Sequel to the Tax Reform Bill proposed to the National Assembly by President Bola Ahmed Tinubu, there are indications that the road ahead to achieving an Act will be tough as economists have hinted that there may be the need to expunge some parts, albeit temporarily, to calm frayed nerves of stakeholders while more than 90 per cent of the consensus part progresses to an Act.
Aimed at overhauling the country’s tax system, the bills have sparked significant controversy, auguring a tough road ahead to an Act. While these reforms are intended to streamline tax administration, enhance revenue generation, and promote economic equity, they have drawn mixed reactions from various stakeholders, reflecting both optimism and apprehension.
The key components of the bills include consolidating existing tax laws into a unified framework, establishing the Nigeria Revenue Service to centralise tax collection, and introducing a phased increase in Value Added Tax (VAT) from 7.5 percent to 15 percent by 2030. The reforms also propose exemptions for small businesses earning below N50 million annually from corporate income tax and introduce a progressive tax structure for larger corporations. Additionally, excise duties on telecommunications services and adjustments to other revenue-generating mechanisms are included
However, critics argue that the bill is disadvantageous to some states and segments of the economy, especially regarding revenue allocation. They argue, for example, that increasing Value Added Tax (VAT) and introducing excise duties could exacerbate the cost of living, particularly for low-income households. Nigeria already faces high inflation, and the additional tax burden may further reduce disposable income for many citizens.
Speaking with NATIONAL ECONOMY, the chief executive at the Center for the Promotion of Private Enterprise, Dr. Muda Yusuf, cautioned that the proposal to increase VAT from next year would be contentious and controversial. Noting that the tax committee has argued that the proposal is to increase VAT on luxury products and exempt basic things, Yusuf stressed that the truth of the matter is that there are a whole lot of things that come under the VAT including raw materials, packaging materials, newsprint and other things that are still being covered by VAT. “So the idea of increasing VAT given the current economic condition—the current cost of living and cost of doing business, exchange rates, I think that should also be stepped down until a more auspicious period,” he said.
However, advocates argue that the reforms could modernise Nigeria’s tax system and align it with global standards, fostering long-term economic growth. Paul Alaje, Chief Economist at SPM Professionals, supports the VAT hike, suggesting it could generate essential revenue for public services.
Some state governments have expressed concerns about centralising tax collection under the proposed Nigeria Revenue Service, fearing it might reduce their fiscal autonomy and revenue independence. This is a critical issue given the varying economic capacities of the states.
Responding, the chief executive of Anthill Concepts Ltd, and member of the Board of Economists, NATIONAL ECONOMY, Dr. Emeka Okengwu, noted that the tax bill is not perfect. “But I think we should look at the merits and not the political dimensions. We want to do whatever we can do as a Nigerian project but the moment people begin to look at it from the dimension of sub-national interests the argument begins to fall flat on its face. We cannot transform our economy with the entitlement mentality—the handout thing that we have right now. Even if the new tax bill has flaws those flaws are blurred by the merits. The merits I see in it are that it is going to promote productivity and protecting those who are most vulnerable from paying tax. The tax bill is not without its faults but that is not enough for us to jettison it,” he said.
Adding to the argument, Dr. Yusuf stated that In order to make a success of these Tax Reform Bills, it is important to build as much consensus as possible. “I believe there are consensuses around a whole lot of provisions in the tax bills. There are provisions there to support the private sector to rationalise the number of taxes, to expunge obsolete laws in our tax regulations, to streamline the operations of our revenue agencies, to make tax laws much more efficient and a whole lot of such provisions. And just like the Chairman of the Presidential Committee on Tax Reform said there are about 200 provisions; and I can tell you that more than 90 per cent of those provisions are not controversial. So, my take is, let us isolate the controversial sections and move forward with those sections that are not controversial so that we don’t get stuck because of just 10 percent or less of the provisions because there are quite a number of those provisions that will be very beneficial to the economy,” he said.
“So for me, we should avoid anything that has to do with revenue allocation. These are some of the controversial and contentious areas. The main objective of this reform is to reform the tax system. The objective is not to be reforming allocation revenue so that we don’t lose focus on the essence of this reform. The essence of this reform is to reform the tax legislation. The issue of allocation is a completely different matter; it’s a politically sensitive and emotive matter. More importantly, it’s a constitutional matter.
“Only a few days ago, the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) drew the attention of the nation to the fact that the issue of allocation of revenue under the Value Added Tax (VAT) system is constitutionally the responsibility of the RMAFC. That is what is in the constitution; the Tax Reform Act cannot override the constitution. If an agency of government can come up with this counter-position I think we should take it seriously. So for me, I think we can step down anything that has to do with this allocation of revenue coming from VAT. I think if we take that out the temperature will reduce significantly. It’s very disturbing the way this matter has polarised the country. It’s not healthy for our democracy and the reforms that we desire to put in place. So, I would plead that we step down the aspect that has to do with the sharing formula of the VAT revenue,” Yusuf stressed.
While the government emphasises the long-term benefits, including increased public services and reduced poverty, public sentiment reflects skepticism. CEO of Global Investment Trade Company, Baba Yusuf, has highlighted the need for better public education on the bills to foster understanding and support.
The redirection of funds from the Tertiary Education Trust Fund (TETFund) to a Student Loan Fund has raised concerns about the sustainability of tertiary education funding. Experts fear this could lead to increased tuition fees for wealthy families while providing limited support for poorer students through scholarships and loans.
Commenting on the issue, social commentator, Alex Nwaogwugwu, cited that the Academic Staff Union of Universities (ASUU) has already objected to the proposal to progressively scrap TETFUND and use the bulk of the funds for the Student Loan Fund. “This is a very contentious and controversial area. I don’t think the academic community will support this, and in any case, ASUU has spoken against it. I’m sure the Vice Chancellors will not be in support of this because when you visit our public universities, it’s quite amazing the amount of impact that the TETFUND has had on the development of their infrastructure. You can feel it in many of our universities and polytechnics. This is evidently one area that is likely to elicit a pushback.
The reforms propose rebalancing regional tax allocations, with increased shares for economically weaker regions. This has been welcomed by some leaders as a move toward greater equity in national development
However, calls for deeper consultation with state governments, businesses, and civil society are growing. Governor Abdullahi Sule of Nasarawa State emphasised the importance of state-level engagement to ensure the reforms are practical and widely accepted
On the impact of the tax reform on foreign direct investment, Yusuf cited that we have agitations by investors in free trade zones. He said the free trade zones have a lot of investors who have invested heavily running into billions of dollars. They invested based on a particular policy regime. If there has to be a change in policy regime in terms of taxes there have to be much deeper conversations to minimise the shock of the new tax regime on these investments. “These are foreign direct investments that run into billions of dollars. They were put in place based on prevailing policy conditions. So if you are changing the policy conditions there have to be deep engagements to ensure that the shocks are minimal,” he stated.
