• Governors’ cooperation, political will required to implement laws
• Govt at risk of revenue loss over inefficiency, sabotage
Less than a week after the much-expected tax retooling laws were signed, there are rising concerns that the ambitious objectives of the reforms could be derailed by entrenched political structures, vested interests and coordinated failure.
The government is looking at pushing through President Bola Tinubu’s ambition of raising the country’s tax-to-output ratio, which is considered one of the lowest in the continent, to 18 per cent in the life of the current Medium Term Expenditure Framework (MTEF), transitioning into a more progressive tax system, building a more supportive fiscal framework and streamlining collection.
However, gaping holes in the pieces of legislation could derail the implementation and scuttle the ambitious goals, a possibility that calls for urgent realignment and tackling of the inherent witness.
The government may have also ignored a critical part of the transition of the institutional frameworks, including capacity building, without which the country risks huge revenue losses.
Whereas the bills have been assented to by the President and a six-month transition window handed down to the relevant agencies, The Guardian understands the scope of work required to be executed before January was understated.
Some policy experts have suggested that the presidential assent should mark another round of consultation as debates on some of the conflict points concerns were hurriedly concluded, which poses a ‘landmine’ threat to the execution.
Questions are also emerging around the overlapping mandates of revenue-collecting institutions, including the Nigerian Customs Service (NCS), the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the proposed tax behemoth – Nigeria Revenue Service (NRS) – which will succeed the Federal Inland Revenue Service (FIRS).
With the three agencies making close to N1 trillion in Cost of Revenue Collection (CORC) in 2024 and the collection now going to be handled by the NRS, who will take two per cent as CORC, stakeholders told The Guardian that the funding of NUPRC and NCS could be undermined.
In 2024, CORC by NUPRC was N279.6 billion against N114.8 billion in 2023. The Federal Account Allocation Committee (FAAC) showed that as of November last year, the three agencies had retained a total of N924.73 billion as CORC, which experts had condemned for breeding corruption.
The Petroleum Industry Act (PIA) and other statutes have conflicting and unresolved provisions on revenue collection. Besides, there are pending litigations over the administration and collection of the value-added tax (VAT) collection between some state and federal governments.
The litigations, which are yet to be dispatched, are some of the landmines the new tax laws would have to survive to serve as the country’s tax administration grundnorm.
Critics fear the tangled institutional landscape could provoke turf battles and legal disputes undermining the effective implementation of the tax reforms.
Wider apprehension surrounds the impact on states, given that personal income tax is their primary source of internally generated revenue. With limited numbers of high-income earners in most states, stakeholders fear the new tax regime could shrink state-level revenues and widen fiscal gaps, particularly where exemptions shield large segments of formal wage earners.
Hence, a former president of the Chartered Institute of Bankers of Nigeria, Prof. Segun Ajibola, observed that the transformation of the FIRS into a mega revenue agency might yield no more than a change of name unless fundamental capacity gaps are addressed.
He proposed the establishment of a federal implementation think tank or committee to coordinate the transition harmonise roles across affected agencies and resolve legal conflicts that might arise between old laws and the new reform framework.
He cautioned that the new agency may struggle to match the operational effectiveness of the NCS and the NUPRC whose enforcement arm includes well-trained officers at border points and ports.
Ajibola also warned of likely resistance and sabotage from state and agency actors who risk losing resources and influence. He further predicted that gaps or conflicts overlooked during the drafting of the new laws might require legislative amendments within the next year.
“These reforms touch the heart of the Nigerian economy,” he said, adding that effective implementation and a clear road map were critical to delivering their promised benefits,” he said.
Ajibola also raised concerns about how agencies like the NUPRC, which previously retained a portion of collected revenue to fund their operations, would survive financially under the new arrangement.
A petroleum economist, Prof. Wumi Iledare meanwhile urged the government to ensure that the reform does not erode the potency of the PIA, which has stabilised Nigeria’s oil and gas investment climate.
He argued that weakening the financial autonomy of the NUPRC or the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) could damage investor confidence in a sector, that drives the national economy.
“The tax act must align with the provisions of the PIA. Conflicting policies will only undermine one of the country’s most significant energy sector reform achievements,” Iledare said.
The professor stressed that while the law is in place, its implementation requires practical wisdom and consistency.
Also, an accountant, Abubakar Umar, said the supremacy clause in the reform act could allow the federal government to override previous arrangements in tax collections by key agencies.
Umar, however, acknowledged that side deals and political compromises often override black-letter law in Nigeria, a development that may make NUPRC and NCS continue with their current tax collection roles.
Speaking on the cost of revenue collection, Umar said: “I would not be surprised if the current four per cent arrangement persists because it is one thing to provide for something in the law, and another thing for its implementation to take the course.”
He also drew parallels to the NCS, which currently receives a seven per cent cost of collection through the Federation Account Allocation Committee (FAAC), despite its enabling law specifying “not less than four per cent”.
“Government does not always follow its written law to the letter. Concessions and political compromise happen based on circumstances,” he said.
Tax experts also emphasised the need to pay close attention to the sub-nationals to get the benefits of the newly signed laws. Claiming that the states are the hearts of the reform, they argued that if they are not given full autonomy to operate, it might become a major challenge at the start of implementation.
The immediate past president of the Chartered Institute of Taxation of Nigeria (CITN), Samuel Agbeluyi, said the need for strong political will by state governors and security agencies is critical to tackling challenges ahead.
He said capacity building for administrative and financial autonomy to the states to organise themselves and implement the law. He cited an instance where people collect taxes that never got into the government’s coffers, noting that they would not give just because there are new laws.
“There is a need to start paying attention to the states as 95 per cent of Personal Income Tax (PIT) is collected by the states. The states are the hearts of the reform laws.
“We need the governors’ political will and security agencies’ will to wade in. This should not be a case or an era of using tax collection to settle politicians.
“Secondly, there is the need for capacity building. You have to give administrative and financial autonomy to the states to organise themselves. There is a need for autonomy and a free hand for the states’ IRS to implement,” he said.
Similarly, the new President of the CITN, Innocent Ohagwa, described the four laws as massive, saying it is the first time in the history of the country that tax regulations are on the front burner.
He noted that the level of waivers, incentives, and amendments that went into the bills was massive, making the process a game-changer for the country.
“The signing is a step in the right direction, all the ICT involved in tracking business transactions at all levels will be there. Going forward the data will be there to show where you are. It is a win-win for everyone, including the employers and employees as well as small businesses.”
Considering the weak culture of taxation in the country and how the citizens and businesses will engage with the new tax system, Ohagwa said: “It is important that it is people-focused and not targeted on revenue mobilisation because, in the short-run, revenue may drop because there are existing loopholes and gaps. But it would bring relief to those who are not in the tax net and give relief to the less privileged.”
On whether six window is not too long and what the government and tax body should do within, the CITN chief said: “If you take the three months that you need to give before implementing a new law, it will be too short for these laws due to the level of the reforms.
“During the period, regulations would be prepared; there would be transition issues,” he said. (Guardian)
