Why Tinubu’s economic reforms should last 15 more years, by W’Bank

• Wealthiest Nigerians to pay 25% Personal Income Tax from 2025
• Shettima: Painful reforms necessary for country’s growth
• Nation’s economy resilient but remains fragile, says NESG

The World Bank has said Nigeria must maintain its ongoing economic reforms for the next 10 to 15 years to establish itself as a leading economic power in sub-Saharan Africa and globally.

According to the bank, these reforms ensure sustainable growth and development, allowing Nigeria to compete with other emerging economies worldwide. The advice was given by the Senior Vice President of the World Bank Group, Indermit Gill, during yesterday’s 30th Nigerian Economic Summit, which was organised by the Nigerian Economic Summit Group (NESG) and the Ministry of Budget and National Planning in Abuja.

The three-day event is themed “Collaborative Action for Growth, Competitiveness, and Stability”. Nigeria is currently grappling with a high inflation rate of 32.15 per cent, driven mainly by the removal of the fuel subsidy, which has increased transport and production costs.

Additionally, the unification of the foreign exchange market has led to significant fluctuations in currency value, further increasing the cost of goods and services and contributing to a high cost of living across the country.

In his welcome address, Gill said the reforms implemented by the current administration must continue to reverse the loss of N10 trillion enjoyed by the elite through fuel subsidies and multiple foreign exchange rates. He noted that implementing these reforms will be challenging, but perseverance is essential.

“Nigeria will need to stay the course of current economic reforms for at least the next 10 to 15 years to transform its economy,” Gill stated. After being momentarily interrupted by a negative reaction from the audience, he continued, “I don’t know if you are agreeing or disagreeing with me. If these reforms are sustained, Nigeria will transform its economy and become an engine of growth in sub-Saharan Africa.” He added, “It is very difficult to implement such reforms, but the rewards will be massive if they are maintained.”

This came as Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, disclosed that Nigeria’s wealthiest citizens will be subject to a 25 per cent Personal Income Tax (PIT) rate starting next year.

Speaking as a panellist in the session titled “Fiscal and Monetary Policy Reforms: Removing Barriers to Private Sector Investment”, Oyedele explained that the tax bills currently before the National Assembly aim to provide relief to Nigerian taxpayers. Once passed, the new law will take effect in January 2025, reducing the tax burden on low-income earners while imposing higher taxes on the wealthy.

“Many people don’t like to pay taxes, but they often fail to realise that those taxes will eventually benefit them,” Oyedele said. “We have been very intentional about reducing the tax burden on businesses. For instance, currently, any VAT you pay on assets – whether you’re building a factory, purchasing a laptop, or buying vehicles – is borne entirely by the business. This increases your costs, which in turn raises prices. However, with our reforms, you will receive a 100 per cent credit on services and assets.”

He continued, “Additionally, your corporate income tax rate will be reduced from 30 per cent to 25 per cent, which is significant. These bills are currently with the National Assembly, and we plan to implement them from January 2025.”

On personal income tax, Oyedele noted, “Those in this room may not appreciate this because there are wealthy individuals present. If you earn N1.5 million a month, your personal income tax bill will decrease. Those at the lower end will be completely exempt. However, for those earning more, the rate will increase incrementally, reaching 25 per cent for the highest earners.”

Oyedele emphasised the need for balance, stating, “Currently, if you earn N100 million a month, few are paying the effective 19 per cent personal income tax rate. We are raising this to 25 per cent for the wealthy, which is crucial.”

He elaborated on the economic landscape: “Around 80 per cent of the Consumer Price Index (CPI) basket comprises essential needs such as food, health, education, accommodation, and transport. On average, households spend 32 per cent of their income on these basics. For lower-income households, this figure approaches 100 per cent. To alleviate this burden, we are reducing the VAT on these essentials to zero per cent. This means not only is there no VAT, but any VAT incurred during the production of these items will be refunded by the government.”

Oyedele also addressed the broader context of taxation, saying, “To view taxation in isolation is a mistake. Taxation is an outcome of economic activities. We collect taxes to enhance the lives and livelihoods of the people. Any policy that negatively impacts people’s lives should be rectified. We need to fix the policy, not the people.”

He acknowledged the complexity of Nigeria’s tax system, noting, “There are approximately 60 official taxes and over 200 unofficial taxes, including taxes on deceased individuals.”

Vice President Kashim Shettima acknowledged that some of the economic reforms introduced by the current administration have been painful but necessary. Shettima, who represented President Bola Tinubu, highlighted the inevitability of these reforms.

Like many nations, he said Nigeria has faced significant economic challenges in recent years. The country’s growth has been volatile, heavily reliant on oil revenues, and has struggled to generate sufficient jobs for its rapidly expanding population.

According to Shettima, “Nigeria must prioritise economic diversification. With this in mind, the current administration, through the Renewal Hope Agenda, has embarked on bold and courageous reforms designed to foster sustainable economic growth and shared prosperity, even though they are painful in the short term. Our focus is on sectors that offer inclusive and sustainable growth, such as agriculture, manufacturing, and the digital economy.”

He also praised the NESG for providing a platform for meaningful dialogue on the economy. Minister of Budget and Economic Planning Abubakar Atiku Bagudu echoed these sentiments, stating that the government is committed to changing the economic growth trajectory. He emphasised that the administration is focusing on strategic sectors to spur short- and medium-term growth while addressing macroeconomic challenges such as exchange rate instability, inflation, and unemployment.

Bagudu noted that the summit’s sub-themes—fostering inclusive development, unleashing business dynamism, igniting innovation and digital evolution, and promoting stakeholder collaboration—align with the administration’s eight priority areas.

He credited past summit recommendations with inspiring reforms in key sectors, citing the emphasis on tightening foreign exchange rules and harmonising fiscal and monetary policies as examples.

Under the Renewed Hope Agenda, President Tinubu’s administration has maintained its foreign exchange reforms, removing multiple exchange rates. The Central Bank of Nigeria regularly fine-tunes its guidelines to ensure monetary stability.

Olaniyi Yusuf, the NESG chairman, said while the Nigerian economy has shown strong resilience over the years, it remains fragile due to inept policies.
He noted that Nigeria has made considerable progress but faces clear challenges.

“The twin problems of income inequality and multidimensional poverty continue to cast a long shadow over our progress,” Yusuf told the audience. He added, “Nigeria struggles with an uneven distribution of resources, macroeconomic instability, and institutional fragility, which prevent us from reaching our full potential.”

According to Yusuf, the federal government and all Nigerians are responsible for forging decisive reforms. These reforms should break “these cycles of stagnation and pave the way to reputable goals.”

Citing data from the National Bureau of Statistics, Yusuf said that in 2023, real Gross Domestic Product (GDP) growth slowed to 2.74 per cent, down from 3.1 per cent in 2022. This dip, he explained, highlights the difficulty of maintaining momentum amid persistent structural challenges in Africa’s biggest economy.

“These challenges include security concerns, human capital deficiencies, and inadequate infrastructure. They have created a complex environment that stifles businesses,” Yusuf noted. He stressed that the summit represents a significant milestone in the organisation’s quest to build an inclusive and prosperous economy.

“Nigeria has experienced two recessions in the last decade, each exposing deep-rooted structural vulnerabilities that must be addressed with renewed urgency. Hence, today’s challenges deserve a new approach to promote growth, competitiveness, and stability,” Yusuf said.

He reiterated that multidimensional poverty continues to hinder the country’s progress. Yusuf urged the country to seize the opportunities before it, including its natural resources, to improve growth, productivity, and investment.

“Together, we have the power to build an economy that not only withstands shocks but also creates lasting prosperity for all Nigerians,” he concluded.