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Revamping Nigeria’s Tax System: Harmonization and Tax Reforms to Boost Revenue and Encourage Investment

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In a bid to alleviate the longstanding challenge of multiple taxation and to bolster revenue generation, both Nigeria federal and state governments in recent tax reforms have embarked on a significant endeavor to harmonize and codify taxes at both the national and sub-national levels. The move comes as a crucial step in tac reforms in order to enhance the business environment, increase investor confidence, and drive economic growth.

President Bola Tinubu is set to inaugurate the Presidential Committee on Fiscal Policy and Tax Reforms, a pivotal body tasked with overseeing these reforms. Leading the committee is Taiwo Oyedele, a seasoned expert in fiscal policy and Africa Tax Leader at PriceWaterhouseCoopers (PwC).

At the recent 153rd board meeting of the Joint Tax Board (JTB), attended by tax administrators from all 36 states and the Federal Capital Territory in Abuja, Chairman Muhammad Nami emphasized the board’s steadfast commitment to this harmonization initiative. Nami highlighted that the previous attempts at tax harmonization had fallen short of their intended goals. However, with the current administration’s determination to eradicate the complexities of multiple taxes, the initiative is expected to gain traction.

For decades, the issue of multiple taxation has burdened businesses operating in Nigeria. Entrepreneurs have consistently voiced concerns about paying various taxes, levies, and fees to different tiers of government, leading to adverse effects on their enterprises. This reform is intended to streamline the tax system, reduce inefficiencies, and attract more investment.

Despite the challenges posed by multiple taxation, Nigeria’s tax-to-GDP ratio remains notably low at 10.8%, ranking among the lowest globally. Nami, who also serves as the executive chairman of the federal Inland Revenue Services, revealed that the government is targeting the reduction of the current tax categories, sealing gaps in the tax system, and ultimately increasing revenue for all levels of government.

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The overarching goal of this initiative is to foster a tax-friendly environment that encourages investment, while ensuring coherence and efficiency in tax administration across all levels of government. By eliminating the overlapping taxes and streamlining the process, the government aims to raise more revenue and stimulate economic growth.

Nami emphasized, “The implication is that, what we call informal taxes, black taxes, whatever name you call it, at both local government, state and at the centre, the intention of government is to eliminate those multiple taxation to encourage investment, to raise adequate revenue because the irony of everything is that the more of these taxes that we have, the less of the revenue we generate.”

The Joint Tax Board is also committed to bringing the informal sector into the fold of the tax administration process. Through careful planning and partnerships with informal trade unions, the government intends to ensure that services and goods that are not taxable remain exempt from taxation.

Obomeghie Nana-Aisha, the Executive Secretary of the Joint Tax Board, expressed the government’s determination to simplify tax payment processes and enhance transparency in tax collection.

Noted tax expert Taiwo Oyedele emphasized that the solution to Nigeria’s tax revenue challenge lies not in introducing additional levies and taxes, but in focusing on those that yield high revenue and are easy to administer. Oyedele stressed that streamlining the tax categories would not only attract more revenue but also create a more favorable environment for businesses to thrive.

The committee’s chairman also drew attention to the stark comparison between Nigeria and South Africa in terms of tax revenue. Despite Nigeria’s larger economy and population, South Africa managed to collect significantly more taxes in 2022, underscoring the need for effective tax reforms.

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In conclusion, the federal and state governments’ joint effort to harmonize and reform the tax system in Nigeria reflects a significant stride toward improving the investment climate, reducing burdens on businesses, and driving economic growth. With a focus on eliminating multiple taxation and optimizing revenue collection, this initiative holds the potential to reshape Nigeria’s fiscal landscape and stimulate sustainable development.

 

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