Transformation of taxation in Nigeria: Insights into 2024 tax reforms

Taxes are the lifeblood of a country’s economy, fuelling public services and government operations. In Nigeria, however, this vital system has long been plagued by inefficiencies, public distrust, and an overreliance on oil revenue. Yet robust and efficient taxation is no longer a luxury in a country striving to diversify its economy. The Nigeria Tax Reform Bills 2024 represents a courageous step towards addressing these systemic issues, with the potential to foster growth, equity, and efficiency.

These initiatives, announced by President Bola Ahmed Tinubu, aim to improve Nigeria’s taxation by harmonising the tax codes, simplifying the administration, and offering concessions to businesses and low-income individuals. Beyond raising revenues, these reforms also aim to restore faith in government, make paying taxes easier, and distribute the tax burden more equitably. However, their implementation has sparked debates over how taxes will be raised, the contentious VAT sharing formula, and whether the government is truly committed to delivering tangible benefits to taxpayers.

In this article, I delve into the major aspects of the 2024 Tax Reform Bills, their potential to reshape the Nigerian economy, and the areas where they might fall short. I also explore the issue of public confidence, a factor that could either bolster or impede these reforms. As Nigeria undergoes this transition, the government, corporations, and citizens must comprehend the comprehensive impact of these changes.

Pros and Cons of the Nigeria Tax Reform Bills 2024.
A Single Tax Act (Nigeria Tax Bill 2024).
The Nigeria Tax Bill 2024 will reform Nigeria’s various taxation systems into a single framework. This change aims to eliminate confusion, simplify compliance, and make things clear for taxpayers and administrators. When the tax codes are combined under a single system, the administration will be able to make life easier, help compliance increase, and encourage voluntary compliance. For taxpayers, small businesses in particular, this simplification would remove hurdles that currently discourage registration and formalisation.

Simplified Taxation (Tax Administration Bill).
The Tax Administration Bill creates comprehensive reforms to collect and process taxes. The bill will attempt to minimize human involvement, errors, and corruption using advanced technology like automation and digital platforms. For example, online tax filing and payment will make it easier for people and corporations to comply. These improvements are supposed to reduce bureaucratic red tape, facilitate better services, and raise revenue promptly.
Creation of the Nigeria Revenue Service.

One of the most significant changes is the establishment of the Nigeria Revenue Service (NRS), a centralised body responsible for administering all taxes. This move is set to replace the current fragmented approach of multiple tax collection agencies, which often leads to inefficiencies and overlaps. The NRS will not only streamline tax reform but also enhance the operations of federal, state, and local governments, reducing administrative burdens. Crucially, this office will work to increase accountability and compliance across the board, instilling confidence in the reform process.

Stability in Taxation (Joint Revenue Board)
The Joint Revenue Board will coordinate taxation at Nigeria’s three levels of administration—federal, state, and local. This harmonisation will aim to address inequalities, solve disputes, and form a unified structure that provides tax administration with equality. The harmonisation of policies is especially important when it comes to fixing the double taxation problem that has plagued companies across states.

Incremental VAT Increases
The reforms call for a progressive increase of Value-Added Tax (VAT) from 7.5% to 10% by 2025, 12.5% by 2026, and 15% by 2030. Though the government posits that they need to be done to pay for vital services and infrastructure, the opposition worries that they will raise prices and the cost of living for consumers and people experiencing poverty. Finding a balance between revenue generation and economic fairness is still a struggle.

Telecommunications Excise Duty
Another important part of the reforms is a 5% excise duty on telecommunications services. The size of the industry and its economic importance means this measure will likely bring a lot of money. However, it has been criticised for increasing the price consumers pay, which has become critical to modern commerce and communication.

Corporate Income Tax Adjustments
To assist SMEs, the changes exempt corporations with an annual turnover of less than 50 million from corporate income tax. For larger businesses, progressive taxation means their tax contributions equal their revenue. The combination embodies the government’s commitment to equity as well as the centrality of SMEs to job creation and economic growth.

Trust Gap: The Achilles’ heel of Nigeria’s Taxation System.
Nigeria’s biggest but most overlooked obstacle to tax reform is the underlying trust of the efficiency of tax policies due to fears of wrongdoing, unfairness, and secrecy.

Sources of Mistrust
1. History of Corruption and Inefficiency: Decades of corruption have damaged public trust in the government’s capacity to spend tax Naira properly.
2. Intransparency: Lack of transparent reporting of how taxes are spent creates uncertainty among taxpayers.
3. Feelings of Injustice: Policies that appear to favour the rich or burden the poor only fuel feelings of injustice.

Restoring Trust
Regaining trust will require not only reforms of policy but also a governmental cultural adjustment. Key steps include:
• Measurable Impact: The direct spending of higher revenues on tangible, visible infrastructure, such as roads, hospitals, and schools, could help establish the value of taxes.
• Public Accountability: Regularly publishing full-length expenditure reports can increase transparency and accountability.
• Citizen Involvement: Establishing forums for taxpayer-policymaker engagement will help people better understand each other and decrease resistance to reform.
Even the best-intended reforms risk disobeying and provoking a public backlash if these trust challenges are not addressed.
The VAT Sharing Formula Debate
Perhaps the most controversial feature of the 2024 reforms is the envisaged redistribution of VAT income:
• Federal Share: Cost of collection cut from 15% to 10%.
• State Share: Upped from 50% to 55%.
• Local Share: Pertained at 35%.
Pros
• State governments will have more resources to serve local demands in infrastructure, social services, etc.
• The derivation principle provides regions with more VAT revenue a proportionate share, thus guaranteeing equality.
Cons
• The lower federal share could reduce funding for domestic projects and programmes.
• The operational complexity of mapping VAT collections geographically might lead to administrative problems.
• The chances of disputes between states and the federal government are high.

What are the benefits and Disadvantages of the 2024 Tax Changes?
Any big policy change has its perks and downsides, and the Nigeria Tax Reform Bills 2024 are no exception. The reforms have enormous potential to modernise the country’s tax system and stimulate growth, but they also pose issues that must be carefully evaluated and mitigated.
To be continued tomorrow.
Dr. Oluwadele is an Author, Chartered Accountant and Public Policy Scholar based in Canada.