By Chinwendu Obienyi
In functional systems, taxation remains a cornerstone of development and will continue to play a key role in shaping progress. For developing nations to be weaned off aid dependency and eradicate poverty on a larger scale, nation builders say it is essential that revenue authorities are empowered to collect taxes efficiently and sustainably.
Economists emphasise that improving tax collection can be achieved by focusing on turnover taxes in manufacturing industries, as these are harder to evade. Furthermore, refining the collection of personal income tax, value-added tax (VAT), and local property taxes will contribute to a more robust and efficient tax system.
However, the ability of any developing country, such as Nigeria, to effectively collect taxes is not solely determined by the policies it adopts, but also by the swift and efficient implementation of those policies.
For decades, Nigeria’s tax administration has been plagued by inefficiencies, leaving the country struggling to generate sufficient revenue to revitalise its flagging economy.
This ongoing is sue has made it challenging for the government to tackle the economic difficulties that persist across the nation.
It is within this context that President Bola Tinubu’s 2024 tax reform bill, presented in November, sparked nationwide debate and concern. The proposed reforms, from experts’ lenses, remain a bold step toward addressing long-standing tax collection inefficiencies and laying the foundation for a more sustainable and self-sufficient economy.
The bill, in clear analysis, aims to streamline existing frameworks, such as replacing the Federal Inland Revenue Service (FIRS) with the modernised Nigeria Revenue Service (NRS), ensuring fairness and transparency in tax collection as well as sanitising the fiscal policy and legislative milieu in the country.
Critics, however, pointed to potential pitfalls: increased burdens on consumers through VAT, challenges for northern states with less diversified economies, and the risk of higher compliance costs for medium-sized enterprises (MSMEs).
Furthermore, this debate reflects broader concerns of trust in government expenditure and whether the projected revenue increases will lead to tangible public benefits.
However, looking at the big picture, when compared to the likes of Ghana and South Africa, Nigeria’s proposed tax reforms focus on reducing tax rates, broadening the tax base, and incentivizing infrastructure investments. Whereas, South Africa and Ghana have a relatively high tax burden with a focus on improving efficiency and equity by reducing tax expenditures and broadening the base. Already, Nigeria’s expenditures have been on a high due to its borrowing spree embarked by different administrations.
For instance, in the first half of 2024, Nigeria generated N3.73 trillion in retained revenue, marking a 33.3% increase from the N2.8 trillion recorded in the same period of 2023.
Despite this growth, the government’s expenditures, particularly on debt servicing, significantly outpaced revenue. Debt servicing alone consumed 162% of the total revenue, highlighting the fiscal pressures in the country. Just recently, data obtained from the Debt Management Office (DMO), revealed that the country’s debt surged to N142.3 trillion as of September 2024.
Also, despite a trade volume record of N196 trillion recorded in 2024, the World Bank has stated that the country’s participation in intra-regional trade and investment in Sub-Saharan Africa remains below expectations, despite being the region’s largest economy and population center.
The group also stated that the country has not yet established itself as a significant source of foreign direct investments (FDIs) or remittances in the Sub-Saharan African region.
Similarly, things could fall apart quickly for the country who have fallen down the pecking order of one of the fastest growing economies following concerns about plans made by the U.S President, Donald Trump, who has stated that the country will establish an external revenue service to impose tariffs and taxes on other countries.
Hence, this has led to growing calls for an urgent revamped tax system from different economic experts who have stated that the move by Trump could complicate the already global tax system.
Experts’ views
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, while criticizing the move, said this could disrupt global trade and complicate tax systems.
Regarding how Nigeria can mitigate the impact of this development on its economy, Oyedele emphasized that Nigeria must urgently revamp its tax system to mitigate the potential negative impacts and capitalize on opportunities arising from such global shifts.
By revamping our tax system, we can better navigate potential challenges and seize any opportunities this development may present,” he added.
Speaking during a review of Nigeria’s Macroeconomic and sectoral outlook in the year, the Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, noted that while specific details on tax policy are pending, Trump has indicated plans to implement significant tax cuts aimed at stimulating the country’s economic growth.
These cuts, he said, are expected to target both individual and corporate tax rates, with the objective of increasing disposable income and encouraging business investment.
“The cost of such a massive tax cut will be the ballooning effect of the U.S fiscal deficit with its attendant impact of global dollar supply, interest rates and exchange rates. Hence, the Federal government, if and when the tax bill is in place, can introduce tax benefits for private entities partnering with governments to finance and develop infrastructure projects.
Also, the government can look at how to simplify tax registration and compliance processes, making it easier for small and informal businesses to enter the formal sector”, Chukwu explained.
For his part, the Secretary, Eminent Elders Forum, Akin Fapohunda noted that Nigeria does not cut a picture of a united front which could hinder the success of the tax reforms currently being rolled out.
“There have been so many issues on this particular matter especially when it borders on tax reforms. The very first foundation is that Nigeria does not cut a picture of a united front. This is why there are calls for regionalization. A unitary tax system is being brought out but there are different flavours of life when it comes to the North, South and the East. The Federal Civil service in Abuja is blighted and so if you do not reform the public service and you want to embark on tax reforms, it will be a total waste of time. The country has to be well structured and re-organised before tax reforms can work”, Fapohunda said.
Conclusion
While Nigeria’s tax reform ambitions are commendable, successful implementation requires addressing systemic issues like governance inefficiency, regional economic imbalances, and public trust. By incentivizing infrastructure investment and easing entry into the formal sector, these reforms have the potential to stabilize Nigeria’s economy and bolster sustainable growth.