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By Juliana Taiwo-Obalonye
President Bola Tinubu has pledged to end the country’s reliance on foreign borrowing in an effort to address an unsustainable debt profile. His commitment was made during the inauguration of the Presidential Committee on Fiscal Policy and Tax Reforms, which aims to tackle issues related to tax law reform, fiscal policy coordination, tax harmonisation and revenue administration.
To reduce foreign borrowing, Nigeria needs to enhance revenue, improve fiscal management, implement structural reforms, diversify the economy and attract foreign direct investment (FDI). Tinubu recognises the importance of increasing revenue through expanding the tax base, improving tax administration and combating tax evasion.
He aims to achieve an 18 percent tax-to-GDP ratio within three years and remove barriers to investment and economic growth such as the fuel subsidy and multiple exchange rate system. The establishment of the Presidential Committee on Fiscal Policy and Tax Reforms demonstrates his dedication to addressing these challenges.
The committee has been given an ambitious timeline, expected to deliver quick and critical reforms within six months and one calendar year, respectively. Tinubu’s emphasis on tax reforms reflects his understanding of the urgent need to support sustainable development and provide social services to Nigerian citizens.
Tinubu said: “The consequences of the ongoing failure of our tax regime are real and significant. The inability of the government to efficiently raise revenue has led directly to an over-reliance on borrowing to finance public spending.
“A government that cannot properly fund itself will also lack the flexibility or fiscal scope to sensibly manage the economy or respond to external shocks.
“Instead, debt service begins to consume an ever greater portion of the government’s already meagre revenues.
“This traps the economy in a vicious cycle of borrowing simply to service previous debt and leaves almost no scope for socio-economic development.
“As President, I am determined to end this cycle. On the day of my inauguration, I promised that my administration would address all of the issues impeding investment and economic growth in Nigeria.
“This promise is why I saw an end to the fuel subsidy. It is the reason the Central Bank has called an end to its multiple exchange rate system under my watch.
“It is for the same reason we gather here today to inaugurate the Presidential Committee on Fiscal Policy and Tax Reforms.”
Acknowledging Nigeria’s current international standing in the tax sector, Tinubu said the nation was still facing challenges in areas such as ease of tax payment and its tax-to-gross domestic product (GDP) ratio.
He said: “Our aim is to transform the tax system to support sustainable development while achieving a minimum of 18% tax-to-GDP ratio within the next three years.
“Without revenue, government cannot provide adequate social services to the people it is entrusted to serve.
“The committee, in the first instance, is expected to deliver a schedule of quick reforms that can be implemented within 30 days.
“Critical reform measures should be recommended within six months, and full implementation will take place within one calendar year.”
The President’s Special Adviser on Revenue, Zacchaeus Adedeji, praised the President’s successful revenue transformation efforts. He described the committee members as accomplished individuals from different sectors. The committee’s inauguration will allow them to engage with stakeholders, identify concerns about tax and fiscal policies, and collaboratively develop comprehensive solutions.
Oyedele, representing the Presidential Committee on Fiscal Policy and Tax Reforms (PCFPTR), promised to enhance tax payments for the benefit of Nigerians. The panel will ensure that tax payment policies are fair and not burdensome for vulnerable individuals. They will utilize appropriate data to create tax policies that promote seamless compliance and benefits.
He said: “The committee will not tax everything and everyone but those that can pay the tax, in order to protect the vulnerable citizens. Not having enough revenue means a lack of proper infrastructure development in the country.
“It’s a job that is possible with the support of Nigerians. Most developed countries that our people want to go to survive on tax instead of borrowings.”
He explained that payment of taxes would encourage the translation of revenue to better service to the citizens because “it means raising of revenue and where it will come from, such as removing multiplicity of taxes.”
“There is a huge tax gap. So, if we get every taxpayer to pay in the existing framework, it will go a long way.
“We will ensure that the Federal Inland Revenue Service (FIRS) is made to harmonise taxes and collect for most ministries, departments, and agencies (MDAs) that are charged to generate revenues. The MDAs will now facilitate revenue collection by concentrating on their core duties and thereby attract revenue.”
To address multiple tax challenges, Oyedele said all tiers of government are working together to create a national policy. The aim is to reduce taxes to promote prosperity, but this raises revenue generation challenges, as tax collection is below the required level by around N20 trillion. One proposed solution is for the FIRS to handle revenue collection on behalf of government agencies, allowing them to focus on their core mandates.
To stimulate economic growth, the committee plans to primarily tax consumption rather than investment or production. Measures are in place to prevent negative impacts on the average citizen’s quality of life, including exempting essential food items from VAT. The goal is to create an equitable system where those capable of affording luxuries contribute to the economy and society.
He said: “If you get everyone that needs to pay their taxes to pay, we will not be where we are. So, we think that the gap is somewhere in the region of N20 trillion.
“In addition to that, you would also imagine that we have inefficiencies in the way we collect the little that we collect.
“There are some areas where we expect that the increase (18 per cent tax-to-GDP) would come from.
“If we get to a point where it becomes necessary to look at existing tax rates and all of that, it will be as a result of the harmonisation of taxes that we have repealed from the current legislation.”
Tax compliance equals more economic opportunities, said World Bank country director, Shubham Chaudhuri. He explained that the global financial firm was involved to ensure that Nigeria delivers essential services to its citizens through proper revenue generation and spending.
He added that the objective of the committee was to have a standard operating procedure needed to enable the country generate revenue and encourage foreign investment.
“This committee will gain the trust of citizens by making them pay willingly and that the tax they pay will be used appropriately to provide the necessities a government must provide. This will translate to more economic opportunity for the citizens and the country,” he said.
Similarly, Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria (MAN) and a member of the committee, described the inauguration as a move that would help facilitate the nation’s growth.
“Businesses have no business not paying taxes. They only need to have the confidence that the tax would be fairly charged and deployed to facilitate a business environment and encourage foreign partnership,” Ajayi-Kadir said.
He also explained the involvement of MAN and other private sector players in the committee would be beneficial, as it would ensure only the “fruit and not the seed’’ is taxed in this new policy.
Reacting to the development in a chat with Daily Sun, executive director, Civil Society Legislative Advocacy Centre (CISLAC), Auwal Ibrahim Musa Rafsanjani, noted while the President’s intention of raising GDP to an average of 6 percent might seem ambitious, the plan to reduce over-reliance on borrowing for public expenditure was not.
He said: “This is because Nigeria’s total public debt could rise from 23.4 percent in September to 37.1 percent of its gross domestic product this year, close to the government’s self-imposed 40 percent limit due to new borrowings (N8.8 trillion/$11.81 billion) in 2023 to cover its budget deficit and a Central Bank loan-to-bond swap (swapping temporary overdrafts worth N23 trillion into long-term bonds). For this reason, the administration’s revenue mobilisation drive may be aggressive. However, there is a need to ensure a delicate balance between tax compliance and good governance.
“Thus, revenue performance, which is the economy, efficiency and effectiveness of revenue collection activities, must be improved and any focus on ramping domestic resource mobilisation must be through transparent, fair, just and progressive taxation. Taxation as a fiscal policy tool, remains the most sustainable and reliable source of public revenue of any modern state and Nigeria is no exception to the application of this submission. While most conversations about tax revenue performance is to advance one side of the argument either in favour of the government or of taxpayers, the narrative must move beyond the “blame game’’ to exploring areas of collaboration between government and taxpayers in the short to medium term.
“We must, however, not lose sight of the need to address the fundamental issues of inclusive economic growth, fiscal discipline and effective resource utilisation, among others, in the medium to long term. So as to whether paying taxes should come before enjoying the dividends of good governance or vice versa, it is instructive to note that tax compliance and good governance should exist side-by-side as the head and tail of the social contract that binds – or should bind – citizens and governments anywhere in the world. Hence, we must stimulate collaboration between government and taxpayers for improved tax revenue; strengthen connection between access to public services and tax compliance; implement policies on tax transparency; foster partnership with taxpayers on direct utilisation of taxes on infrastructure; involve informal sector groups in tax compliance efforts; and expand whistleblowing policy to gather intelligence for tax enforcement.
“We believe that the newly constituted Presidential Committee on Fiscal Policy and Tax Reforms, holds true potential for improving Nigeria’s fiscal position by enhancing revenue collection efficiency, ensuring transparent reporting, and promoting the effective utilisation of tax and other revenues to boost citizens’ tax morale, fostering a healthy tax culture, and driving voluntary compliance.”
Meanwhile, Tinubu’s decision to include a university undergraduate, Orire Agbaje, in his tax reforms committee has been hailed as a bold move towards a more inclusive and diverse decision-making process.
Agbaje, a 400-level student in the Economics Department of the University of Ibadan, brings a fresh perspective and youthful energy to the committee. Her inclusion not only taps into the ideas and insights of the next generation but also inspires other young Nigerians to engage in policy decisions that impact their lives.
Additionally, as an economics student and President of the Nigerian Universities Tax Club, Miss Agbaje possesses valuable academic expertise and practical knowledge that can contribute to the committee’s recommendations on Nigeria’s tax system.
Tinubu’s pronouncements at the inauguration of the tax committee will have several benefits. These include reducing reliance on borrowing, freeing up fiscal resources for infrastructure and social programs, attracting investments, stimulating economic growth, and creating jobs. The establishment of the Presidential Committee on Fiscal Policy and Tax Reforms demonstrates the government’s commitment to addressing these issues. The reforms, if successful, will transform Nigeria’s economy, leading to reduced borrowing and increased self-sustainability.
Effective fiscal management, including prudent budgeting, reduced wasteful expenditure, and improved transparency in financial management, is crucial to reduce the need for borrowing. Implementing structural reforms, such as diversifying the economy and addressing issues hindering private sector growth, will attract investment and stimulate economic growth.
While ending over-reliance on foreign borrowing is a gradual process, Nigeria can focus on building a strong domestic economy, improving revenue generation, and implementing necessary reforms. The government’s commitment to these issues is evident through the creation of the Presidential Committee on Fiscal Policy and Tax Reforms. Overall, by implementing comprehensive fiscal reforms, diversifying the economy, and attracting investment, Nigeria can gradually reduce its debt burden and achieve sustainable economic growth.
