The Presidential Committee on Tax Policy and Fiscal Reform has said that the ongoing tax reforms go beyond revenue generation, aiming instead to reposition the country’s economic trajectory.
The Committee Chairman, Mr Taiwo Oyedele, made this known on Wednesday in Lagos at the inaugural Annual Workshop for Attorneys-General on emerging issues in the communications sector.
Oyedele noted that the reforms were crucial to preventing a total economic collapse and were intended to establish a more equitable and efficient tax system.
He noted that, prior to May 2023, Nigeria faced a dire economic situation marked by substantial trade deficits and a negative balance of payments.
“Also, an unsustainable debt service burden, where 97 per cent of government revenue was used to service debt at the end of 2022.
“We were on the brink of total collapse, comparable to scenarios seen in Venezuela, Zimbabwe, or Sri Lanka.
“Within a year, the system would have fully collapsed if reforms had not been implemented.
“The previous administration’s practice of printing about N30 trillion to cover expenditure further exacerbated the economic woes, “Oyedele said.
He underscored the progress made since the reforms began, noting a shift from trade deficits to surpluses, a positive balance of payments, and the clearance of over seven billion dollars in unmet FX demands.
Oyedele also revealed that the tax-to-Gross Domestic Product ratio had increased to 13.5 per cent in just two years, and the government’s revenue used for debt servicing had reduced from almost 100 per cent to under 50 per cent within the same period.
While acknowledging that these macroeconomic improvements might not immediately resonate with the average citizen, he likened them to planting a tree, where the roots (macros) must be strong for the fruits (micros) to appear.
“The primary objectives of the tax reforms are people-centric, aiming to address the issue of ‘taxing poverty’; also, growth-focused to stimulate economic activities, and efficiency-driven.
“Focusing solely on revenue generation before fixing economic activities is akin to placing the cart before the horse, “Oyedele said.
He highlighted several key changes already implemented, including the reduction of withholding tax rates.
This, he said, notably from 10 per cent to two per cent for telecommunications infrastructure providers and its removal for sectors such as manufacturing, to improve cash flow for businesses.
“The reforms has created higher exemption thresholds for small businesses: data indicated only the top three per cent of the informal sector has the capacity to pay taxes, leading to the legitimate exemption of the remaining 97 per cent,” he said.
Oyedele further mentioned the progressive nature of the reformed tax system affecting income tax, value-added tax, and capital gains tax, along with the elimination of taxes on investment and capital.
He also highlighted the rationalisation of incentive schemes and the ongoing harmonisation of taxes and levies at federal and federally collected levels.
“While subnational harmonisation is still in progress, new laws stipulate that the Nigerian Revenue Service will have exclusive jurisdiction over company taxes and State Revenue Services over certain individuals, “ the chairman said.
Oyedele addressed contentious issues, particularly regarding personal income tax.
According to him, low-income earners are now exempted from Pay-As-You-Earn (PAYE), the middle class pay less, and high-income earners pay slightly more to balance the books.
Addressing multiplicity of taxes and future outlook, Oyedele lamented the excessive multiplicity of taxes and collection agencies in Nigeria.
He stated that over 60 federal agencies collected taxes and levies, a situation, he believed, was unparalleled globally.
He confirmed that the telecommunications sector also faced a similar burden of numerous taxes and levies.
He revealed that proposals had been submitted to the National Assembly to amend the constitution, which currently empowers local governments to collect taxes such as produce tax, bicycle tax, and wheelbarrow tax—levies he described as nuisance taxes.
“I believe that, if an authority has the power to collect a tax, it also has the power not to collect it, especially for taxes that create more problems than solutions, “ he said.
Oyedele urged all Nigerians to view the tax reform project as a national endeavour that would benefit everyone.
He adds that, “The worst is behind us: however, while a solid foundation has been laid through legislative enactments, full implementation is crucial.”
The chairman encouraged stakeholders to seek a comprehensive understanding of the reforms to avoid drawing wrong conclusions.
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