Tinubu’s tax reform bills will reduce tax burden on many Nigerians – Presidency

The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, has clarified that the tax reform bills proposed by President Bola Tinubu aimed to lift the tax burden on 90 per cent of Nigerian workers.

He also explained that the bills aim to review the sharing formula of the Value Added Tax (VAT) to accommodate what each state will get for what is consumed within their territory.

Mr Oyedele made the clarifications Wednesday when he appeared before senators during the plenary to brief the lawmakers on the need to pass the bills.

Two months ago, President Tinubu sent four tax bills to the National Assembly for approval. 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 by reducing the federal government’s share from 15 per cent to 10 per cent. However, the bill includes a caveat that the allocation among states will factor in the derivation principle.

The bills have been strongly criticised in some quarters.

The Northern Governors Forum, during a meeting last month, stated that some aspects of the bills, particularly the VAT components, are against the interests of the region. Consequently, they directed their lawmakers in the National Assembly to reject the bills.

Also, the National Economic Council (NEC), which comprises the state governors and others and is statutorily chaired by the Vice President, Kashim Shettima, also urged the president to withdraw the bills from the National Assembly for further consultations. The president, however, insisted that any differences should be resolved in parliament.

While briefing the senators, Mr Oyedele said if the bills are passed and assented to by the president, 30 per cent of Nigerians who earn between N50,000 to N70,000 monthly will be exempted from paying tax to the government because they are classified as poor people.

“These proposals, if approved by the Senate, will reduce the tax on 90 per cent of our workers, both in the private and the public sector, and it will exempt more than 30 per cent of our citizens who earn about minimum wage, around 50,000, 60,000, 70,000 Naira,” he said.

Mr Oyedele noted that Nigerian workers who earn above N70,000 monthly will commit to payment of taxes.

He explained that those earning N100 million monthly will pay 25 per cent of their income as tax.

“Then the remaining 10 per cent who are not so poor will now pay a little bit more. The top rate today is 24 per cent in the long, and we are proposing it goes to 25 per cent. We are doing some other reforms around allowances and relief.

“So effectively, if somebody earns 100 million Naira a month, the maximum they will pay even on that approval side is only 25 per cent. If they were in South Africa, they would be paying 41 per cent. If they were in Kenya, they would be paying 35 per cent. Of course, if they were in the UK or the US, they would be close to 40 per cent, but we are doing only 25 per cent.”

Sharing formula of VAT by states

On VAT sharing formula, Mr Oyedele said the tax reform bills prescribed that every state will receive credit for consumption within their territory and that the state government will only have power to collect sales tax, leaving the tax on import and international services for the federal government.

“Our proposal before you is that going forward, if we have your approval for the bills, every state will receive credit for the consumption within their territory.

“Number one, every state will collect less than half of what they are getting now. Number two, businesses will struggle because you bought something in Kaduna and you are selling it in FCT. They will not allow you for the input, and the more the cost piles up, the more businesses will struggle,” he added.

The tax committee chairman cited the example of the United State of America where state governments receive tax on only sales tax and do not have constitutional power to collect tax on import and international services.

“In addition to that, in the US today, they do sales tax and it is collected by states, but the states cannot collect sales tax on imports or international services because that is the exclusive preserve of the federal government.

“If states should begin to collect VAT today, they will not be able to collect import VAT. Import VAT and international VAT is about half the VAT we collect in Nigeria today. If anybody could benefit at all, it would be the federal government,” he added.

Mr Oyedele emphasised that each state will get credit for economic activities within their jurisdiction.

“So every state will get credit for the economic activities within their jurisdiction. We believe that once that correction has been done, we should then allow states to keep more of the economic activities that they have generated within their jurisdiction.

“One, because it is fair to do so. Number two, to discourage any state from going to the Supreme Court to get a judgement that they want to administer VAT on their own, which is not what we want.”

Review of percentage formula for sharing VAT and the criticisms from govt

Mr Oyedele also said the tax reform bills will review the percentage formula for sharing VAT by the federal, state and local governments.

The current formula for sharing VAT prescribes that the federal government should take 15 per cent, the states 50 per cent and the local government 35 per cent.

The tax reform bills, according to Mr Oyedele, will review the VAT sharing formula.

“10 per cent (will go to the) federal government, 55 per cent state government and 35 per cent local government,” he said. “Provided that 60 per cent of the amount standing to the credit of states and local governments shall be distributed among them on the basis of derivation.”

Mr Oyedele said the distribution according to the bills will be done with equality of 20 per cent and population of 20 per cent.

“Five percent of the total amount available for distribution to states shall be applied to ensure that no state receives less than the amount it would have received under the distribution formulas contained in the repealed VAT Act LFN, 2004,” he said.