When President Bola Ahmed Tinubu announced his ambitious tax reform agenda, it was clear that he intended to reshape Nigeria’s fiscal framework. The reforms, targeting personal income tax, corporate tax, and value-added tax (VAT) distribution, are undoubtedly bold and necessary. But like any sweeping policy change, they come with promises and pitfalls.
As someone deeply invested in Nigeria’s socio-economic progress, I see these reforms as a double-edged sword—a tool for much-needed transformation, but one that requires careful handling to avoid cutting too deeply into the fabric of our fragile federal system.
Let us not downplay the potential benefits. The proposed exemption of individuals earning up to ₦800,000 annually from personal income tax is a welcome relief for low-income earners who have borne the brunt of rising inflation. Similarly, reducing corporate tax rates from 30% to 25% is a lifeline for businesses struggling to stay afloat in a challenging economic climate.
The overhaul of VAT revenue sharing, which allocates 60% of VAT revenue to the state where goods and services are consumed, aims to promote fairness and encourage states to boost their economic activity. For consumption-heavy states like Lagos and Rivers, this is a much-needed windfall that could translate into better infrastructure, healthcare, and education for their residents.
But these gains are not without costs. Nigeria’s regional disparities could deepen under this new tax regime. With lower consumer activity and VAT contributions, Northern states stand to lose out, raising concerns about fairness in a nation already grappling with economic inequalities.
Another hurdle is the implementation process. Overhauling a tax system is no small feat, and Nigeria’s tax collection mechanisms are notoriously inefficient. Without significant infrastructure and human capacity investment, the reforms could collapse under their own weight.
Then, there is the issue of political resistance. Many lawmakers and regional leaders, particularly from the north, have voiced concerns about the potential revenue loss under the revised VAT formula. Balancing these competing interests will test the administration’s political acumen.
Under the proposed tax reforms, states like Lagos, Rivers, and others in oil-producing regions stand to benefit significantly. With 60% of VAT revenue allocated to the state of consumption, high-consumption states like Lagos and Rivers are poised to see a substantial increase in their revenue. Lagos alone generates over half of Nigeria’s VAT, and retaining a greater share will empower the state to fund critical projects.
Oil-producing states can invest increased revenue in non-oil sectors such as agriculture, manufacturing, and tourism, helping them reduce dependency on crude oil and build more sustainable economies. The additional funds can also be used to improve infrastructure, healthcare, education, and other public services, directly benefiting citizens in these states. The reforms also encourage states to create business-friendly environments to attract investments and increase consumption, further boosting revenue generation.
Members of the National Assembly are responsible for ensuring that these reforms benefit all Nigerians equally while addressing regional disparities. Legislators must address the fears of less economically vibrant states and push for transitional mechanisms, such as a redistribution fund, to support regions with lower VAT contributions. They must also oversee how states utilise their increased revenues, ensuring the funds are invested in projects that directly benefit the public.
By engaging their constituents, lawmakers can explain the reforms’ benefits, address concerns, and secure public support, easing implementation tensions. National Assembly members must also facilitate the passage of laws to strengthen tax administration, close loopholes, and ensure effective implementation of the reforms. Legislators from wealthier and poorer states must work together to ensure the reforms foster national unity and equitable development across all regions.
The National Orientation Agency (NOA) is critical in ensuring public acceptance and understanding of the tax reforms. The agency must continue simplifying and disseminating information about the reforms to the grassroots, helping Nigerians understand how these changes will benefit them in the long run. By launching campaigns, the NOA can counter rumours and fears about the reforms, especially in regions with resistance due to concerns about inequitable benefits.
The NOA should encourage citizens to question and provide feedback on the reforms. This engagement will foster trust and ensure the government remains accountable to its promises. The agency must also address regional concerns by showing how the reforms can be tailored to benefit less economically vibrant states through collaboration with local governments.
The Federal Inland Revenue Service (FIRS) is critical to the success of the reforms, as efficient tax collection and administration are crucial. The FIRS must invest in modern technology to improve tax collection processes, reduce leakages, and enhance compliance monitoring. Expanding the tax net by incorporating the informal sector into formal taxation while ensuring compliance is not burdensome will also expand the tax net.
Training and equipping tax officers to handle the new tax structures efficiently will be crucial to preventing administrative bottlenecks. The FIRS must regularly publish tax collection and utilisation reports, fostering public confidence in the system. By collaborating with state governments, the FIRS can provide technical assistance to ensure states maximise their VAT collections under the new sharing formula.
We cannot afford to shy away from difficult reforms as a nation. For too long, Nigeria’s tax system has been inefficient, inequitable, and unable to meet the needs of our growing population. These reforms, though imperfect, represent an opportunity to address these shortcomings and lay the groundwork for a more sustainable fiscal future. However, the government must tread carefully. Transparency, inclusiveness, and stakeholder engagement are non-negotiable. Addressing regional concerns and ensuring efficient implementation will be critical to the success of these reforms.
President Tinubu’s tax reforms can potentially transform Nigeria’s economy, but they also carry significant risks. Agencies like the NOA, FIRS, and the National Assembly must work together to ensure the reforms deliver on their promise of a fairer, more prosperous Nigeria.
As we navigate this critical moment in our nation’s history, let us remember that true reform is never easy but always worth pursuing when done with the greater good.
*Lukman Laleye Babalola, Publisher/Editor-in-Chief, Emporium Reporters online and Emporium Magazine.can sent this piece via babalolalukman@gmail.com, emporiumreporters@gmail.com.
