No one will dispute that Nigeria needs fundamental tax reform. After all, this is a country with one of the heaviest tax regimes in the world, where tax laws and regulations are overlapping and cumbersome, where tax administration and collection is plagued by inefficiency and corruption, and where tax evasion and evasion are widespread. Consequently, at around 9 percent, Nigeria has the lowest tax-to-GDP ratio in sub-Saharan Africa, which, coupled with erratic and declining revenues from mainly oil exports, plunges the country into a fiscal quagmire. The truth is that the Nigerian tax system is in deep crisis and is in dire need of radical reform.

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However, even if crises trigger fundamental reforms, making the status quo untenable, they are not a sufficient condition for reforms to be successful. In a democracy, there is a crucial need for an explicit electoral mandate for reform and a carefully crafted policy design, shaped by broad consensus for change. In a recent report, the IMF said: “A strong electoral mandate for policy changes, supported by effective communication and wide-ranging efforts to convince voters and stakeholders of the need for reform over the course of An electoral campaign is decisive in several cases for the success of reforms. .”

Unfortunately, neither a strong electoral mandate nor the search for consensus, much less a carefully crafted policy design, guides the radical proposals put forward by President Bola Tinubu in the tax reform bills he recently sent to the Assembly national. Of course, Tinubu would argue that the deep crisis in Nigeria’s tax system justified the far-reaching reform proposals. But it is naive to think that he can pass fundamental tax reforms without a strong electoral mandate and without building a real national consensus for such reforms. It is therefore not surprising that the proposals are deeply controversial and, in fact, would face serious implementation challenges even if the National Assembly passes them.

Let’s start with policy design. In October, President Tinubu sent four tax reform bills to the National Assembly. These are the Nigeria Taxation Bill, the Joint Revenue Board (Establishment) Bill, the Nigeria Revenue Service (Establishment) Bill and the Administration Bill Nigeria tax. All the bills emanate from the work of the Presidential Committee on Tax Policy and Tax Reforms inaugurated by Tinubu in August 2023 and chaired by Taiwo Oyedele, a renowned tax expert, who has written extensively on the issues covered by the bills.

“Unfortunately, neither a strong electoral mandate nor the search for consensus, much less carefully crafted policy design, guides the radical proposals put forward by President Bola Tinubu in the tax reform bills he recently sent to the National Assembly. »

To be fair, compared to the objective of streamlining the Nigerian tax system, the bills are generally positive. For example, the repeal of 11 existing tax laws and their incorporation into the Nigeria Omnibus Tax Bill should be welcomed, as should the creation of the Nigeria Revenue Service (NRS), which would replace the Federal Inland Revenue Service (FIRS ), the sole tax collector. all federal taxes, including those currently collected by agencies like the Nigeria Customs Service. However, it would be premature to describe the harmonization proposals as revolutionary, given the scale of the problem. For example, in a recent report on Nigeria, the WTO stated that “companies make about 60 official tax payments per year and about 200 unofficial tax payments.” Would the proposed tax reforms radically change this? Totally doubtful. And would concentrating the tax collection powers of all federal agencies in the NRS only concentrate rampant inefficiency and corruption within a single powerful agency? Most likely!

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The presidency described these bills as “pro-poor and pro-growth.” How true is this? Again, to be fair, the proposals to exempt everyone earning N800,000 or less from income tax and to reduce corporate income tax can be described as pro-poor and pro-growth. from 30 percent to 25 percent, while exempting small businesses from income tax. pay income tax. However, what the proposed reform gives with one hand – a reduced and zero income tax – it demands with the other – an increase in value added tax (VAT), which would rise from 7.5 percent currently to 15 percent in 2030. The truth is, any government that claims to help the poor but increases VAT for businesses is lying. For what? Faced with high VAT rates, businesses will increase prices of goods and services (inflation) and/or, due to unsold goods/reduced profits, lay off workers/reduce recruitment (unemployment), harming the poor .

On the other hand, tax reform proposals are favorable to billionaires. Think about it. The tax rate for anyone earning N50 million or more per year is 25 percent. So, a person earning N50 million per year is lumped in with a billionaire. In a country where many billionaires are state-made or enriched through corruption, and where there is no culture of philanthropic giving among the rich, it is perverse to put a billionaire and a person earning $50 million naira per year on the same tax rate. In the UK, the top tax rate, which billionaires are interested in, is 45 percent. But Tinubu’s tax reforms protect the super-rich while penalizing the middle class!

Which brings us to the most controversial aspect of the proposed tax reforms. In the Nigeria Tax Administration Bill, Tinubu proposes to introduce a new VAT distribution model, where 60 percent of the VAT allocation accruing to states is based on derivation; This would replace the current methodology which attributes VAT to the place of payment with one which attributes VAT to the place of supply and consumption of goods and services. The proposed change would benefit the South, which contributes the lion’s share to the VAT pool (e.g., N387.06 billion out of N444.19 billion in August) but receives a disproportionately lower allocation (N149.09 billion naira). On the other hand, this would disadvantage the North, which contributes a tiny share (N13.69 billion as of August) but receives a disproportionately higher allocation (N59.17 billion).

One could say that the proposed change is fair: the biggest contributors receive larger shares, and vice versa. But in any situation where there are winners and losers in a policy, the losers will resist it. It is therefore not surprising that the North vehemently opposes the proposed reforms. In its statement following a joint meeting with the Northern Traditional Rulers Council, the Northern States Governors Forum, which represents the 19 northern states, said the proposed model based on the derivation was “ contrary to the interests of the North. The Northern Elders Forum said the proposal was “conceived in bad faith”. In truth, given the fundamental nature of the proposed change, Tinubu should have considered it during the election campaign in order to obtain an explicit mandate for the proposal.

Hypocritically, one of Tinubu’s media sophists – they are all sophists – said the tax reform plans were part of Tinubu’s campaign manifesto. The only reference to tax reform in Tinubu’s manifesto – “Renewed Hope 2023” – is a short paragraph on page 16, which says: “We will review the corporate tax system and deploy technologies and policies effective to better rationalize the system. » No mention of change to the VAT distribution model. If Tinubu had declared during the campaign that he would introduce a derivation-based VAT distribution model, would the North have voted for him despite his Muslim-Muslim ticket? Based on their current reaction, the answer is no. So, Tinubu deceived the North and won their votes by stealth; the North is therefore right to accuse it of acting “in bad faith”.

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Worse still, in a so-called federal system, Tinubu sidelined state governments. In October, the National Economic Council, made up of Nigeria’s 36 state governors, urged Tinubu to withdraw the tax reform plans “for thorough consultations and consensus building.” He refused. For someone who won a tiny 36.6 percent of the popular vote, rejected by 63.4 percent of the electorate, to act autocratically and eschew the search for national consensus is an affront to democracy. Tinubu misinterprets his “mandate”!