Despite the ongoing legal battle challenging his election, President Bola Ahmed Tinubu’s recent actions towards reforming the Nigerian tax system has left many thinking perhaps, this guy has got something up his sleeves.
President Tinubu last week, signed four Executive Orders, which include the suspension of the five percent Excise Tax on telecommunication services as well as the Excise Duty escalation on locally manufactured products.
He explained that this is to curb multiple taxation which a cross-section of Nigerians and the business community have always complained is impeding business in Nigeria.
The President also suspended the Finance Act 2023 deferring the date of its commencement from 28th May, 2023 to 1st of September, 2023.
The Presidency had explained that the action became necessary as some of the tax policies are being implemented retroactively with their commencement dates, and in some instances, pre-dating the official publication of the relevant legal instruments backing them.
The government has also followed it up with the setting up of Presidential Committee on Fiscal Policy and Tax Reforms with responsibility for the various aspects of tax law reform, fiscal policy design and coordination, harmonization of taxes, and revenue administration.
Nigeria ranks very low on the global ease of paying taxes while the country’s Tax to GDP ratio is one of the lowest in the world and well below the African average.
The country has struggled with low revenue issues resulting to an overreliance on borrowing to finance public spending which in turn limits the fiscal space as debt service costs consume a greater portion of government revenue. To date, according to the Debt Management Office (DMO), Nigeria’s total public debt stock is N49.85 trillion.
This probably explains the high appetite for increasing taxes by the past administration which has most times put it on collision course with members of the organised private sector (OPS).
It has been a struggle over the years as the OPS, comprising the Manufacturers Association of Nigeria (MAN), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) as well as the Nigerian Employers Consultative Association (NECA) had on several occasions held extensive discussions with government officials on the need to reduce the tax burden on manufacturers who are mostly struggling to stay afloat.
This latest move by President Tinubu which is seen in the business community as a masterstroke, is eliciting positive reactions from both economic experts and the organised private sector.
They are however worried that the good intentions of the president could be rubbished by the overzealousness of some government agencies like the Federal Inland Revenue Service ( FIRS) with its proposed VAT direct initiative which they consider to be out of place for now.
In his reaction, the CEO of Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf argued that the decision of the president to revert some of the taxes was commendable and demonstrates the fact that he is a listening and responsive president.
According to him, “Given all the challenges that the economy has been facing, especially on the fuel subsidy removal , it is only fair that we reduce other taxes otherwise many businesses will go under.
“Secondly, these taxes have implications for inflation and the citizens have been complaining about the high cost of living, production and operating cost.”
He however faulted the plan by the Federal Inland Revenue Service (FIRS) to introduce VAT for the informal sector, saying that it is unnecessary, not even now that people are crying over the high cost of living and doing business they will be going round and collecting taxes. “We don’t need that,” he said, adding, “It is not even good for the image of the administration, because people will just perceive that Tinubu is harassing everybody including poor people to pay tax.”
On his part, Professor Uche Uwaleke, of Nasarawa State University, Keffi, said that Executive Orders were a welcome development that would enhance the business environment and consequently improve the country’s ranking in the ease of doing business.
“The suspension of the proposed import tax adjustment levy on certain vehicles and the excise tax on telecommunications and other locally manufactured products will help to moderate the rising inflation and increase productivity,” he said.
“Also, the Finance Act Variation Order 2023 is equally in order to enable taxpayers to adjust to the new provisions in line with the National Tax Policy.
“Much as these developments will help moderate rising inflation, more measures with direct impact on the population need to be put in place in order to significantly ameliorate the adverse consequences of the fuel subsidy removal. These should include the immediate roll out of palliatives promised by the government.”
On the VAT direct initiative, Professor Uwaleke said the VAT direct initiative involving the informal sector is meant to widen the VAT base.
He said ordinarily, this should be a welcome development as it will result in more revenue for the three tiers of government.
“But the major snag I see with this initiative is the timing. The government has yet to sort out the challenge of multiple levies that small businesses face. The implementation of the VAT direct at a time when the cost of energy is rising astronomically will only feed into galloping inflation as traders and service providers pass on the VAT charges to final consumers of goods and services who end up bearing the burden.”
He said it may lead to low demand and patronage of services offered by the informal sector which in turn can bring about business failures and job losses. “Let’s not forget that the informal sector in Nigeria constitutes more than 50 percent of GDP.
“So, I would advise the FIRS to postpone the implementation until the economic conditions improve especially availability of affordable electricity and fuel,” he said.
For Mrs. Titilayo Fowokan, a council member of the Chartered Institute of Taxation of Nigeria (CITN), the whole idea of VAT direct is still vague.
According to her, “I am still trying to understand the VAT direct initiative myself because the VAT mechanism is not as direct as it is portrayed.
“There are issues around small companies with turnover of less than N25 million exempted from VAT. How many of these Traders will fall outside the category? This is a pertinent question to be answered. Also, there are exempted items such as basic food items and some other products. How many Traders sell such goods in the Market Traders Association of Nigeria (MATAN) members is also for consideration.”
She said apart from VAT, the MATAN members will have other tax obligations once they are brought into the tax net. “I am not sure this has been clearly defined for them,” she noted.
She said there are various considerations required for VAT compliance and how this VAT Diret initiative will address them is still not so clear.
“It will be good for the government to build trust in the taxpayers by being accountable for taxes collected to encourage voluntary compliance which has less cost implications for both the taxpayers and the Government,” she said.
Lead Director, Centre for Social Justice (CSJ), Eze Onyekpere, said he has some reservations about the whole idea of VAT direct. According to him, “First of all if they are going to collect VAT you know that a number of things you find in the open market are not VATable, most of these businesses are one man business, only a few of them are Micro, small and Medium scale businesses and there are exemptions that these people have been given. “So first of all you need to sort all these out, before we jump into the market. But I believe FIRS should have more innovative ways to generate revenue,” he said.
On his part, a former President Association of National Accountants of Nigeria (ANAN), a Professor of Accounting & Finance, Professor Muhammad Akaro Mainoma said the whole motive of the tax reform is to make business more lucrative in terms of incentives to participate in the economy.
He noted that the likely implications are that it is going to encourage investors and it is going to reduce the multiplicity of taxes.
He said that the three months suspension is in order because, according to him, “the law says before introducing a new tax you need to give people some time at least 90 days to see how they can comply, but in the case of the Excise tax on telecommunication, they started implementation almost immediately and that is not the tradition. So what the President did was to make sure they comply with the best practice.”