Cautious optimism as Tinubu’s tax regime takes off
What could be the centerpiece of President Bola Tinubu’s fiscal regime is gradually taking shape with a committee on tax reform inaugurated.
The Presidential Committee on Fiscal Policy and Tax Reforms headed by a renowned tax expert, Taiwo Oyedele, intends to work out the removal of all barriers inhibiting business growth. Last week’s resignation by Oyedele from PwC as a partner signals the importance of the assignment.
With Nigeria battling multiple taxations that have continued to impede businesses, the move by President Tinubu to redirect taxes to aid rather than stifle business growth has been expectedly welcomed by the business community.
The President also signed four executive orders, which include the suspension of the five per cent excise tax on telecommunication services as well as the excise duty escalation on locally manufactured products.
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.
Oyedele-led committee is saddled with the responsibility of aligning various aspects of tax law, fiscal policy design and coordination, harmonisation of taxes and revenue administration to improve the ease of doing business.
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 from 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.
According to the Debt Management Office (DMO), Nigeria’s total public debt stock is N49.85 trillion while over 99 per cent of the Federal Government’s revenue in the first nine months of last year went to debt servicing.
This probably explains the high appetite for increasing taxes by the past administration, which had most times put it on a 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.
There is no doubt that the latest move by President Tinubu has been eliciting positive reactions from both economic experts and OPS.
They are, however, worried that the good intentions of the President could be messed up by the overzealousness of government agencies like the Federal Inland Revenue Service (FIRS) with its proposed VAT direct initiative, which they considered to be out of place for now.
CEO of the 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 gives him 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.”
However, he faulted the plan by FIRS to introduce VAT for the informal sector, saying that it is misplaced, especially now that people are crying over the high cost of living.
On his part, Professor Uche Uwaleke of Nasarawa State University, Keffi, said the 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. Also, the Finance Act Variation Order 2023 is equally 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 a direct impact on the population need to be put in place to significantly ameliorate the adverse consequences of fuel subsidy removal. These should include the immediate rollout of palliatives promised by the government,” he explained.
Uwaleke maintained that while the President’s pronouncements would help moderate rising inflation, more measures with a direct impact on the masses should be put in place to significantly ameliorate the effects of subsidy removal.
In his opinion, Lead Director of the Centre for Social Justice, Eze Onyekpere said though the tax reforms are good they are temporary and expected to last only till September.
According to him, Nigerians may not be free from the excruciating pains of the current inflation unless the government rolls out palliatives that will cushion the effects of subsidy removals.
Onyekpere further stated: “Government needs to re-examine in its totality how to increase foreign exchange earnings by promptly blocking all avenues of oil theft to increase the nation’s crude from the current 1.2 million barrels per day to at least 2.1 million barrels per day as witnessed in 2013, 2014, we should make sure we go back to that era.
“The tax reforms are good for the manufacturers but will be short-lived because they are just temporary, the government should make sure palliatives are put in place”, he said.
On his part, a former President Association of National Accountants of Nigeria (ANAN), a professor of accounting and finance, Muhammad Akaro Mainoma, said the whole motive of the tax reform is to make business more attractive 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 while allying himself with the three months suspension.
“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.”
Prof. Sheriffdeen Tella, an economist, said that the tax corrections made by President Tinubu are in order and can serve as incentives to manufacturers and increase production.
Tella stated that though the law will still be applied in the future, the businesses would have had adequate preparation to mitigate the negative impacts
The professor of economics at Olabisi Onabanjo University, Ago-Iwoye explained that prices of goods are expected to come down and encourage consumer purchase more.
He urged the government to demand reciprocity from the businesses through consultation and agreements.
Also speaking, a renowned economist, and founder of Financial Derivatives Ltd, Bismark Rewane revealed that the temporary tax reforms are good for businesses and manufacturers,
According to him, they are good for businesses and manufacturers because of the five per cent excise duties while it is also good for the government because of the revenues to be collected.
Rewane, who is also a lecturer at the Lagos Business School, however, said when passed to the market, it could be inflationary.
Professor Uche Uwaleke noted that the recently signed executive orders represent a welcome development as they will no doubt enhance the business environment and consequently improve the country’s ranking in the ease of doing business.
He stressed that the suspension of the proposed import tax adjustment levy on certain vehicles and excise tax on telecommunications and other locally manufactured products will help to moderate the rising inflation and increase productivity.
