In a significant move aimed at revitalizing Nigeria’s economy and addressing widespread tax evasion, the Federal Government is embarking on an ambitious plan to overhaul the nation’s tax system. The primary objectives of this reform are to shift a greater tax burden onto wealthy citizens while simultaneously reducing corporate taxes. This transformative endeavor is part of President Bola Tinubu’s broader economic reforms designed to steer the nation toward financial stability.
The central goal of this tax overhaul is to increase Nigeria’s tax revenue from its current 11% of Gross Domestic Product (GDP) to 18% within three years, according to a recent Bloomberg report. Additionally, the government is contemplating the implementation of a tax amnesty program to encourage tax compliance.
Taiwo Oyedele, who leads a panel appointed by President Tinubu to drive these changes, articulated the fundamental principles guiding this endeavor. He stated, “We aim to make the rich pay what is fair, while ensuring that those who are less fortunate are protected.” Oyedele further explained that a reduction in the corporate income tax rate is envisaged, aiming to bring it below the current effective rate of over 40%. The new rate would be benchmarked against Nigeria’s peer nations.
In a nation where a significant portion of the population struggles in extreme poverty while a small minority enjoys immense wealth, the need for a more equitable tax system is evident. Nigeria’s tax revenue as a percentage of GDP currently lags significantly behind the 34% average for members of the Organisation for Economic Co-operation and Development (OECD).
The startling figures reveal the scale of the challenge: among four million registered firms, fewer than 250,000 actively pay taxes, and less than a quarter of the 41 million registered individuals pay income tax. The country’s complex tax system, characterized by overlapping local, state, and federal jurisdictions, contributes to tax evasion by the wealthy.
Oyedele emphasized the necessity of simplifying the tax system, stating, “We will find a way to create structures and systems around what taxes can be imposed, how it can be collected, who can collect it, and how it should be accounted for.” The ultimate goal is to streamline the numerous taxes, currently numbering almost 70, down to single digits. “We just identified the top eight taxes that generate 99% of the revenue, so we will retain those and eliminate the rest,” he explained.
The significance of boosting tax collection cannot be overstated, particularly for a nation that has had to borrow extensively to cover the deficit between government spending and revenue. Nigeria’s public debt has surged nearly eight-fold since 2015, reaching 87.4 trillion naira ($112.6 billion), with 96% of government revenue allocated to debt servicing in 2022.
To facilitate the transition to the new tax system and encourage compliance, a tax amnesty will be introduced. This initiative aims to provide relief for past tax debts and motivate citizens to meet their future tax obligations.
Oyedele expressed confidence in the amnesty program, stating, “If people know that the government is aware of their income and location, and they haven’t been paying their taxes, an amnesty declaration would likely encourage them to come forward.”
As Nigeria embarks on this ambitious tax overhaul, it holds the potential to not only increase revenue but also promote economic fairness and sustainability, ultimately contributing to the nation’s long-term growth and prosperity.