger pool available for distribution under a new consumption-based derivation formula.
The proposed reforms also address the issue of tax evasion and avoidance, which have been persistent challenges in Nigeria. The absence of compensation from the government, mismanagement of funds realized from tax remittance, and a lack of knowledge of civic responsibility are some of the reasons cited for high tax evasion rates. The reforms seek to improve tax administration and enhance the government's ability to generate more revenue by reducing the tax burden and improving the tax system.
Despite the potential benefits of the tax reforms, there are concerns about their timing. Senior Advocate of Nigeria, Mike Ozekhome, has pointed out that while the reforms "make sense," their timing is "problematic" given the economic strain faced by many Nigerians. The removal of fuel and electricity subsidies, coupled with the flotation of the Naira, has exacerbated the rising cost of living, making it challenging for citizens to absorb additional financial burdens.
Ozekhome advised the Federal Government to "stagger" the implementation of the tax reform bills, if passed into law, to mitigate the impact on the populace. He emphasized the importance of perception management and urged the government to work hard to renew public trust. "We should give the government the benefit of the doubt and trust them," he said, "but their timing is problematic, considering the economic challenges faced by Nigerians."
The FG has assured Nigerians that the tax reform bills would reduce economic burdens and drive sustainable development nationwide. President Bola Tinubu has directed the Attorney-General of the Federation, Lateef Fagbemi SAN, to collaborate with the National Assembly to address "genuine concerns" associated with the Tax Reform Bills before they are passed into law.
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