The controversy surrounding Nigeria’s new tax laws illustrates the challenges of using legislated laws. Here are some drawbacks that have defined the Tinubu administration’s new tax laws passed through an act of parliament since 26 June last year.
1. Lengthy Process. Legislative processes can be slow, allowing controversies to arise.
2. Political Gridlock. Disagreements between stakeholders can hinder progress.
3. Contestation. Laws can be challenged, leading to uncertainty.
In contrast, Executive Orders offer: 1. Speed. Quicker implementation. 2. Flexibility. Easier to adapt or revoke. However, as good as Executive Orders appear to be they also have limitations:
1. Limited Scope. Must align with existing laws. 2. Reversibility. Can be challenged or overturned.
That is perhaps the reason President Tinubu weighed his options before deciding on the best options to apply in his quest to reset Nigeria. But it is the controversy surrounding Nigeria’s new tax laws that centres on alleged alterations to the gazetted version levelled by Dasuki, a House of Representatives member from Sokoto State, sparking concerns about legitimacy and potential constitutional breaches, and a shadow of doubt on the law.
Considering the challenge of budget padding by the National Assembly or the operation of multiple budgets by the executive branch, which Nigerians have been regaled with, the palpable concern of some about the authenticity of the new tax laws is understandable.
The National Assembly has thus directed the re-gazetting of the Acts, while President Bola Tinubu has characteristically insisted on implementing the laws from January 1, 2026, asserting that there are no substantial issues warranting disruption.
The Nigerian Bar Association and other civil society groups have been advocating for transparency and accountability, emphasising the need for a credible and trustworthy legislative process. As the conventional wisdom goes: you can not throw away the baby and the bath water. So the new tax reform can remain a work in progress meaning that amendments can be made based on experience derived from its implementation. This is where the role of the Office of the Tax Ombudsman can come into place in resolving tax disputes.
In development economics, there is the principle of “taxation and accountability. It is a theory that suggests when citizens contribute to the state’s revenue through taxes, they gain a sense of ownership and are more likely to demand accountability from their leaders.
This is often referred to as the “fiscal contract” between citizens and the state. In or words, the level of maturity of democracy in a society correlates with the level of tax compliance.
In that regard the following factors will have to be taken into consideration:
Taxation as a bargaining chip. When citizens pay taxes, they may be more invested in holding leaders accountable for how their money is spent; citizen engagement. Tax compliance can lead to increased civic participation and scrutiny of government actions; state responsiveness. Governments reliant on citizen taxes may be more responsive to their needs and demands.
However, owing to some factors such as the ones listed below, this correlation is not always straightforward. Such factors are:
Tax morale. Citizens’ willingness to pay taxes voluntarily; Government transparency; How clearly the government communicates its spending and policies; Institutional strength. Effectiveness of checks and balances in the system.
Apart from the issue of duplicity surrounding the new tax laws, there is the issue of Company Gains Tax, (CGT) which has been raised from 10% to 30% has also raised eyebrows of leaders in the corporate world.
In the United States, it is from 15%, or 20% depending on income level, plus a 3.8% Net Investment Income Tax (NIIT) for high-income earners. The United Kingdom has a system whereby 18% (basic rate) or 24% (higher rate) for individuals applies, while companies pay normal corporation tax rates.
As for Germany, 25% plus 5.5% solidarity surcharge (total 26.375%) plus church tax if applicable is what obtains. In China, 20% of individuals and Japan charges 20.315% for national tax and 5% local tax on stock gains; up to 39.63% (30.63% national tax and 9% local tax) for real estate property gains. Coming down to our continent, South Africa demands 18% from individuals while companies pay 21.6%
Egypt also demands, 10%, or 22.5% for individuals; 10%, or 22.5% for companies.
Kenya’s rate is 15% for individuals and companies. While Ghana’s rate is (25%) or the individual marginal tax rate (up to 35%). Ethiopia’s is 15% for immovable assets (Class A); 30% for shares and bonds (Class B). And Saudi Arabia in the Gulf region attracts 20% for non-resident capital gains.
Why is Nigeria’s CGT the highest amongst the vast number of nations evaluated except Germany and Japan and Ghana. The consequence of very high CGT that readily comes to mind is that high it might discourage Foreign Direct Investments, (FDI) which our current robust pricing of treasury bills is attracting, particularly portfolio investments. Commendably, the NRS under the chairmanship of Zacheus Adedeji is said to be reviewing that significantly high CGat aspect and may reduce the rate after consultations with private sector players.
In the final analysis, if and when the current tax reforms yield the desired outcome, it would not only generate more revenue for the national treasury but it would also help citizens hold the feet of the leaders of this country to the fire, metaphorically. They may be of the APC, PDP, Labour, APGA, or NNPP, stock.
But as long as they are in charge of governance at the national or subnational level they will be held accountable for how the taxpayers’ money is appropriated or misappropriated. That should ultimately gladden the hearts of the teeming number of advocates of good governance in Nigeria as a positive fallout of the comprehensive tax reforms.
Concluded.
Onyibe, an entrepreneur, public policy analyst, author, democracy advocate, development strategist, an alumnus of the Fletcher School of Law and Diplomacy, Tufts University, Massachusetts, USA, a Commonwealth Institute scholar, and a former commissioner in Delta State government, sent this piece from Lagos.
