Tax Reforms: The Truths, The Lies and The Facts

By Tahir Ibrahim Tahir

I listened to Mr. Taiwo Ayodele of the Presidential Fiscal Policy and Tax Reforms Committee while he was being interviewed by Maupe Ogun Yusuf of Channels TV. She asked him specifically about the derivation principle that is causing so much disaffection, with Northerners believing that the new tax reforms are meant to further impoverish the region. But Mr. Ayodele specifically stated that the new derivation formula of 60% would be based on consumption, and that this would not shortchange any state. He stated that in the new formula, no state would receive less than what they are currently receiving. He mentioned that the FG’s concession of a 5% of its VAT share is meant to serve as a buffer for fiscal equalisation, and that it is written in the law that no state would receive less in the new formula. He believes states could double their share in two years time. Now if this new derivation formula is not shortchanging any state appreciably, then we can ‘dead’ the whole uproar on that aspect of the reforms. In his engagements with the stakeholders, he should be able to provide a model of what the new formula would actually entail for the states when implemented.

In all of this, quite frankly, I had thought Mr. Ayodele would widen the tax net and improve on tax collections by now without all the controversy on sharing formula and whatnot. He should have been able to provide a mechanism where all those evading taxes would be captured, so they can fulfill their civic duties. Sharing of VAT proceeds shouldn’t be our problem. Collection is the real problem, and the solution lies in the creation or harnessing of a structure that can capture all those that are supposed to be captured as income earners. His expertise should be applied in this regard, instead of the controversy he has generated. I actually wish the heat generated could turn to tax generated. If what he says about derivation is correct, then he ought to have engaged the lawmakers and the state governors before this melo-drama that is unfolding. It is a bad political storm and if he isn’t a politician, some of us are and it is drawing very bad blood. He said in his interview that President Bola Ahmed Tinubu, GCFR, did not ask him to include or remove anything from his reforms. Unavoidably he has ended up painting the whole process as a Mr. President’s agenda against the North, which is not so.

There are indeed so many good things about the tax reforms such as: no income tax on people earning N800,000 and less; businesses with N50 million and less are exempted from paying tax; harmonisation of revenue collection under one roof of the new National Revenue Service to curb leakages; establishment of Local Government Revenue Committees; and the creation of the Tax Ombudsman, to help taxpayers get justice from tax authorities they feel aggrieved by. The new tax laws would be saving 90% of Nigerian businesses from paying income taxes. The tax reforms aim to target the rich population, drag then into the tax net, and get them to pay more taxes, while exempting or reducing the tax burden on the poor. But while the reforms are trying to save the poor from one kind of tax, it is overloading them with another kind of tax. The increase in VAT progressively to 15% is not such a good idea at this time. One reform too many at the same time is not a noble idea or endeavor. The removal of fuel subsidy, hike in power tariffs or removal of power subsidy (almost), and then hiking VAT is going to be a horrid climate for the common man. Nigeria has its peculiarities and astronomical and abnormal hikes in prices is one of them. Mr. Ayodele should know that a hike in VAT would end up as a hike in the price of garri, omo and groundnut. There is no formula to this if he may ask me how. It is simply Nigerian. Mr Ayodele should stay the execution of this part of his reforms. We’d all be impressed and happier with his expertise in improving the tax till without increasing taxes.

Lastly, there’s the 2% development levy to be garnered from NITDA and TETFUND funding, which would be channeled to NELFUND to fund student loans. Has Mr. Taiwo envisaged what would happen to NITDA and TETFUND? Have they made an analysis of the impact of both agencies? TETFUND in its few years of existence has done more for the education sector than what the education ministry’s budget has done for education in the last 40 years. Research, infrastructure and so many other components of the education sector have been catered for, by TETFUND. Spending on student loans alone is far from the solution. Students would be paying to school in hollow chambers, as the institutions and their staff would hugely retrogress if you take away TETFUND. Universities would seek alternative sources of funding. Where? From the students. When fees become more exorbitant, the loans become performative and would lose value as they cannot pay for the new and costly fees that the institutions would be charging. This is same with Polytechnics and other Colleges that churn out teachers and graduands that acquire skills from these institutions. Mr. Ayodele should propose a certain percentage of VAT to go to NELFUND. Perhaps a percentage from the FG’s 10%, afterall NELFUND is the FG’s brainchild. Aside these few issues, in my opinion, the 4 tax bills have a lot of good in them, and they would definitely revolutionise and update our taxation systems. We should not throw away the baby with the bath water. President Bola Ahmed Tinubu, GCFR, had asked that the reforms be allowed to go through the process so that amendments and improvements can be made. This is the job at hand. But lest I forget, we must ask the Northern Governors too; are they fighting for more money to work for the people or to build new government houses and luxurious cars for legislators and emirs?

Tahir Ibrahim Tahir is Talban Bauchi