Sometimes in November 2023, a violent fight broke out on one of the popular roads in OTA Ogun State between “contract tax collector” and shop/ business entrepreneurs over uncoordinated multiple tax system via Local government Levies, State and Federal Tax demands.
Unfortunately,the fight led to a shop keeper being stabbed and the contractor and the accompanying thugs fleeing the scenes. I can also recollect vividly that a few years ago, my local government also contracted out tenament fee collection to a popular land thug.
The kingpin sent thugs smoking Indian hemp and some unknown psychotropic substances to accompany the untrained “tax collectors”.
I also remembered that the Community Development Association( CDAs) resisted the so- called tax collectors by petitions and several meetings with relevant authorities until all the shenanigans stopped.
Meanwhile, large corporations and highly connected owners of businesses and government contractors in Nigeria often exploit loopholes to evade taxes while small-scale entrepreneurs struggle under draconian Tax regimes which the public believes would be stolen for personal use.
Also and importantly so, is the the Value Added Tax,VAT, which has grown more contentious in recent time to the extent that it’s presence in the Nigeria Tax Bill Reform is threatening the effort of the passage of the Bill into law.
It is therefore absolutely important that rethinking be done and solutions be found so that the Bills are supported by all active Nigerians voceferously.
It must not be allowed to be killed.
In my own opinion, President Tinubu’s proposed tax reform bill seeks to address numerous challenges. It promises to simplify the tax system, enhance compliance, and create a more equitable framework for all Nigerians. But beyond the technicalities, this bill represents an opportunity to unlock Nigeria’s productivity, drive sustainable growth, and foster prosperity for generations.
Will it aid productivity?
Absolutely so. A fair and efficient tax system does more than collect revenue—it empowers citizens.
For business owners like Folarin, a software entrepreneur in Lagos, the current tax system is a maze of inefficiencies that drain resources and time.
“We spend so much effort navigating taxes when we could be innovating and growing,” he explains.
The proposed reform aims to simplify processes, enabling businesses to focus on what they do best: creating value.
By leveraging technology for tax collection, the reform reduces bureaucracy, cuts corruption, and ensures that taxes collected reach government coffers.
Let’s examine some global Lessons quickly.
Rwanda’s tax reform offers an inspiring precedent. By digitalizing tax systems and expanding their base, Rwanda improved compliance rates and directed revenues toward infrastructure and education.
Nigerian businesses, from artisans to conglomerates, could experience similar benefits under a streamlined system.
What about the Uniqueness and originality of the reform?
What sets this reform apart is its inclusivity and forward-looking approach.
Unlike previous attempts, it introduces progressive measures that ensure the wealthy contribute their fair share while shielding low-income earners.
Additionally, the reform seeks to broaden the tax base, bringing the informal sector into the fold.
This move is vital in a country where informal businesses account for over 60% of GDP.
Through targeted education campaigns and incentives, these businesses can transition into the formal economy, unlocking their potential and driving national growth.
A particular window that the publisher of New Dawnngr.com was interested in opening is the Short- and Long-Term Impacts of the Bills put together. And, what did we found? In the short term, the reform is poised to increase government revenue, which we at New dawn believes should be directed toward critical sectors like healthcare, education, and infrastructure. Imagine Fatima’s market benefiting from better roads or her children attending schools with adequate funding.
These immediate impacts can improve lives and build trust in the government.
As for long-term; the reform lays the foundation for a diversified economy less dependent on oil. By fostering compliance and reducing evasion, it creates a stable revenue base to fund Nigeria’s ambitious development goals.
There are many countries from where we can draw inspirations.
India is one of them. Goods and Services Tax (GST) reform, introduced in 2017 by the government of India unified multiple taxes into a single system.
The reform not only increased revenue but also made India more attractive to foreign investors.
Nigeria’s proposed reform has the potential to achieve similar outcomes.
What about it’s comparative advantage?
With the African Continental Free Trade Area (AfCFTA) in motion, Nigeria stands at a crossroads.
A reformed tax system could position the country as a competitive investment destination.
For example, Kenya’s post-reform tax policies in the early 2000s attracted significant foreign investments, boosting manufacturing and job creation.
By adopting a similar path, Nigeria could leverage its vast market and resources to become a hub for regional trade and production.
This competitive edge would not only attract investors but also create a ripple effect, generating employment opportunities and fostering economic inclusivity.
This bill is too important to be rushed, suspended or trickily dismissed.
A thorough debate ensures the reform addresses the needs of every Nigerian, from Fatima in Kano to Folarin in Lagos and Chinedu in Aba.
It also builds consensus, ensuring that the reform has the political will and public buy-in necessary for successful implementation.
Critics might argue that tax reforms are complicated or unpopular, but the experiences of countries like Rwanda and India show that the long-term benefits far outweigh the initial challenges.
Although some of the governors opposing the passage of the Bill are backtracking now, yet it is important that we say few words about their concerns over the VAT, explain our understanding of the issues and proffer some solutions to it.
Foremost, the issue of VAT (Value Added Tax) in relation to derivation in Nigeria is a complex but crucial aspect of fiscal federalism. It has been a contentious topic because it touches on revenue sharing, economic equity, and state autonomy.
Here’s an independent opinion on the matter and suggested resolutions:
*Let’s first examine the Derivation Principle in Nigeria.*
The derivation principle ensures that resource-producing regions receive a portion of revenues generated from their territories.
This principle currently applies more prominently in oil and gas revenue sharing than in VAT distribution.
Meanwhile, the VAT is centrally collected by the Federal Inland Revenue Service (FIRS) and shared among the federal, state, and local governments based on a predetermined formula; viz population size.
A significant point of contention arises because states with higher economic activity, like Lagos and Rivers, contribute disproportionately more to VAT collections but receive relatively less due to the current redistribution formula which is strangely based on population (population figures itself are not readily verifiable).
The growing controversies are that the proponents of derivation-based VAT argue for state-level control, asserting that VAT is generated by local consumption and should benefit the producing states.
Opponents warn that this could lead to inequity, as less economically active states especially in the Northern states might face fiscal crises, deepening regional disparities.
But as Otitoju in a Television program (Journalist Hangout) rightly pointed out, since states like Ekiti also takes little from VAT because of her population presently and it couldn’t be argued that anything is deliberately skewed against the Southwest because of that.
If the VAT derivation issue is unresolved, potentially, it could polarize state governments and derail broader reforms aimed at increasing government revenue through efficient tax administration.
Arguably, resistance from resource-rich states may undermine confidence in the fairness of federal tax policies.
But there could be ways to put guard rails along the way to the ultimate goal.
Here are some suggestions for resolving the VAT-Derivation Dilemma.
*Adopt a Hybrid VAT Model:*
1.Introduce a system where a percentage of VAT is retained by the producing state (e.g., 30-40%) while the rest goes into the central pool for redistribution based on need and population.
This balances incentives for states to put in the work, seal all leaks and grow their economies with national equity.
2.Encourage State-Level Tax Innovation:
States should be empowered to introduce or enhance local taxes that complement VAT. This provides an alternative revenue stream while maintaining a robust federal VAT system.
3.Establish a Derivation Adjustment Fund:
Create a dedicated fund that channels additional resources to high VAT-producing states, acknowledging their contribution while protecting less developed states 4.Strengthen Fiscal Accountability:
Federal and state governments must commit to transparent management of VAT revenues. This ensures efficient use and reduces public dissatisfaction over perceived inequities and corruption.
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5. Leverage Regional Development Plans:
Invest part of VAT revenues in regional projects that benefit both high-producing and low-producing states.
For instance, improving transportation infrastructure or energy access enhances economic activity nationwide.
6.Engage Stakeholders in Dialogue:
The federal government should hold inclusive consultations with state governments, businesses, and civil society to negotiate an equitable VAT framework. This can prevent litigation and foster consensus.
There is a broader perspective or paradigm with which to see Nigeria in relation to other people of the world.
We can draw lessons from countries with federal structures like Canada and India. Take the Canada’s GST Model as an example .
Provinces have flexibility to administer their own consumption taxes alongside a federal GST. As for India’s GST Council, a centralized council determines tax rates and revenue sharing, ensuring all states have a say in policy decisions.
The VAT-derivation debate should not become a zero-sum game. A well-structured compromise can align state and federal interests, ensuring that the tax reform proposal boosts revenue while promoting equity and economic growth. Policymakers must act decisively and inclusively, prioritizing a sustainable fiscal framework over short-term political gains.
Imagine a Nigeria where every citizen, entrepreneur, and corporation contributes to a thriving economy, trusting that their taxes are used effectively.
This is not just a dream—it is a possibility within our reach.
President Tinubu’s proposed tax reform is more than a bill; it is a pathway to prosperity.
Let us debate it thoughtfully, refine it where necessary, and pass it with urgency. The future of Nigeria depends on it. It is a task that must be addressed in order to usher in a new opportunity for a great prosperity wave for hard working Nigerians.
It is therefore absolutely important that the bills be supported by all active Nigerians and must not be allowed to be killed.
