Nigeria tax to GDP ratio below global average -Abbas
From Ndubuisi Orji, Abuja
The Trade Union Congress (TUC), Supreme Council for Shariah in Nigeria (SCSN), Committee of FCT Imams Initiative, Kano State Government and former presidential adviser, Professor Auwalu Yadudu have kicked against the proposal to increase the Value Added Tax (VAT) from the current 7.5 percent to 15 percent by 2030 and the proposed law on inheritance, as part of the tax reform programmes by the Federal Government saying it would infringe on the religious rights of Christians and Muslims.
The stakeholders disclosed this during their various presentations at the House of Representatives Public Hearing on Tax Reform Bills convened by the House Committee on Finance at the National Assembly Complex, in Abuja, yesterday.
The TUC and SCSN, in their separate presentations said an increase in VAT will impact negatively on the people.
The four tax reform bills transmitted to the National Assembly by President Bola Tinubu, on October 3, 2024, were passed for second reading by the House on February 12.
The proposed legislations which include the Joint Revenue Board of Nigeria (Establishment) Bill, 2024, The Nigeria Revenue Service (Establishment) Bill, 2024, The Nigeria Tax Administration Bill, 2024 -and the Nigeria Tax Bill, 2024, had been stalled in the Green for four months, owing to controversies over some of the clauses, before their eventual passage for second reading.
Specifically, Section 146 of the Nigeria Tax Bill provides for an increase in VAT from the current 7.5 percent to 10 percent in 2025, 12 . 5 percent in 2026- 2029 and 15 percent in 2030.
Nonetheless, the TUC Secretary General, Nuhu Toro, in his presentation, on behalf of the Congress said the proposed increase of VAT from 7.5 percent will impose more hardship on the people.
“Allowing the VAT rate to remain at 7.5 percent is in the best interest of the nation. Increasing it will place additional burden on Nigerians, many of whom are already struggling with the economic challenges and realities at a time when inflation is on the rise. Additional taxes will further strain households and businesses which eventually might slow down the economy. We are strongly of the opinion that VAT should remain at 7.5 percent.
“Secondly, we propose an increase in the tax exemption bracket to N2.5 million. The threshold for tax exemption should be increased from the current N800,000 as proposed in the bill to N2.5 million per annum. This will provide relief for struggling Nigerians within that income bracket easing the economic realities and increasing their disposable income.
“Our third concern is on TETFund and National Agency for Science and Engineering Infrastructure (NASENI) which is due to be scrapped and be defunded. The TUC is of the opinion that both TETFund and NASENI should remain a growing concern as these institutions have greatly impacted the country through their respective mandates. Both have been respectively instrumental in improving our Tertiary education and adopting a homegrown technology to enhance national productivity and self-reliance. Their continued existence is vital for sustaining progress in education, technology and economic development across the length and breadth of this country.”
In its presentation, the Sharia council represented by Professor Ahmed Bello Dogarawa, acknowledged the importance of tax reforms but strongly opposed the proposed inheritance tax, stating that it conflicts with Islamic law and religious practices.
“While we appreciate efforts to streamline tax laws, we cannot support a provision that contradicts deeply held religious principles. Taxing inheritance in this manner would create unnecessary tension and legal challenges.”
The council also called for the modification of the clause on inheritance tax and called for the entire expunging of Section 4(3) Part 1, Chapter 2 of the Nigeria Tax Bill.
“The new clause should read as either of the following: “In this section, the reference to family income or however called, shall not affect the operation of distribution of the estate under the Personal Law of the deceased.
The council also raised concerns over removing tax exemptions for religious institutions, warning that it could hamper their ability to provide community services.
“Any attempt to tax inheritance would be seen as an infringement on religious rights and could create legal disputes,” he said.
He added that if the federal government insists on maintaining inheritance tax, the bill should be amended to explicitly state that it does not apply to estates distributed under personal law (Sharia law, among others).
The council said the term “derivation” in the bill was vague and ambiguous, saying that it must be properly defined.
Professor Dogarawa said that derivation should be explicitly defined as the location where actual consumption takes place.
In its presentation, the FCT imam committee represented by Dr Umar Aliyu, the Imam of Banex Mosque Abuja, said his association strongly opposed any form of taxation on religious institutions and faith-based organizations.
He said religious institutions play a crucial role in community development and welfare; therefore, imposing taxes on mosques and religious centres would create financial hardships and discourage charitable activities.
Like the Sharia council, the imams also opposed VAT increment but rather proposed a reduction of VAT rate from 7.5 percent to 5 percent or at best, the current rate of 7.5 percent should be sustained.
The association also proposed that the clause which seeks to stop the funding of TETFund, NASENI and NITDA by 2030 should be expunged from the bills.
The clerics also opposed the development levy, arguing that it would place unnecessary financial strain on religious institutions that are already playing a key role in supporting the needy.
Also, representatives from the Kano State Government voiced their general support for tax reforms but cautioned that certain sections would undermine state autonomy.
“We support tax modernization,” one official said, “but we must ensure that this process does not come at the expense of states’ constitutional rights and economic stability,” Mahmud Sagagi who made the presentation said.
Yadudu, a professor of constitutional law, said the ‘supremacy clause’ and the repeated use of “notwithstanding” in the bills will undermine the supremacy of the Nigerian constitution.
“The act or the bill being proposed is given the supremacy status like the Constitution. Only the Nigerian Constitution has supremacy, and therefore if you were to enact any of these bills and you enact them on the basis that they are supreme over any other law which would contradict them, then that would be wrong, and that would be contrary to the Constitution,” he said.
He also observed that it is constitutionally wrong for the National Assembly to create tax boards for states and local governments as proposed in the bills.
Yadudu said the proposed Nigerian Revenue Service board should consist of representatives from the 36 states and the FCT to make it truly federal.
“In the boards that you have established, I think it is the tax administration, you are establishing a board, management board, giving the name National Revenue Service, but having members that are only ex-officials mainly with the chairman of the board and six representatives of geopolitical thoughts.
“I think this goes contrary to the federal character of this nation in that you either call it Federal Revenue Service Board, in which case you can have any number of ex-officials of your members or if you want to make it truly federal, then you should have each state represented on that board. My preference is that it will be federal.”
The Nigerian Customs Service (NCS), in a presentation by its Comptroller General (CG), Adewale Adeniyi, said the tax reform bills will make the county more business friendly and competitive. Nonetheless, he expressed concerns that it might bring about jurisdictional conflicts.
According to him, ”our concerns are laid out in a 17-page document, but key areas of conflict include Section 23, 29, and 41A of the Joint Revenue Bill.
“With success stories like Morocco’s customs modernization, which increased revenue by 37 percent and reduced clearance times by 65 percent, Nigeria’s Customs Service argued for preserving its autonomy. In fact, the NCS noted that since the enactment of the NCS Act in 2023, Nigerian customs revenue had surged by 92 percent, and trade facilitation had markedly improved. We should encourage collaboration between customs and tax authorities, not abolish customs or repeal an existing law.”
Also, the Nigeria Liquified Natural Gas (NLNG), represented by Clement Efeyita, manager, Tax and Finance, canvassed a zero VAT for exports.
Efeyita explained that “that way, exporters from Nigeria will be competitive globally. Another issue I would like to talk about is the fact that we would also like to mention that, and this is tied to the section to do with the Islamabad Act, we are of the view that agreements, contracts, that are already subject to the value-added tax rules should not be subject to ad valorem value-added tax.”
He added “we are clearly advocating that all companies that are subject to the current company income tax act at 30 percent as is being reflected in the Nigerian Tax Bill correctly, should be made to pay taxes in similar manner. “
Earlier, Speaker of the House of Representatives, Tajudeen Abbas, while declaring the public hearing open, said that Nigeria’s tax to Gross Domestic Product ( GDP) ratio is below the global average.
The speaker, who was represented by the House leader, Julius Ihonvbere, explained that the country’s economy is currently struggling with a tax to GDP ratio of 6 percent, against the World Bank minimum benchmark of 15 percent.
He explained that the bills represent critical proposals by the Executive arm of government to expand the country’s tax base, improve compliance, and establish sustainable revenue streams for our national development. Nevertheless, Abbas noted that the House will scrutinize the bills thoroughly, to ensure that the interests of citizens are protected in the government tax reform.
“This 10th House recognises the critical importance of the tax reform bills, the anxiety among Nigerians and the desire of the government to revamp our economy through an improved tax system and resolve to ensure a thorough legislative process that is open, transparent and inclusive.
“In every modern state, taxes are the bedrock of public revenue, providing the resources required to deliver education, healthcare, infrastructure, and security. Yet, Nigeria, despite being Africa’s largest economy, struggles with a tax-to-GDP ratio of just 6 percent which is far below the global average and the World Bank’s minimum benchmark of 15 percent for sustainable development.
“This is a challenge we must address if we are to reduce our reliance on debt financing, ensure fiscal stability, and secure our future as a nation.
“Taxes should be fair, transparent, and justifiable, balancing the need for public revenue with the burdens they impose on individuals and businesses. The House will, therefore, scrutinise these bills thoroughly, ensuring they align with the best interests of our constituents and the nation at large. We owe this duty to Nigerians, and as the People’s House, we must always be accountable to the people.”