The federal and state governments have initiated the process of harmonizing and reforming taxes across both the national and sub-national level in an effort to curb double taxation and bolster fiscal inflow. As a fist step, President Bola Tinubu has inaugurated the Presidential Committee on Fiscal Policy and Tax Reform. Speaking at the 153rd board meeting in Abuja, the Chairman of the Joint Tax Board (JTB) , Muhammad Nami, expressed utmost dedication towards the ongoing harmonization initiative. He emphasized the board’s commitment to avoiding any prior pitfalls, particularly as the current administration shows unwavering determination to eliminate the proliferation of taxes.
Business owners have consistently expressed discontent regarding the onerous burden of multiple taxes being imposed upon them, which regrettably adversely affects their commercial operations. Despite this, it is noteworthy to mention that Nigeria’s tax-to-GDP ratio stands at a mere 10.8%, a figure that places it among the lowest globally. Nami, who also holds the position of executive chairman of the Federal Inland Revenue Services, has expressed the government’s intention to curtail the existing multitude of taxes, fortify the tax system against any potential breaches, and augment the revenue streams for the three tiers of government.
Harmonizing tax collection and ensuring simple payment procedure.
Nami stated that the government needs to adopt tough but essential reforms in order to maximize tax revenue collection at the federal, state, and local levels. He explained that one of the main goals of the meeting, tagged “Harmonization and Codification of taxes at the National and Sub-national levels,” was to adopt new methods for optimizing tax revenue for all levels of government in order to create a tax administration that was more efficient, effective, inclusive, and sustainable. This would help to create a tax-friendly environment in Nigeria.
In addition, the chairman revealed plans to expand tax collection efforts into the informal economy. Working in collaboration with informal labour unions, the government would ensure that taxation is not applied to goods and services that are not subjected to it. According to Obomeghie Nana-Aisha, executive secretary of the Joint Tax Board, the government will harmonize tax collection to make tax payment a simple procedure, as she lamented the proliferation of tax collectors whose payments of illegal taxes often don’t go to the government. She also assured the people that the government will be transparent and forthright by disclosing tax obligations.
Complex tax system reduce businesses’ investment returns.
Also speaking on the subject, Oyedele argued that the solution to Nigeria’s tax income problem is not to impose more levies and taxes, but rather to concentrate on the few that are highly profitable, simple to manage, and difficult to evade. Oyedele cautioned that Nigeria may inevitably reach a juncture wherein the cumulative tax burden would completely surpass the total earnings of businesses. Such a disconcerting scenario, he posits, would undoubtedly put-off prospective investments, while noting that there are roughly 44 distinct proposals before the National Assembly with provisions on levies and taxes.
He outlined a number of issues plaguing Nigeria’s tax system adding to the initial business risks such as the country’s overabundance of taxes and tax collection agencies; the country’s largely disjointed, rudimentary, and complex tax system; low revenue as a result of low tax morale and widespread tax evasion; and the country’s high cost of revenue administration and compliance. As a result, he said, businesses’ investment returns are reduced, working capital is depleted, and may even lead to the demise of the business.
Nigeria only generated N15.1 billion in taxes in 2022.
Chairman of the Presidential Tax Reform Committee Taiwo Oyedele lamented that despite having a far larger economy and population than South Africa, Nigeria only generated N15.1 billion in taxes in 2022. Whereas South Africa generates N78.2 billion. He argued that the main focus should be on maximizing personal income tax, which is the most significant revenue generator for most governments, and turns out to be the most underutilized in Nigeria. Oyedele also suggested that the country implement a single-digit tax rate across all levels of government, simplify the process of complying with tax laws, and clarify taxpayer rights.