Tinubu’s Tax Reforms as Opportunity to Revive Northern Economy, by Kabir Akintayo

Kabir Akintayo

Tinubu’s Tax Reforms as Opportunity to Revive Northern Economy, by Kabir Akintayo

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The newly proposed tax reform bill has progressed to the second reading stage in the Senate despite the groundswell of opposition against it which is too significant to be ignored.

Recall that the National Economic Council (NEC) – a constitutional body chaired by Vice President Kashim Shettima with all 36 state governors as statutory members and the Central Bank of Nigeria (CBN) governor plus some few ministers as members – advised the federal government to withdraw the bill. However, President Tinubu declined this request, arguing that any debates and amendments should occur during parliamentary deliberations. This firm stand underscores the president’s commitment to the reforms, though some observers have speculated that it could strain his relationship with Vice President Shettima.

The Beginning

Few months ago, President Tinubu sent four tax bills to the National Assembly for deliberation and passage into law. They are the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill.

One of the bills seeks to change the sharing formula of the Value Added Tax (VAT) by reducing the federal government’s share from 15 per cent to 10 per cent. The bill also includes a clause that the allocation among states will factor in the derivation principle.

The tax reform proposes a different model of derivation which will attribute VAT to the place of supply and consumption rather than the current model which attributes it to the state hosting company headquarters. The consumption power in the north is relatively low compared to the south. This only means that a state with low consumption power would be less efficient in governance since the derivations from VAT will be too low for the state.

During a recent appearance on the floor of the Senate, Taiwo Oyedele, Chairman of the Tax Reform Committee, also drove home this point that VAT revenue would now benefit the state of consumption more than the host state, if the new bill is passed into law.

However, the derivation under the new model will account for 60% of VAT distribution for better equity and to discourage any state from seeking to administer VAT as a state tax, which will not only result in much lower revenue for all tiers of government but will impose a higher burden on businesses.

Also, the 5% to be ceded by the Federal Government can be set aside for equalisation transfers to cater for any shortfall to a state under the new model. This ensures that no state is worse off in the short term while significantly enhancing economic activities and revenue for all states in the medium and long term.

Highlight of the Bill

– Revised VAT Sharing Formula: Federal Government 10%, States 55%, Local Governments 35%.

– Corporate Income Tax: Reduction from 30% to 25% over two years; elimination of multiple taxes on companies, replaced by a single harmonised levy.

– Support for Small Businesses: Tax exemptions for small businesses and loss-making companies.

– Personal Income Tax: Exemption for minimum-wage earners and reduced tax burden for over 90% of workers.

– Zero-Rated VAT: Applies to essential sectors like food, education, health, rent, and public transportation.

– Repeal of Nuisance Taxes: Over 50 minor taxes will be eliminated, leaving a simplified system.

– Creation of a Tax Ombudsman: To advocate for fairness and protect vulnerable taxpayers.

Resistance in the North

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Northern leaders have however criticised the VAT component of the bill which they believe is detrimental to the region’s interests. This was evident in the heated exchange between Deputy Senate President Barau Jubril and Senator Ali Ndume in the Red Chamber recently. Senator Ndume suggested the withdrawal of the Bill to allow for broader consultations and compliance with parliamentary rules.

Also, Borno State Governor, Prof. Babagana Zulum, voiced his concerns recently during an interview with BBC Hausa Service. He warned that the bill could exacerbate poverty, hunger, and insecurity in Northern Nigeria.

“The bill threatens to stall progress not only in the North but also in the South-East, South-South, and parts of the South-West, including Oyo, Ekiti, and Ondo. While proponents claim it benefits the entire nation, we believe its advantages are confined primarily to Lagos State. If it truly does not serve the interests of Lagos, why proceed with it?” Zulum asked.

Northern leaders have a valid point in their open rejection of the tax reform bills, particularly the derivation-based VAT model. The overwhelming rejection of the provisions shows the unity of purpose and oneness in the region. It also shows that northern leaders genuinely care about their people and will not sit by and watch the passage of any law that may plung the region into excruciating poverty.

But there is the brighter side of this proposed reform which northern agitators may be ignoring. The ongoing efforts by the federal government to push through the aforementioned reforms present a lifetime opportunity for self introspection and reawakening on the side of northern leaders who have for centuries been sitting on a goldmine without exploring it.

It is my profound opinion that the northern part of Nigeria is richer than the southern part even though ironically, it is the latter that contributes the lion share to the country’s coffers. I do not think the southern part of the country is blessed with the extensive, arable land mass, potential for mining and agriculture as well as international borders that the northern part is endowed with. What northerners have however done over the years is to destroy the region’s huge economic potential in search of what is not lost.

For decades, the north has ignored legitimate economic opportunities that would have empowered and employed its large population in preference for the preservation of certain cultural beliefs and wrongful interpretation of religion. What this has caused is low revenue for the states, too many states that are not viable, insurgency, kidnapping and banditry as well as poverty and unemployment among the populace.

Based on its preference for over-emphasising religion, the region has imposed systemic barriers to local and foreign investments that would have taken advantage of the inherent potential and add serious value to the economy of the region. The present system hinders its ability to compete equitably under a new system that can make the country richer and better.

Northerners are some of the most faithful people in the world. They already understand and have religion in abundance. What they need now is financial inclusion, access to banking systems, general infrastructure, including roads, electricity, and digital connectivity. Most importantly, northern leaders need to consciously and deliberately open the economy to local and foreign investments. For this to happen, something has to give…

Without fundamental reforms in the application of religious and cultural rules, northern states will struggle to generate the economic activities needed to benefit from national fiscal reforms.

Last Line

Even Saudi Arabia, United Arab Emirates and other more religiously endowed countries have dropped a couple of these ultra-conservative practices and policies that limit the economy and chase tourists and investors away. Sticking to ancient ideas that do not work only means the world will leave you behind.

A word is enough for the wise. The wise man hears and gets wiser.