Tax reform bills could threaten Nigerian federal system – Report

As the debate over the newly introduced Tax Reform Bill rages, a new research conducted by the Centre for Democratic Development Research and Training (CEDDERT) has provided further insight into the bills, concluding that they have serious implications for the current structure of the Nigerian federal system. The publication authored by Abubakar Siddique Mohammed and […]

As the debate over the newly introduced Tax Reform Bill rages, a new research conducted by the Centre for Democratic Development Research and Training (CEDDERT) has provided further insight into the bills, concluding that they have serious implications for the current structure of the Nigerian federal system.

The publication authored by Abubakar Siddique Mohammed and Aliyu Rafindadi Sanusi warned against bulldozing the National Assembly to quickly pass the bills, saying passing the bills “Without a national debate, may turn out to be counterproductive as it will heighten the tension in the country and further erode the trust Nigerians have in that important state institution.”

The publication titled, “Economic and Political Implications of the Nigerian Tax Reform Bill, 2024” analysed the various provisions of the bills, saying they were full of half-truths, saying, “The undue focus on revenue sharing and derivation component is deliberately heightened to achieve this, when there are several more important issues for the ordinary Nigerians as well as constitutional matters.”

The introduction of the four executive bills on tax reform has triggered national debate with many Nigerians opposed to the bills.

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The bills are the Nigeria Tax Bill (NTB) 2024; the Nigeria Tax Administration Bill (NTAB); 2024, the Nigeria Revenue Service Establishment Bill (NRSEB) 2024, and the Joint Revenue Board Establishment Bill (JRBEB).

The move to change the Value Added Tax (VAT) distribution formula using the derivation based model has generated controversy in the polity.

However, in analysing the bills, the authors also rejected a move to increase the VAT from 7.5% to 15%, saying, “This increase in the prices of VATable goods will eventually trigger increases in the prices of other goods that are exempted from VAT in the second-round effect.

“This is because the production or distribution of these non-VATable goods requires VATable goods. This means the rate increase will be inflationary at a time when the Central Bank is struggling to bring inflation down and poverty and economic misery are rising. The timing for increasing the VAT rate is not only wrong but also indicative of the insensitivity of the leadership to the current policy-induced suffering,” the publication added.

On the Nigeria Tax Bill 2024, which seeks to repeal all the existing laws on taxation in Nigeria and some of its institutional arrangements and provide a unified fiscal legislation for Nigeria, including states and local government, the publication stated that while the “objective is desirable, some of the provisions have adverse consequences on individuals’ welfare, the economy and Nigeria’s federalism.

“It is, therefore, not enough to focus on the objective of the reforms but on the implications of the specific provisions that are injurious to society,” he added.

They also opposed the move to gradually abrogate the Tertiary Education Trust Fund (TETFund) by 2030, saying, “Without the TETFund, there will be no capital intervention in public universities after 2030.

“It also means that the activities of TETfund will slow down from next year since its allocation will be substantially reduced from 2% of profits to only 1% (i.e., 25%*4%) in 2025 and 2026.

“The bill abrogates NASENI and NITDA: by moving their allocations to SELF, these organisations will have no funding and will have to close down.

“Again, this is a practical way of closing down these agencies because if their funding is put on the annual budget, it will be a matter of time before they are viewed as unnecessary burdens on the government’s budget and closed down.”

Another salient issue raised in the publication was the plan to introduce consultants into tax administration.

While the Chairman of the Presidential Tax Reform Committee, Taiwo Oladele has debunked the allegation, the authors stated that the bill, “By proposing the introduction of technology, coupled with the provisions that empower the authorities to engage consultants ( Part III S.11(3) and S.19(4)) and third-party platforms or computer software ( S.69(1-2)), and the unification of all collections of all taxes by one single authority (the Nigeria Revenue Service bill), is preparing the grounds for contracting a private sector consultant and companies for (an insanely humongous fee) for tax collection since the authorities could declare that they do not have the technical capacity to undertake such overwhelming tasks.

They stated that others would also present the “government inefficiency” argument to justify the introduction of private sector consultants.

“This happened after the sudden introduction of the Treasury Single Account (TSA), which justified the engagement of Remita to serve as the collection agent. Rushing to pass the bill before the unified authority is ready with the requisite technology and capacity would only justify this. It is reasonable to allow the unified authority to acquire the capacity for tax collection before making it effective,” the publication added.

On the provision to alter the VAT sharing formula, Muhammed and Sanusi argued that the major contestation “Is the extent to which “derivation” reflects the location of final consumption since the constitutional origin of VAT is the consumption tax.”

The publication said, “Unlike petroleum resources, where the quantity derived from a state is easily measured and verified, there is no credible and verifiable data relating to the geographical location of the final consumption of the VATable goods and services in the federation. A few Vatable goods may have, but most of the others do not have and are impossible to obtain.

“The failure of the proposers of this increase in VAT derivation to properly conceptualise VAT and contextualise its distribution within a federation is a dangerous slippery slope towards injustice. Calling for higher derivation (it started as a call to allow states to collect 100% VAT) is akin to, and will soon lead to, calls for states to collect import duties or ask for derivation. It is part of the larger political movement for so-called resource control.”