Victor EzejaEconomic experts have emphasised the need for the Nigerian government to adopt economic measures that would lead to fiscal sustainability in the long term, not settling for what they described as a “feeding bottle economy.”
They made the comment in reaction to the Nigeria Governors’ Forum stand on the Tax Reform Bills currently at the National Assembly.
Join our WhatsApp ChannelThe NGF in a communiqué issued at the end of the subnational consultations and engagement with the Presidential Tax Reform Committee, on Thursday, 16 January 2025 announced endorsement of the proposed comprehensive reform of Nigeria’s tax system.
The Forum, however, expressed some reservations about the tax reform bills. It opposed the proposed increase in Value added Tax (VAT) rate from the current 7.5 per cent to 10 per cent, and reduction in Corporate Income Tax (CIT) at this time, citing the need to maintain economic stability.
To ensure equitable distribution of resources, the governors proposed a VAT sharing formula of 50 per cent based on equality, 30 per cent based on derivation, and 20 per cent based on population.
“Members agreed that there should be no increase in the VAT rate or reduction in Corporate Income Tax (CIT) at this time, to maintain economic stability, part of the communique signed by NGF Chairman and Governor of Kwara State, Abdulrahman Abdulrazaq, read. “The Forum advocated the continued exemption of essential goods and agricultural produce from VAT to safeguard the welfare of citizens and promote agricultural productivity.”
The forum also recommended that there should be no terminal clause for TETFUND, NASENI, and NITDA in the sharing of development levies in the bills.
Economic experts have emphasised the need for the Nigerian government to adopt economic measures that would lead to fiscal sustainability in the long term, not settling for what they described as a “feeding bottle economy.”
READ ALSO: Understanding What Tax Reform Bills Means for Nigerians- Experts
Prime Business Africa reports that reports that on 3 October 2024, President Tinubu transmitted four tax reform bills to the National Assembly for consideration, following the recommendations of the Presidential Committee on Fiscal Policy and Tax Reforms for the review of existing tax laws.
The bills include the Nigeria Tax Bill 2024, which is expected to provide the fiscal framework for taxation in the country, the Tax Administration Bill, which will provide a legal framework for all taxes in the country, and the Nigeria Revenue Service Establishment Bill, which will repeal the Federal Inland Revenue Service Act and establish the Nigeria Revenue Service, and the Joint Revenue Board Establishment Bill, which will create a tax tribunal and a tax ombudsman.
READ ALSO: Why Tax Reform Bills Must Be Passed – Experts
Some provisions of the bills including VAT sharing formula have been generating reactions political elites in some quarters.
The NGF position on the tax reform bills as contained in their communiqué has added to the ongoing debate about the reforms.
Economist and CEO of Timeline Consult, Shaibu Idris, faulted the decision of the governors in opposing the proposed increase in VAT.
Idris, who featured on Channels Television Sunrise Daily on Friday, while acknowledging that the timing of the increase in VAT rate may be wrong due to inflationary pressure on the economy currently, however, said the governors should have suggested the best time to implement the increment.
According to him, Nigeria’s tax-to-GDP ratio is still very low, hence the need for fiscal measures to ensure economic sustainability According to him, the governors should have
On his part, Taofiq Raimi, a development expert and policy analyst, who also featured on the programme, said what the governors’ stand on the reform bills amounts to maintaining the status quo of depending on federal allocations. He said the governors needed to be more creative and up their game to raise their Internally Generated Revenue (IGR) instead of heavy reliance on monthly federal allocations.
“I would have loved that they stay with what the bill has proposed,” Raimi stated.
He argued that the quest for improvement in standard of living and development of infrastructure on a sustainable basis cannot be actualized if state governments continue to depend on allocation from the Federal Government.
“The states need to do more. They need to adopt the philosophy or model like public private partnership in order to augment the revenue that is coming from the federal Government and also their IGR. I believe that what the tax reform bills have proposed should have been more sufficient,” Raimi stated.
He said that it makes no sense for the state governors to on one hand endorse tax reforms, but on the other hand, wants to maintain status quo.
He urged the governors and other stakeholders to look at the merits of the proposed reforms in critical areas, rather than a blanket rejection. On the development levies for TETFUND, NASENI, and NITDA, the analyst said Nigeria should modernize the tax system and the way things are done.
“Nigeria should modernize its tax system, modernize the way we do things. The world has moved from where we are today, where I would describe as feeding bottle economy, where every time you just think that for the next 20 years, the way things have been done should just remain the same.”
Idris criticised the governors for rejecting the VAT rate increase but insisting that the status quo should remain on the Company Income Tax, and development levy.
“I think we need to come out of the shackles of feeding bottle economy, where are just feeding people. Institutions, organizations, governments must rise up to do fundamentally three things: number we need to review the excessiveness of our spending, so that the cost of governance can be reduced.”
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
