Four bills designed to drive President Tinubu’s ambitious tax reforms have continued to generate mixed reactions from diverse stakeholders since submission to the National Assembly for debate and passage. For some experts, the bills will help boost Nigeria’s current tepid growth and foster development. However, major opposition sees the bills, particularly as anti-North, and fears possible cuts in revenues accruing to the region. However, Taiwo Oyedele, chairman of the presidential committee on fiscal policy and tax reforms, insists that those bills have been well crafted to drive needed revenues, fairness, and ease burden, especially for the poor and vulnerable. Oyedele, whose committee developed the bills, speaks to BusinessDay’s John Osadolor, Onyinye Nwachukwu, and Cynthia Egboboh in this exclusive interview. Excerpts….
“These bills generally are trying to address the issues with the Nigerian tax system.”
Talk us through the new tax bills as being proposed by your committee.
The four tax reform bills include the Nigeria Tax Bill, Nigeria Tax Administration Bill, Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill. These bills generally are trying to address the issues with the Nigerian tax system, which include the multiplicity of taxes, fragmentation of revenue administration, and excessive tax burden on most vulnerable citizens—and that includes small businesses and low-income earners—as well as the use of technology, which is either not good enough or robust in a way that it can connect with different intelligence within the system.
We also have the aspect where our tax system is not up to scratch with the rest of the world. We have a lot of international tax discussions around the digital economy, tax-based erosion, and proper shifting. So as those conversations are going on, we do not want to be left out. We don’t want to be at the receiving end of copying things after others have completed them. We want to be engaged in driving those conversations and making sure that the interest of Nigeria is protected.
We also want to be able to play a role within the region in terms of competitiveness for our businesses. We have a number of provisions in our laws that I would say are not business friendly and are growth stifling; we tax investments. If you want to invest in Nigeria, like setting up a factory, you pay a lot of taxes, from duties on equipment to VAT, or some of those things, and, like the VAT, you don’t get the credit back. If you do the same thing in Ghana, for example, even though their VAT rate is higher than Nigeria’s, you get the credit back, 100%. This means, on balance, I can decide to go and set up in Ghana and just bring the product to Nigeria under the ECOWAS treaty. So we’re losing the opportunity to create wealth and employment and have our businesses become multinational.
We also have provisions in our laws that make it difficult for even our young people to get jobs within the international global process space. A lot of global companies have business process outsourcing; they will go to places like the Philippines, India is a leader globally, Kenya is doing well for themselves, South Africa, but Nigeria is barely scratching the surface because you have legal provisions, tax provisions that make it unattractive to those global companies looking for young people to hire. And we have a good number of young people with good tech skills, and our ascent is better than even some of these countries that are doing better than us. The location in terms of time difference is also almost central; we have a lot of advantages except for the policies that are not conducive.
In a nutshell, these bills are trying to address those issues and then be able to set Nigeria on the path for transformative economic growth that is inclusive, allows businesses to do well, protects low-income earners, and uses technology to find those who are evading taxes. If you allow some people to evade taxes and the honest people are working hard and paying, you create an imbalance in the system where the guys who are behaving badly have more resources to throw this honest person out of that sector and underprice you purposely because they have the extra amount of money. If you don’t address that issue, you are building a society where criminals thrive and honest people cannot cope. This is one of the reasons why some of the multinationals that have good corporate governance will make the decision to exit faster than someone who plays under the table. If there are so many taxes and you have good corporate governance, you want to pay all of them because you are asked to pay by law. If I’m a criminal, I will not pay. When you come for audits, I will settle the officers to move on with their lives. We don’t want to build a society like that because it’s not sustainable.
Of course, there’s also the aspect of revenue mobilisation. Our revenue is very, very small as a country, not enough to fund our development as a people. At the same time, we want to mobilise more revenue without increasing the tax burden on anyone. Even the richest people, large companies should see their tax burden come down. Where we are expecting this tax revenue growth is ensuring that we reduce tax evasion and everybody is honest with their tax declarations, pays their taxes, and then on the spending side, gets more efficiency as to how we spend on the right priorities that are important to the people and improve accountability and transparency. Overall, we then start building a society that we all can be proud of; that, in a nutshell, is what the bills are all about.
Many argue that the proposed incremental raise of VAT to 15% by 2030 could compress consumption. Do you share those fears?
No, I think it’s just a question of understanding the proposals; a lot of people work with the headlines of the proposals. The full story is that if you take the consumer price index, we have 12 classifications that show that when a household in Nigeria earns income, this is what they spend the money on. The number one and biggest category is food and beverages, which is 52 percent; beverages are about 1 percent, so you can say food is like 51 percent, which simply means that Nigerians are just trying to eat. If you go down the ladder of society, they tend to spend close to 100 percent on food. If you go up, they spend less on food. Then you have things like accommodation, including rent; transportation; utilities—electricity, and all of that; you have health, and then education. These five categories account for 82 percent of where our people spend their money.
Again, the lower you go down the ladder of society, the bigger the amount they spend on these essentials. What we have done in our proposals is to remove VAT from these items so that the ordinary person, the masses, and, you’re talking about 180, 190 million of our people, this is really what’s important to them. So they pay 0 percent VAT on these—food, education, and health care. They are also exempted from paying VAT on transportation, accommodation, or rent.
Mind you, there’s no VAT on fuel; by this, what we actually have done is to save more in the hands of the ordinary person. But you have to also be mindful that you’re creating a hole in government revenue that is not enough, because we’re not trying to be popular, and it’s not a populist reform; otherwise, you just cut taxes for everybody. So we said, well, on the 18 percent of consumption, which is not as essential as this 82 percent, let’s adjust the rate upwards a little bit. That upward adjustment is not even enough to cover the hole we have created, which means overall, the government is giving back to the people more than it is taking. It then means that for every five items that the average Nigerian will buy, there will be no VAT on four, but they will pay VAT on one. But people will rather focus on only the one, and they don’t talk about the four, which makes the conversation very difficult because many will run with the headline rate and say they want to kill Nigerians and all of that.
Now, even for the items where the VAT will go up, we have in our proposals a new provision to allow companies and businesses producing and selling those items to claim all their input credits. Let me explain: if I’m producing bread, I will definitely buy some equipment, electricity, flour, oil, sugar, and so on. When you see bread, for instance, there’s a lot that goes into it, even the packaging, the nylon, which I buy. However, any VAT that I have paid on the equipment and so on, I cannot get back. But when I’m selling bread, the government says, Don’t charge VAT, but I, as the baker, need to cover all my costs. So I’ll add all the VAT that I paid in coming up with the price of the bread I’m selling and claim it 100 percent. Mind you, bread will not carry VAT, but I’m just using this example because a lot of people can relate to it easily.
Let’s say it’s a mobile phone, which is one of the items where VAT will go up. But anybody who is producing that in Nigeria will claim input VAT on all their assets, all the services, research that they did, and all the components; they’ll claim the input VAT back. What will then happen is that the cost of producing goods and services for businesses will come down. Therefore, if the businesses just even decide not to pass everything on to the customer but share it, you will see that even with a higher VAT rate, the price of those things will come down because we are giving you like 7.5 percent of what you bear today, and we’re asking you to increase the rate by 2.5 percent; 2 years later, another 2.5 percent; then wait for 6 years. So overall, these VAT rate proposals are not meant to put a burden on anyone.
For small businesses, we propose to increase the threshold from N25 million to N50 million in annual turnover, meaning that at N50 million in annual turnover and less, a small business will not have to charge VAT. It doesn’t matter what they are selling, even if they are selling what we said VAT should go up. And if you think about it, the majority of our people patronise those small businesses. You go to villages; you can’t find any single big company. There are villages in Nigeria where nobody makes N50 million a year in turnover; that is the right context for our proposal. In all, I think one thing to remember is that for every five items that the average Nigerian would buy, we are taking away VAT from four of them, and they pay VAT just on one, and the rate of that one would increase progressively from 7.5 percent to 15 percent by 2030.
Which items constitute the one percent?
That one percent includes items like cars, mobile phones, wines, and beverages. There is no VAT on properties. To be honest, the major things that people need to live a good life won’t have those VAT impacts. The items on which there will be VAT are mostly consumed by the upper class. To be clear, we are not saying it is bad to buy an expensive phone or a brand new car or an expensive wristwatch; feel free to buy those things, but it means you have the ability. In a system, you want your tax system to be progressive; people pay according to their ability, and you identify consumption where the well-to-do tend to spend a lot of their money. The amount they spend on food and education is small; they spend their extra money on luxury. Even though we don’t want to call it a luxury tax, because that is not what it is, that is the concept.
Still on the VAT question, we actually expect that prices generally will come down, and therefore this will have a moderating impact on inflation. We are spending time with the CFOs. You would have noticed that the organised private sector is not complaining about the bills. Normally, if you want to raise rates, you see manufacturers of Nigeria, NECA, and chambers of commerce come out. It’s because we are working with them. We had sessions where we discussed the numbers with the CFOs.
We finished those meetings, and they were praying for us. The private sector is eagerly waiting for the implementation of those reforms. Just to let everybody know that this is not a proposal we are trying to use to deceive the people, we can’t deceive the CFOs; they’re smart people. It’s not easy to go on the street and say we want to increase VAT; Nigeria will come down; there will be a crisis like Kenya. In our meeting with CFOs, while we cannot force them, we want to encourage them to pass on the savings to the consumers while we implement the bills so that prices actually come down. But worst-case scenario, if a company is really so greedy or struggling already and this gives them a bit of a lifeline, then we advise keeping the prices the same; don’t adjust it up for years.
There have been agitations that the way VAT collection and disbursement is structured in the bills is particularly anti-North and may cut down revenue due to the region by as much as 60%. How true is this, and what’s the thinking around the adjustment?
On the VAT revenue sharing, we believe it’s just a misunderstanding of our proposal. Currently, VAT is collected by FIRS. Businesses file their VAT returns and make payments where they have their accounts departments, which are usually at the head office of the company. What that means is most of those big companies—whether it’s MTN, banks, Dangote, Coca-Cola—you can just continue to list all the big companies, which, by the way, give us more than 90 percent of the VAT—have their head offices in Lagos. Some of them, particularly the oil companies, have theirs in Rivers State, and some in the FCT, especially the government-owned enterprises. Those three alone account for more than 70 percent of how we collect VAT and where we collect it from. But it does not mean that that’s where the activities that give us the VAT were all consummated. So when MTN is paying and remitting their VAT in Lagos, they are remitting the VAT for the calls made across Nigeria.
By the way, MTN is by far the largest contributor to VAT in Nigeria; that’s why I’m using them as an example, followed by Dangote. So Dangote and BUA will sell cement all over Nigeria, but they will remit the VAT in Lagos. Our current system gives credit for the VAT generated to the place where it is remitted. We think that this is unfair. Why should Lagos take credit for the calls made in Kano? Why should Lagos take credit for the cement used in Edo? Why should Lagos take credit for the Coca-Cola used for the Owambe party somewhere in Ekiti? We don’t know of any country where they use this algorithm, to be honest.
We’re saying, let’s do the right thing. VAT is a consumption tax. When MTN is paying their VAT in Lagos, we would ask MTN, Give us a schedule. And they will say, This is VAT for this month; this is how many calls came from Kogi, Zamfara, Borno, Anambra, and Abia. And they can tell you, because before you can make a call, you need to connect to an infrastructure that will enable it to go through. They can tell where the calls are coming from. If you are Dangote, you can’t be selling one or two bags of cement directly to retailers; you have distributors, and they have addresses. Dangote can tell you they sold 2 million bags of cement and sent 200,000 to Kogi because they actually have that information already. They are not going to be doing it because of us, and nobody has distributors without addresses. If those companies now give us their VATs and the breakdown of where those were generated, then every state gets recognised and rewarded for the activities that took place within their state. And on that basis, they get a fair share of the VAT revenue.
Today, the wrong model of our derivation means that we share VAT with states: 20 percent where it’s generated, 50 percent is shared equally, and 30 percent is based on population. That’s how the 100 percent that goes to states and local governments is determined. We are now saying, first, correct how the derivation is calculated. Once that is done, we feel like the fair thing to do is to let each state keep the lion’s share of what it has created. So we proposed that 60 percent of VAT created should be kept by the states that created them. And for the remaining 40 percent, we now share 20 percent equally and 20 percent of the population.
We honestly were thinking in my committee that we would be commended. We thought that the only state we were going to struggle to explain to was Lagos State, being the biggest beneficiary of the current model. So we went to the governor of Lagos state because we needed their support, as well as Rivers. They are so powerful that they can challenge the federal government, as they have done before, and win. That was why Rivers State enacted their VAT law after they won the court case. Lagos State also enacted their own. If you upset those two states, they can go to court and disrupt our reforms.
But somebody will say, What’s wrong with these states doing their own VAT law? VAT is not a tax that can be easily collected by states; that’s why even in the US, they don’t do VAT; they do sales tax, but the problem is that it has what we call cascading effects. Every single time that you pass a good or service from one state to another, sales tax is building up the cost. So by the time you buy the final product, the price might be two times what it’s supposed to be.
But for VAT, every time you pay, you get it back, meaning that everybody involved in the process of producing a product or service doesn’t carry the VAT. This is what we are correcting as well, meaning that only the final consumer pays. That’s why VAT is better. If you start doing VAT by states, we’ll all be in trouble, because they won’t give you credit for the tax you pay in Kano if you are selling it in Lagos. Prices will go up; the states will collect less because they don’t have the means.
Your VAT goes with your financial statement and turnover. When that turnover is unified, you can’t lie to me. But now, you can tell me that your turnover is N1 billion, but the one you sold in Lagos is only N100 million, and the rest in the other states. It may then take me five years to find out whether you lied.
That was why in 1986, when sales tax was introduced as a tax of the state, it was unsuccessful. And in 1991, the military set up a committee to look at it because it was not working. They saw that VAT is better and introduced the law in 1993, and we started implementing it in 1994. The new model that we are proposing is let’s be fair to everyone; let’s recognise your contribution. You keep the lion’s share of what you contributed, and we share the rest equally and based on population.
Read also: Presidency denies scrapping TETFUND, NASENI, NITDA, in tax reform bills
How are you handling the pushback to ensure these bills successfully pull through eventually?
For us, it was a bit of a surprise in the way the reaction came. It wasn’t the way we were expecting it. Lagos State, which we thought was going to be the biggest opposition, was quite supportive and understanding. The governor decided to set up a team to work out the details of our proposal, and they still remain supportive. We hope they won’t change their mind. We are engaging with the governors to make sure they understand our proposals; we are engaging with the lawmakers. We are engaging the media, and that’s why we are having this interview—to engage and explain as much as possible. We think that we owe it to everyone to explain what we are proposing and why we are proposing it.
It turns out that many of our major stakeholders don’t even understand what we have put forward. They were not informed enough to compare what we are proposing with what we do currently. All that they could think about is, if you say derivation, then states where you have economic activity the most would be the ones to benefit, and that is why many of them said this is a reform designed to benefit Lagos. And Mr. President never asked us to do anything like that.
Do you fear there will still be opposition even after engaging relevant stakeholders?
Yes, I guess. If you do a reform like this without opposition, you should be worried. Reforms that require that you change how things are done, move things around, and harmonise revenue collection are not easy. You are getting rid of more than 40 different taxes, planning to integrate how taxes are collected, exempt small businesses and poor people, and all that, and you are saying stop collecting taxes on the road.
The reality is that those reforms would impact some interests. There are people who are benefiting from the structure we have currently that is not working for us as a people. If you are going to fix that, you will clash with their interests, and they will fight back. And when they are fighting back, they will not give their reasons, but they will look for anything else to hang on to and have the fights. They can create wrong narratives intentionally that are not even in your proposal and use that to fight you.
So we don’t expect that the opposition will become zero percent. What we are hopeful for is that the majority of our key stakeholders and Nigerians would see what we are proposing, which is in the national interest, and support us. That is why passing laws requires a majority, not 100 percent; I think there will continue to be oppositions. But we do hope it will not get to a point that spoils all the effort; at this point, we are optimistic that the reforms will go through.
Will these VAT bills, when passed, invalidate the ones at the state level?
No, they won’t. And that is an interesting question. If we get these bills passed, the problem is that the VAT laws in states like Rivers and Lagos will still be there, but the chances that they will take it forward are significantly reduced. By the way, why are Rivers and Lagos states eager to collect VAT by themselves? It’s because they believe that their own contribution to VAT revenue in Nigeria is huge. That is partly correct because clearly, it doesn’t matter how you do the calculations; Lagos is supposed to have more economic activities than any other state in Nigeria. But Lagos will not have up to what is being credited to them today, with activities all over Nigeria being credited to them.
It’s the same thing with Rivers State, where the oil companies are. When they receive invoices from all over Nigeria, they remit it to Rivers State, which then feels like their contribution is so much, Let’s just collect VAT by ourselves and keep our money. But our proposal will make everybody know the approximate exact amount of their contribution, which for Lagos and Rivers will be less than what they thought.
Number two, let everybody now keep a lion’s share of that portion that they have contributed from their own states, and then we share the rest based on equality and population. It then means that your incentive, whether you are Rivers or Lagos, to go and fight for collecting VAT alone as a state, in my view, disappears. I can tell you that if we begin to collect VAT per state, every single state in Nigeria will get less than half of what they are getting today; the states will all be losers. The Nigerian people will suffer because prices would go up; they would not allow input credit from there, and it would be complicated. This is why we are trying to exempt small businesses.
Can you explain how the proposed rejigging of corporate tax rates will impact businesses and investments?
For corporate tax rates in Nigeria today, the headline rate is 30 percent in addition to an education tax of 3 percent; information technology tax is 1 percent of profit; engineering and science is about 0.25 percent. We also have police tax. There are a lot of other taxes that companies pay in Nigeria in addition to companies income tax. When they have profit left, and they give it to their shareholders as a dividend, they also return tax at 10 percent. So overall, if you set up a company, and you make profits, pay all the taxes, and then look at the amount that is left, you would have paid more than 40 percent in corporate taxes. Nigeria is one of the top 10 highest corporate tax regimes in the world today.
You cannot grow an economy like that. What the OECD, the developed countries, for example, do is to have low corporate income tax rates so they can attract investments. And then when people come with their investments, they will hire people. Those people will pay personal income tax; those who go to buy things pay VAT. The intention is to make corporate tax attractive so investment can come, and then it can generate other taxes. We were doing the opposite, and that’s what we want to fix. We want to reduce the company income tax rate from 30 percent to 25 percent over the next two years and then consolidate all the additional taxes they pay into a single tax, reduced to 4 percent, which over time will further reduce to 2 percent.
Is that the development tax?
Yes, that’s the development levy. In the next few years, companies in Nigeria will pay 25 percent corporate income tax and 2 percent development revenue, making 27 percent, down from almost 40 percent they are paying today. How will that impact government revenue? We believe, and this is supported by data around the world, that when your tax rate is too high, economic activities are reduced. When you bring down your corporate tax rates and attract more investment, the base is much larger—meaning that even though with the lower rates, you get more revenue. That is the concept.
The other thing is that our current tax regime discourages formalization. Today, if you are doing a business, selling apples, and you make a lot of money from it, maybe N10 million a month in sales. If you are a very honest person who wants to pay your taxes, the maximum you pay as personal income tax is 19 percent. You can keep all the money to yourself. However, if you register your business with CAC, that 19 percent jumps to about 40 percent. You then ask, Why do I need to register a company? Unless you operate in a sector where a company is required, like a bank, you would not want to formalise your business in Nigeria.
That is why for us, we say reduce the company’s income tax rates, reduce the personal income tax rate for over 90 percent of workers, both in the private and public sectors, exempt minimum wage earners, and then raise the personal income tax rate slightly, progressively to 25 percent, for high-net-worth individuals earning N20 million a month. What that will do is almost equalise the tax regime. Whether you set up a company, you pay 25 percent. If you don’t set up a company, you pay 25 percent. That way, people will be encouraged to set up a company formally, which has some advantages. Therefore, we also expect that these reforms would encourage formalisation, which is good for the economy.
How will the development levy be channelled?
At the moment, our proposal is that it should be shared with TETFund, NASENI, and NITDA. I can’t remember the exact percentages as contained in the bill, but TETFund has the biggest percentage, I think about 60 percent in 2025. Those percentages also change after about 2 years, and by the time we get to 2027, it will be just TETFund that will be sharing out of it. By 2030, it will be only NELFund that will be taking the 2 percent development levy; every other agency that currently shares or collects those taxes will then be funded through the budget because there’s a worrying trend in Nigeria, where every agency is getting a law enacted for them to collect tax. The list of those taxes is endless. If you continue like that, it will get to a point where it will not make any rational sense to do any business in Nigeria because the taxes you need to pay will be more than 100 percent of your profits.
We want to reverse that trend by first recognising that some of these agencies are critical; then we can give them some time to adjust their funding. There’s nothing that says you must collect IT tax to develop IT. There are some countries where their IT is far more developed than ours; they don’t have an IT tax. Likewise, there are countries where their education system is more advanced than ours; they don’t have an education tax. The reason why companies pay company income tax, value-added tax, and personal income tax is for the government to set their priorities and develop any sector they want. You can’t be setting up special taxes for every sector.
That is the idea of the development levy. And the way it particularly should be, say, in the education sector, is that you’re able to fund the students who really need the loan scheme. Today, we are subsidising everybody that goes to a public university; whether they are the sons or daughters of a billionaire, everybody is subsidized. But not everybody needs a subsidy; any system where you subsidise everybody is never sustainable. So if you set up a loan scheme, then the children of the poor people will get the loan to fund their education, and the children of the not-so-poor people will pay. After all, they are paying in private universities today. That will then allow universities to adjust their fees upwards. Today, they charge between N50,000 and N250,000 as fees. How can your universities compete with the best in the world? You can’t even pay the lecturers. Somebody told me a professor is on N400,000 salary; you can’t get the best with that.
I attended a course in the U.S. where one of my professors said he was on $800,000 a year. With that, you’ll get the best in the world; your quality of education will be great. So we should accept that this current system is not going to work for us, and let’s find another model. If we can support the poor students to get their fees, the students that are not poor can pay their own fees. In fact, as you raise the standard of education in Nigeria, you start getting international students who are asked to pay a premium, so you have sufficient funding for the education system that will make us compete with the best in the world. This is the concept behind our proposals.
We know that people are misinterpreting it. ASUU, for example, is already pushing back. We do understand those sentiments, but we want people to take a step back and look at our proposals dispassionately and see what is good for the country in the long term, and if they do that, they would agree with our proposals. It’s also good for the university lecturers. Instead of N100,000, maybe they should be earning N3 million.
Does it mean that over time, this development levy will cancel out these other taxes that different government institutions collect?
It cancels them out immediately; there’s a consequential amendment in the bills that says once this one is introduced, that one will no longer apply. That’s really the whole idea; it’s replacing them.
The bills plan to cut taxes; how will the government get the kind of revenue it’s looking for?
Yes, and this is why you need a committee. If all you wanted to do was reduce some tax rates and increase some, you don’t need a committee; just announce it, go write the law, and move on. For us, the number one issue is the tax gap, which is the difference between the revenue you are collecting now and what you should be collecting if everything was working well. Our estimation is that the tax gap in Nigeria is around 70 percent, which means we are collecting only about 30 percent of what we should be collecting today. And we have the data to support all of that.
That tax gap has two big components; one of them is the compliance gap, which means people are under-declaring, falsifying their information, or just don’t show up to pay taxes. The other part of that is the policy gap, which means, for instance today, some of the incentives like waivers, tax-free zones, and so on are not available to everybody. It’s available to you if you are well-connected. You cannot build a society like that. We are addressing it by looking at all our incentive schemes, from pioneer status to free trade zones to import duties, and cleaning up everything. Through this, we are going to be saving a lot, in fact, in trillions.
On the compliance gap, why are people not being honest? Some of it is that they don’t trust the government and that the government is not spending money for them. We are addressing that. But people should pay once we identify they are not the poorest people. By closing those gaps, you can more than double Nigeria’s revenue in less than two years. That is one big area of revenue generation.
The other one is government assets. The government does not even know the assets that it has. We are working with the Ministry of Finance Incorporated (MOFI) on this, and they’re working on an asset register for Nigeria. The idea is to let us even know what we have as a country and then which one we should sell so that the private sector can better manage it. Which one should we manage ourselves as a government effectively and make more returns from it?
Another area is government-owned enterprises, and NNPC is the biggest example. Why is NNPC not giving us $10 to $15 billion a year in profits and dividends? But smaller national companies around the world are making more than that. Imagine 10 to 15 billion dollars every year from NNPC. That is more than the amount you collect from personal income tax, VAT, and company income tax combined. You just go home smiling. No need to stress everybody on the streets because God has blessed you, but it is not showing. So how can we fix that?
The other one is natural resources, and this is not limited to oil and gas. We know there is a plan for the government to raise production. There’s a very deliberate effort, including some from our reforms around gas investment, because Nigeria actually has more gas than crude oil. Then we have solid minerals, which are a very, very important source of revenue for Nigeria.
The other area where we want to get more revenue is the cost of collection, which is currently too high. In fact, there is a state where the finance commissioner said that they have some arrangement where the cost of collection is 35%. Imagine that somebody is collecting tax for the state and keeping 35%. So what is the state getting? Of course you know these are just leakages here and there. If you block that, you’ll see more money will come in. Of the taxes that local governments collect in Nigeria, for example, the whole of last year, they barely reported N50 billion, all of them combined. But when you speak to someone who is bringing in goods from the north to the south and they tell you they have to pay between N400,000 and N700,000 at different stops,.
So part of our proposal is to outlaw cash payments of taxes by whatever name they are called. No roadblocks; think about the informal sector. Why is it that you have to pay radio levy, television levy, wheelbarrow tax, bicycle tax, hauling tax, advertisement permit, and business premises permit? The list is so long. What if we say, as a country, we identify more than 180 sectors within the informal sector, from tailors to barbers, etc.? And we say if your size by turnover is small, say you are managing to do N500,000 a month and you are the only person in the business, you are so small, we should just let you be. If you are a little bit bigger than that, we say pay N4,000 a year, which is the only tax you pay. And you can pay it as you find the money. The day you find N300, you send. The system will tell you, Pay N300; your balance is N3,700, 700 and you keep paying like that.
But if we give you 6 months to finish paying in the year, and by the 1st of July, you have N700 remaining, we can substitute your phone line for the amount you owe the government. From then on, any credit that you load goes to the government quietly; you don’t need to put nails on the streets. You can receive calls, but if you load credits, the system will keep deducting the money, and until you finish paying your N700 taxes, you cannot make calls. If you like, have four phones because you use NIN. The world has developed; we should not be doing the Mungo Park method.
Still in compliance, how does the government intend to ensure that these laws work and that people will voluntarily come up and pay?
I don’t think that we’ll get to a point where everybody will voluntarily come and pay taxes. But we need to first create a system that is not asking people who are incapable to pay. You’re asking for the impossible.
If I’m earning 60,000 Naira a month, that’s 2,000 a day. I’ll enter transport, feed myself at work, and feed my kids when I get home. After that, we’ll buy pencils, erasers, and books for them to go to school. We’ll buy slippers, pay electricity bills, and pay rent. Even if you ask me to pay 200 Naira, you’re asking for the impossible, because I’m in debt before the month even ends. It is unfair to treat your most vulnerable people like that. So once you ensure that those people that cannot pay are taken out, it means that everybody else you’re asking to pay has the ability, which is very important. That’s step number one.
The second step is that for these people who have the ability to pay, you have to design a system that says to them, If you lie about your affairs, we will find out, and because we’ll find out, there will be consequences. It’s not like people who pay taxes in the US and Europe are from Mars or Jupiter. It’s because they know the system will find out. But in Nigeria, you can evade, and the system will not know. That is where voluntary compliance will come from, based on the way we are designing the system. We are connecting intelligence within the whole economy.
The system will track and connect what you do on your phone with your payment cards, your bank account, your imports and exports, and even your spending when you travel abroad. If you have an investment account, shares in the stock market, and you build a house and connect to electricity, all those will be linked. If you buy a car, you have to register it so you can drive; that’s intelligence. There’s actually nothing you can do that the system cannot track. Even in the villages, you can track most of the things they do.
So when you say, My name is Taiwo Oyedele, and life is hard in Nigeria; all the income I made last year was only N200,000, and here is the tax. We will just put Taiwo Oyedele in the system and say this same Taiwo went to the mall 15 times, spent 5 million Naira, and has three bank accounts. These are the bank balances. This same guy bought one car last year for 12 million Naira. Are you printing money at home? Since you don’t make money, how did you manage to spend so much when you earn so little? Come and explain to us. This is the system that the world is using, and there’s no reason why we should be behind. That is where the revenues will come from. That is where the compliance will come from.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
