Ajibola Bello, Esq.
I have keenly followed the discussions trailing the presentation and legislative process for the passage of the composite Tax Reform Bills. The recent town hall discussion which was hosted by Seun Okinbaloye on Channels Television was quite commendable in assisting the masses have a buy-in to the Tax Reform.
As the saying goes that: “two things that are certain are death and taxes”, Nigerians cannot shy away from paying tax, but what is important is that the tax system must be trusted by Nigerians for them to cooperate with it. I believe that this cooperation is what the Reform Committee, led by Taiwo Oyedele, is aiming to achieve by availing himself for press briefings and town hall discussions, while he makes a case for the need for overhauling the tax system through the Tax Reform Bills.
The press briefing and discussion became more imperative, bearing in mind the agitation of the governors of the Northern Nigerian states who had contended that the proposed tax reform seem regionally biased, thereby giving it a political coloration. Also, times are currently very hard and the average Nigerian is not in the mood for further burden by way of taxation.
The contention of the northern governors is centrally hinged on the proposed derivation-based model for the distribution of the collected value added tax. The northern states seem to be crying afoul that their states are not as industrialised as their southern counterparts, hence, they would be shortchanged using the newly introduced sharing formula.
Upon a consideration of what the current tax regime is in Nigeria, and upon reckoning that the system is without a doubt, far from the requisite standard in terms of meeting the qualities and characteristics of a good tax system, this write up is to lend credence to the case for proposed tax reform.
The Tax Reform Bills is a conglomeration of four different Bills, put in two volumes/journals. The Journal No.72 contains three Bills which were to re-organise the collection of tax, create a new tax agency to be known as Nigeria Revenue Service, and also re-organise the enforcement of tax and tax dispute resolution. The fourth Bill which is captured in the Journal No.73 seeks to repeal certain existing multifarious taxes, while streamlining the taxes in Nigeria into a single code.
Upon a perusal of the four Bills, what comes to mind is the longstanding principle that an effective Tax System must reflect certain characteristics which includes: fairness, simplicity, transparency, and administrative ease. Not to score the Tax Reform, but by way of evaluation, one can say that the proposed tax structure reflects the said characteristics to a large extent.
With regards to fairness, which in other words means that tax should be equitable in that taxable persons in varying categories should pay what is proportionate to their categories. Conversely, a group that generates the tax revenue should get higher proportion of distribution. To put it into context, the Tax Reform Bills promotes equity in that progressive tax rates are introduced to ensure that high-income earners contribute proportionally while exempting low-income earners, including minimum wage recipients.
The controversy over the distribution of collected VAT should also be viewed from the lenses of equity in that while the current derivation is 20%, the Bills proposes to increase the derivation for states and local government to 60%. What is more significant is that states where the VAT, (being a consumption and service tax) is generated will now benefit more. This is better as it permits distribution of wealth. For Clarity, where a good is produced in Lagos, and it is consumed more in Sokoto, a higher tax distribution will go to Sokoto. Unlike what was hitherto obtainable, where the higher distribution goes to state where the head office of Producer is situate.
With regards to simplicity, it is instructive to note that under the proposed regime, over 50 nuisance taxes and levies are repealed under the reforms, thereby consolidating the legal framework for tax in Nigeria into a harmonized single-digit system to ease reference, compliance and reduce costs for businesses. With the proposed regime, taxes such as bicycle tax, wheel barrow tax, radio and television tax and some other archaic taxes are to be done away with. Moreover, administration is to be simplified with technological inputs under and enhanced tax infrastructure for assessments and filing, which will encourage compliance. This is because there is a capture of economic activity from inception to conclusion. Therefore, taxpayers will no longer have to worry about where to pay and who to pay to (recall the VAT issue between Rivers State and FIRS). Also, the new regime is intending to eliminate multiple tax collections by agencies of government under various guise, while the Nigeria Revenue Service will be the focal entity for same.
With regards to transparency, one must reckon with the fact that the leakages in the system of taxation affects accountability and once a system is unable to have a central collection, it’d be difficult to achieve transparency. The current regime of radio and television, bicycle and wheel barrow and other related colonial taxes that have become entrenched in some states and local government systems have been lost in records and are unaccounted because the system is not holistic. The collection of such taxes however places burden on the downtrodden and micro businesses. The proposed regime seems to attempt a holistic collection and redistribution which makes it easy to account. Going forward, citizens can challenge entities levying unwarranted taxes as there will be no hiding place once the tax regime is codified into a single-digit framework.
Administrative ease or efficiency requires that what is to be expended for the collection of tax should not be more than the tax to be generated. With the introduction of a simplified system, the cost of administration of tax should reduce to a bearable minimum, while the blockade of leakages should automatically result in the increase of revenue generation.
On a general note, one can say that there is huge prospect in the Tax Reform Bill for the correction of economic and regional disequilibrium existent amongst the Nigerian states. Through the tax reform, states are now further encouraged to increase their internally generated revenue through economic activities that will lead to consumption of goods and services. Contrary to the apprehension of the governors of the northern states, it has been demonstrated that states in the north who consume products that are manufactured in the south can now have increased rate of distribution of VAT as against the current situation. Meanwhile, the low-income earners and small companies (companies whose revenue is not more than N50million) in every state in Nigeria including the north, can now enjoy tax exemption which serves as a buffer to adjust to the current economic situation. The graduated reduction by 5% can also attract businesses to every part of the country and specifically for the north that is more agriculture inclined, it is worthy of note that there is exemption from tax on agricultural equipment while 0% VAT applies to food, education, and healthcare services.
What the foregoing indicates is that there are a lot of positives for the socio-economic advancement of Nigeria in the Tax Reform Bills. However, it must be borne in mind that it is not all rosy with the Bill bearing in mind the hint of the government to generate revenue through the progressive rate of VAT from 2025. It must be borne in mind that businesses in the country are going through the hardest of economic times in view of forex, energy cost, high overhead cost, import duties, employee salaries in view of new minimum wage. While multiple taxation may be eliminated, these are other features that needs to be put into consideration for generation of tax especially from businesses.
That notwithstanding, it will be ideal to have the Bills go through the legislative process by ensuring a holistic debate on the provisions for the benefit of Nigerians as we eliminate the portions of the Bills that may have economic backlash.
More importantly, the general feature of the Tax Reform Bills largely meets the core characteristics of a good taxing system, hence, it is a valid basis for Nigeria to overhaul the current tax system and proceed to passage of the Tax Reform Bills into law.
Ajibola Bello is a Legal Practitioner
and Deputy Managing Partner at
Law Corridor, Abuja.
ajibola@lawcorridor.com
