As Nigeria traverses its multifaceted economic terrain, taxation has evolved into a key determinant of the country’s fiscal prospects. In this regard, President Bola Tinubu’s administration has initiated a grand reform of taxation aimed at rejuvenating the economy and stimulating sustainable development.
Nonetheless, Nigeria’s taxation system is characterized by inefficiencies, inequalities, and historical precedents that need to be handled with caution. The country’s tax-to-GDP ratio of 10.9% falls short compared to other similar countries, hence the need for comprehensive reforms.
The ratios in Tunisia (32%) and Kenya (15.2%) serve as references for what Nigeria intends to achieve.
This income weakness denies the country urgently needed revenue that would have been invested in important public services, such as education, healthcare, and infrastructure.
These tax reforms are also aimed at simplifying Nigeria’s complex tax structure from over sixty official taxes to six or eight. Proposals have been made for exempting low-income earners and small businesses from some tax burdens. However, enforcement remains the main challenge facing the government.
Looking back at this year’s removal of fuel subsidies serves as a cautionary tale, since instead of liberating resources for investment purposes, it incited public discontentment and increased inflation rates instead.
Also, it’s possible that Tinubu’s tax reforms may have adverse effects. The VAT rate hike from 7.5% to 10% planned for 2025 could burden the middle class more than before, thus worsening inflation while reducing the purchasing power. However if these reforms are poorly implemented they may lead to increased public discontentment
A Historical Opportunity for change
Efficiency, equity and accountability are some of the principles that Nigeria’s tax reforms should embrace. For taxation to promote economic activity as well as provide for long neglected infrastructure in the country it should do so in a way that will make this possible. His success in Lagos can be used as a model but replication on a national scale will only be feasible under a well-administered system and with confidence in public institutions.
In order not to make these reforms another in the series of unfulfilled promises by Nigerians, the Tinubu government must prioritize transparency, responsibility, citizen participation, capacity building as well as anti-corruption measures.
It is necessary to develop mechanisms for monitoring performance of tax reforms and holding officials responsible. Stakeholders such as business groups, civil society organizations and individual taxpayers can give valuable feedback through their inclusion.
Investing in tax officials’ training and development will ensure efficient and fair tax administration.
