TAX
By Sanusi Maikudi
Premium Times’ editorial advocating for the tax reform bills demonstrates a commendable commitment to fiscal restructuring and economic sustainability. However, while the editorial raises valid points on the urgency of reforming Nigeria’s tax system, it does so with an oversimplified view of the contentious issues and the regional dynamics at play. A nuanced, balanced perspective is essential to adequately address the concerns raised by opposing stakeholders.
Mischaracterizing Northern Resistance
The editorial frames the opposition from Northern governors and lawmakers as primarily political and unfounded, dismissing their concerns as a reluctance to embrace progress. This oversimplification ignores the socio-economic realities that underpin their resistance. For instance, Northern Nigeria has historically faced unique challenges, such as lower industrial activity, widespread poverty, and limited economic diversification. These factors make the immediate application of derivation-based models for Value Added Tax (VAT) distribution potentially detrimental in the short term. Rather than encouraging “poverty and indolence,” as the editorial suggests, this resistance calls for an approach that accounts for regional disparities to prevent exacerbating inequalities.
Derivation-Based VAT Distribution: A Double-Edged Sword
While a derivation-based VAT system may incentivize states to ramp up economic activities, it assumes that all states have equal capacity to do so. Northern states, grappling with structural disadvantages such as insecurity and poor infrastructure, may struggle to compete with more industrialized regions. This could lead to a widening gap in revenue generation and development. For federalism to thrive, reforms must ensure equity, not just efficiency. Premium Times’ assertion that derivation aligns with “healthy business competition” needs to be tempered with strategies to level the playing field.
The Timing of VAT Increases
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The proposed graduated increase in VAT from 7.5% to 15% by 2030 is a significant reform, but it comes at a time when Nigerians are reeling from economic shocks caused by subsidy removal and naira devaluation. While exempting essential items like food and education is laudable, the overall hike risks further eroding purchasing power. Northern governors’ apprehension about its timing reflects a broader concern about the socio-economic toll on already vulnerable populations. This concern is not exclusive to the North; it resonates with businesses and citizens nationwide.
Structural Issues in Tax Administration
Premium Times rightly highlights inefficiencies in Nigeria’s current tax system, including the underpayment or non-payment of taxes by the wealthy. However, creating new entities like the Nigeria Revenue Service (NRS) may not automatically translate to efficiency without addressing systemic corruption and weak enforcement mechanisms. Reforms should prioritize building capacity within existing institutions, ensuring transparency, and leveraging technology to curb leakages.
Building Consensus Through Dialogue
The editorial’s call for stakeholders to “follow this path” overlooks the importance of genuine consultation and consensus-building. The National Economic Council’s (NEC) recommendation to pause the reforms for further deliberation reflects the need for inclusivity in policymaking. Dismissing this as a delay tactic undermines the democratic process and risks alienating critical stakeholders. Reform, to be sustainable, must be participatory and responsive to the diverse realities across regions.
A Balanced Approach to Tax Reform
Premium Times is correct in asserting that Nigeria’s tax system is broken and requires reform. However, the solution lies in striking a balance between progressivism and pragmatism. For instance:
1. Phased Implementation: Gradual adoption of derivation-based VAT distribution and VAT increases, with transitional support for disadvantaged regions.
2. Strengthening Institutions: Enhancing the capacity of existing tax agencies to enforce compliance before creating new structures.
3. Equity-Based Incentives: Offering targeted support to states with limited capacity to generate VAT, ensuring that reforms do not deepen regional disparities.
4. Public Engagement: Broad-based consultations to address concerns, build trust, and secure buy-in from all stakeholders.
Conclusion
While the proposed tax reforms hold significant promise, their success hinges on addressing legitimate concerns and fostering national consensus. Nigeria’s fiscal future should not be built on reforms that exacerbate existing inequalities or disregard the socio-economic realities of vulnerable regions. Premium Times’ advocacy for the bills is commendable, but a more balanced and inclusive approach will ensure that the reforms truly serve the collective interest of all Nigerians.
Sanusi Maikudi, Kaduna Nigeria
