By Michael Chibuzo
On 7th July 2023, just over a month after assuming office, President Bola Tinubu appointed a tax and fiscal policy expert, Mr. Taiwo Oyedele to head a Presidential Committee he established to work on fiscal policy and tax reforms. On August 8, the Committee was inaugurated by the President and given its terms of reference which include deep reforms of various aspects of Nigeria’s tax laws, fiscal policy design and coordination, harmonisation of taxes, and revenue administration.
The Committee, in the first instance, was expected to deliver a schedule of quick reforms that can be implemented within thirty days. The President also asked the Committee to recommend critical reform measures within six months while their full report should be ready within one year. The composition of the committee was very balanced and included critical stakeholders/policy makers in the tax and fiscal space, parliamentarians, subnational representatives, students and other interested parties.
The Taiwo Oyedele committee in keeping with their terms of reference, on October 26, 2023 presented a set of interim reforms it tagged “Quick Wins” to the President for approval as part of efforts to retool the economy which was reeling from the double effects of fuel subsidy removal and foreign exchange liberalisation. The recommendations were 20 in number and divided into Presidential executive orders that will address duplication of functions in the public service to reduce cost of governance, impose excise tax on forex transactions outside the official market and removal of impediments to export promotion.
The Quick Wins recommendation also included an Emergency Economic Stabilization Bill that aimed to increase exemption threshold for personal income tax, tax breaks to the private sector in respect of wage increases to low income earners, outlaw sale of forex outside of the official market, promotion of service export and those of intangibles, removal of impediments to global employment opportunities for Nigerians among others.
The committee also recommended issuance of Ministerial directives/orders for suspension of VAT on diesel and tax waivers on CNG, CNG conversion and renewable energy items, comprehensive review of tariffs on 43 items initially restricted from accessing forex from the official market as well as reforms of withholding tax regulations to ease pressure on the working capital of businesses. It equally recommended having an MoU with states on suspension of multiple taxes which place huge burden on the poor and small businesses among other recommendations.
In June 2024, the presidential committee led by Taiwo Oyedele made public their detailed report after 10 months of intensive consultations, research, debate and consensus building. The key recommendations in their June 2024 report include the following:
1. Changing the name of FIRS to NRS and making the 36 State Revenue Services serve as departments under the Nigeria Revenue Service for a more coordinated and efficient tax administration.
2. Streamline Nigeria’s revenue collection under a single agency, the Nigeria Revenue Service.
3. Reducing the number of taxes in Nigeria from over 60 taxes and levies to below 10. It recommended eight (8) taxes, which include income tax, value-added tax, property tax, customs duties, excise tax, stamp duties, special levy, harmonised levy, and social security contribution (which it said was not a tax per se).
4. 5% Reduction in Company Income Tax to encourage more business investments in the economy, expansion of their operations, and the employment of more citizens, which would increase economic activities.
5. Changes to 2024 Withholding Tax Regulations to among other things, exempt small businesses, manufacturers and farmers from withholding tax obligations.
6. Four Executive Orders, which are expected to spur economic activities in the country through inflation reduction and price stability, promotion of international trade and non-oil export, prudent financial management as well as tax information consolidation.
7. Adjustments to the Structure of the Federal Government Annual Budget.
8. Broad-based Priority Sector Incentives that are sector-based, tenured and transparent instead of the current “Pioneer Tax Incentive Scheme” that are not properly delineated with no specific duration or tenure.
9. Key Changes to Value-Added Tax and Excise Duties such as full deduction of input VAT on all supplies, expansion of Zero-rated list to include agriculture, medical, educational and other basic consumptions, adjustment of VAT rate on other non-basic consumptions, adjustment of the VAT sharing formula and basis, inclusion of VAT in the exclusive list of the constitution, faster VAT refunds etc.
These and many more recommendations are what the committee alongside the executive arm coalesced into four landmark tax reform bills that the President transmitted to the national assembly on October 3rd, 2024 for legislative action. These bills, especially few provisions in two of the bills – the Nigeria Tax Bill and the Nigeria Tax Administration Bill – have since become subject of intense controversy, debates and even political grandstanding.
All manner of soft accusations have been leveled against the committee including “not consulting enough” before pushing for the institutionalisation of their reform recommendations through a major overhaul of our tax laws. But these accusations hold no water because the Committee led by Taiwo Oyedele cannot be accused of lack of consultation since they held series of meetings, workshops, webinars, visitations etc where a broad spectrum stakeholders in the tax and governance space were consulted to get their inputs.
Consultations may be endless but the committee’s mandate is not endless. They had one year to work and within that one year, those who understood the importance of the committee’s assignment made out time to engage meaningfully with the members of the Committee. The Committee’s recommendations have now become executive bills before the national assembly. Any further consultations should be taking place in the national assembly either by way of lobbying the lawmakers or making presentations during the public hearing.
It is however important to really understand the major reasons for these tax reforms and the urgency it should command if we are serious about stimulating economic growth across the length and breadth of this country. It is obvious even to the blind that Nigeria is generating very little revenue from taxes despite the fact that a lot of people or businesses are subjected to one form of tax or the other. For a population of over 220 million comprising of more than 130 million taxable adults and millions of businesses, it is shocking that our tax-to-GDP ratio is less than 10%. More shocking is the fact that most of personal income tax that we generate actually come from the low income earners, which means that the rich and the super rich mostly do not pay taxes.
There is also the excessive tax burden placed on the shoulders of big businesses who cannot easily evade tax completely. The system tends to milk them to compensate for inadequate tax inflows from elsewhere. This is why you see all manner of special levies (apart from the already high company income tax) targeting the profits of companies to fund some specialised government agencies. This tax regime tends to discourage business growth or even new businesses from coming up. The end result is a stagnant economy with population growth outpacing decent economic opportunities.
To this end, the Taiwo Oyedele-led committee felt that to eventually grow government revenue, there has to be a deliberate effort to remove some of the burden that stifle businesses and economic growth in Nigeria. In one of the audiences the Committee had with the President, the Chairman, Mr. Taiwo Oyedele noted that the most sustainable way for any country to generate revenue is to grow the economy. According to him, when businesses thrive and succeed in a country, and individuals prosper, they pay taxes to government which will be used to fund social and development needs of the people.
This is why these tax bills must be viewed from the prism of the things they seek to achieve and not from a lens of sectionalism and emotional politics. The reality is that we cannot maintain the present status quo in our tax and fiscal regime and hope to grow our economy at a pace that bring shared prosperity for majority of our people. There has to be a financial re-engineering and there is no better time than now when we are moving away from unsustainable subsidies and monetary mathematics.
Taiwo Oyedele and his committee deserve praise for the comprehensive job they did within the last one year. On a personal level, Taiwo Oyedele himself deserves a tremendous commendation for the leadership he has thus far provided to steer the tax reforms to fruition. He has been an excellent communicator, a calm listener and a good explainer amidst all the controversies generated by few provisions in the bills. Taiwo Oyedele’s appointment is one of the major masterstrokes of Tinubu’s 18 months in office. The journey of this committee has been very demanding and rocky, but it will be worth the stress if at the end, the product of their one year work becomes a set of laws that will be a springboard to catapult Nigeria into that era of economic revolution that we all know we can achieve under the right conditions.