Policy Weaknesses, Lack Of Reforms Hindering Nigeria’s Tax System – NESG

The Nigerian Economic Summit Group (NESG) has said weak policies and intractable reforms including poor public awareness of the nation’s tax system is hindering the realization of the full potentials of tax to development in Nigeria.

NESG Board member, Frank Aigbogun made the remarks at the NESG and the Federal Ministry of Finance, Budget and National Planning pre-28th Nigerian Economic Summit event with the theme ‘Critical Tax Reforms for Shared Prosperity’ last week.

“Policy weaknesses, lack of reforms, and public understanding prevent taxes from playing a significant role in development,” Aigbogun said while addressing stakeholders at the event that was held in Abuja.

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Aigbogun stated that the introduction of a yearly finance act has supported tax legislation and encouraged policy implementation, which can be strengthened by addressing issues related to tax compliance, taxation and support to households and enterprises.

Nigeria suffers from low tax compliance and that the country’s tax to GDP ratio stands at 6 per cent, which is significantly lower than the average across African countries, which stands at 18 per cent.

He also reiterated the need for a paradigm shift in Nigeria’s tax processes. “Political leaders can lead by example by supporting a cultural change through tax compliance,” he said, stating that taxes should promote economic growth, especially for MSMEs that contribute a huge part of Nigeria’s GDP.

The lead, NESG fiscal policy & planning thematic group, Taiwo Oyedele said the Nigerian economy is facing several challenges, including reduced foreign remittances, heightened insecurities, multiple exchange rate windows, low tax to GDP ratio and a high debt service cost to GDP ratio.
Some of Nigeria’s taxation issues include the introduction of new taxes on corporates, Naira devaluation, increased inflation at 18.6 per cent, unemployment at 33 per cent, poor policy coordination, petroleum subsidy and geopolitical tension/crisis.
Oyedele said the nation’s economy is affected by a myriad of issues. “Nigeria’s fiscal landscape has been bolstered by the national tax policy 2019, resulting in annual changes through the finance act,” he stated during his presentation at the pre-summit meeting.
Many experts believe that Nigeria needs improved coordination at subnational levels, improved capacity for revenue mobilisation and the funding of the federal allocation committee from taxes. Nigeria has a small tax base that continues to face structural problems. “We need to focus on tax harmonisation that is broad-based and properly defined,” Oyedele stated.
Senior public sector specialist, domestic resource mobilisation at World Bank Rajul Awasthi said Nigeria is a critical pivot for Africa’s progress, saying it’s essential to highlight that the Nigerian government is facing an existential crisis and that Nigeria’s accrued revenues will be significantly lower this year due to the debilitating impact of the fuel subsidy.
He stated that the Value Added Tax (VAT) compliance gap was immense, noting that in 2019, 3.1 trillion Naira was collected compared to 1.1 trillion Naira in 2021. “There is a need to rationalise tax expenditures, data sharing between Federal Inland Revenue Service (FIRS) and State Inland Revenue Service (SIRS) collectors. Property tax reforms, excise reforms through policy measures and a reform of the PMS subsidy regime by moving towards full elimination by 2024 are essential in improving Nigeria’s tax revenue,” he stated.
During a panel session, executive secretary of the Joint Tax Board, Aisha Obomeghie, said that there is a need to streamline taxes and levies collected by federal and state governments. She also reiterated the need to build up a robust database that will aid the collection of the right amounts of taxes, noting that the solution does not lie in introducing new taxes and agencies but in finding ways to enhance tax collection, which will help fund Nigeria’s recurrent expenditure.
Furthermore, she revealed that tax revenue sharing between federal and states government is been worked on assiduously, noting that Nigeria’s tax system still faces the problem of capacity building and integration.
In his submission, the director-general of MAN, Segun Ajayi-Kadiri, represented by the director of research and Advocacy, Oluwasegun Osidipe, said there was no doubt that the country needed money but that the government must exercise caution in introducing more taxes.
He tasked the government to expand the tax base, ensure the inclusion of more people in the informal sector and make the tax system progressive such that the rich would pay more than the poor.
Founder of Accounting Hub, Chioma Ifeanyi Eze said Nigeria remains the largest economy in Africa and that SMEs form a considerable part of this, and that critical reforms will bring about prosperity in Nigeria must include MSMEs.