by Olatunji Saliu
ABUJA, Dec. 15 (Xinhua) -- Aiming to simplify and unify the country's tax system while promising significant incentives for businesses, especially small and medium enterprises (SMEs), the tax reforms recently proposed by the Nigerian government have continued to generate intense debate nationwide.
The proposed reforms, which include the Nigeria Tax Bill 2024, the Nigeria Tax Administration Bill, the Nigeria Revenue Service (Establishment) Bill and the Joint Revenue Board (Establishment) Bill, aim to overhaul the tax system of Africa's most populous country.
With differing views from various citizens, including government officials, experts and stakeholders, many believe that the proposed tax reforms will significantly reduce inefficiencies and boost government revenues. In contrast, others have raised concerns about "the potential negative impacts regarding the balance of fiscal federalism and the distribution of revenues from the value-added tax (VAT)," leading to fierce opposition, particularly from the 19 northern states.
"On this tax issue, there are a lot of misconceptions," said Babagana Zulum, governor of the northeastern state of Borno, while recently fielding questions from reporters in Abuja, the Nigerian capital. "We felt that the VAT provision in the tax law ... based on the calculations that we did, only Lagos and Rivers states (in the southern part of the country) will benefit from this scheme. We (the northerners) researched and concluded that we would lose."
Zulum, while calling for deeper consultations to understand the details of the tax regime before passing it into law, advised the federal government to pause and remove some of the clauses thought to be "inimical to the northern part of Nigeria."
In October, Nigerian President Bola Tinubu urged the bicameral legislature to pass the proposed reform bills. On Nov. 28, amid the fuss generated by the president's request, the tax bills passed a second reading in the Senate, the upper chamber of the legislature.
According to Emeka Obegolu, president of the Abuja Chamber of Commerce and Industry, these reforms represent "a significant step toward improving Nigeria's business environment."
Obegolu told Xinhua that provisions, such as the exemption of businesses with annual turnovers below 50 million nairas (about 32,290 U.S. dollars) from tax payments, would enable SMEs to reinvest their earnings into growth and job creation without the burden of high taxes.
He noted that the reforms propose overhauling more than 50 redundant taxes, a move expected to reduce operational costs for businesses and enhance their competitiveness.
"The proposed establishment of a single tax collection agency would further streamline processes, reduce compliance costs, and promote accountability," he said.
Noting the extent of the ongoing debate about the country's tax reforms, Dapo Abiodun, governor of the southwestern state of Ogun, suggested that the discontent over the reforms is largely due to misunderstandings and misinformation.
Looking forward to a "more equitable distribution of VAT revenue," which the proposed reforms aim to allow, Abiodun told the media in the state capital of Abeokuta that much of the VAT from industrial activities in Ogun has been accrued to Lagos, despite the bulk of production occurring in the state that he governs.
The governor said his expectation was high that under the new model, VAT distribution would be more reflective of where value is added, ensuring a fairer share for industrial states like Ogun.
Semiu Lawal, an entrepreneur, said that VAT generated from industrial states, for instance, should be redistributed based on where value is created, rather than where goods are sold.
This adjustment is expected to have a profound impact on states like Ogun, which host several major manufacturers, he told Xinhua, adding that the proposed changes to VAT distribution have sparked fierce resistance from governors of northern states because they believe the new derivation-based model could harm their regions' financial autonomy.
At a meeting in October, a forum of northern Nigerian governors rejected the model, fearing it would centralize tax authority and reduce their revenues. The National Economic Council, which statutorily comprises the country's vice president and all 36 state governors, acknowledged these concerns and called for wider consultation ahead of the legislative process for the bills.
With continued dialogue and negotiation, the hope is that the final tax system will foster greater economic growth and inclusivity for the entire country.
While the legislative process continues, the tax reform bills remain open to adjustments based on input from all stakeholders, Bayo Onanuga, a presidential spokesman, said in a recent statement. He clarified concerns over the potential centralization of tax authority, which is alleged to undermine the autonomy of state governments.
"The bills will not destroy the economy of any section of the country ... Instead, they aim to enhance the quality of life for Nigerians, particularly the disadvantaged," he added. ■