Taxing the Poor II
By Tahir Ibrahim Tahir Talban Bauchi.
‘Taxing the poor’, I wrote when the cybersecurity levy in the amended Cybercrimes Act back in May of 2024 caused a lot of public query.
Erroneously or not, 0.5% was peddled as the cybersecurity levy for each or a range of transactions. Nigerians were up in arms against it and it had to be put down.
With amendments carrying the proper descriptions of 0.005% and the category of transactions to be charged, all our arms in that cause were laid to rest. In taxing the poor, I made available that, “the truth is that the pockets of the common man are not in a position to carry fresh taxes and levies. His purchasing power is greatly reduced by the highly inflationary tendencies in the economy..”.
Our hopes were that the new minimum wage would address this, and it is expected to do so to an extent when all the states key in. But, inflation surges on and it is pushing the common man’s pocket almost back to square one despite the increases.
This time around, its the new tax or proposed tax system that is stiring a lot of controversy and backlash. A lot of the backlash is ill-placed and this due to a communication gap between the Presidential Fiscal Policy and Tax Reforms Committee and the citizenry, including legislators and Governors.
Some of this backlash is rightly placed and the reservations expressed are from the fear that some states will be at a disadvantage from the new system, especially or entirely when it comes to VAT. Realistically there are so many good things the new system brings to the tables of both the Federal Govt and the taxed entities.
The tax reforms are encompassed in 4 bills actually, as explicitly dissected by Olusegun Dada, the SA Media to President Bola Ahmed Tinubu, GCFR. 1. The Nigeria Tax Bill for instance puts together all our tax laws together, and repeals 11 laws on tax collection and imposition.
If for example you earn N800,000 naira or less, the new bill exempts you from paying a dime. If you earn N800,000 naira you are to pay 84,000 as tax under the old system, but with the new law, you are exempted from paying ‘shishi’.
Also, the new bill only charges those earning 50 million and above a personal income tax of 25%. In the old law, earning as little as 3.2 million still attracts the same 25% income tax.
Small business with turnover of 50 million or less are also exempt from paying. In the old law, small businesses with a turnover of 25 million are required to pay. The new law rescues 90% of Nigerian businesses from paying incomr tax. Medium and large companies too will enjoy a reduction from 30 to 25% income tax.
A total of 3.75% from education, NITDA, and NASENI taxes will be harmonised into a 2% development levy which would be used for student loans exclusively from 2030. It also states that items used by the poor will be exempt from VAT. These include food items, medical supplies and services, educational fees, electricity etc.
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2. There’s the Nigerian Tax Administration bill which amongst other things: seeks to draw rich individuals into the tax net; stabilise the naira through payment of taxes and royalties in naira; streamline the collection of revenue under one roof which was hitherto done by different agencies such as NIMASA, Customs, NPA etc; deploy technology to assess, collect and account for tax; and deduct unremitted taxes from MDAs that serve as agents for tax authorities.
Others are the establishment of Local Govt Revenue Committee to handle tax collection and fines under the jurisdiction of each local govt area, instalmental payment of taxes, and the harmonisation of all tax offences and penalties to ensure compliance.
3. There’s also the Nigeria Revenue Service Establishment Bill that will change the name of FIRS, Federal Inland Revenue Service to the NRS, Nigeria Revenue Service. This would reflect the collection of revenue on behalf of the federation and not on behalf of the Federal Govt., as revenues are shared between the three tiers of govt.
4. Finally we have the Joint Revenue Board Establishment Bill which seeks to create 3 bodies namely: 1. Joint Revenue Board of Nigeria, which would help harmonise all taxes in Nigeria, scrap nuisance taxes and create a national database of tax payers; 2. Tax Appeal Tribunal to settle all tax disputes such as residency issues in personal income tax cases; 3. The Office of the Tax Ombudsman to help taxpayers get justice from tax authorities they feel aggrieved by.
The hornet’s nest is situated in the VAT derivation component of the Nigeria Tax Administration Bill. A new derivation model where 60% of the VAT revenue goes to the states based on derivation is proposed.
However the new model states that derivation will no longer be attributed to the state of remittance which is usually the headquarters of companies. It will be attributed to the actual location across the states where consumption of goods and services take place.
The National Economic Council sought the withdrawal of the bill over concerns that some states will be shortchanged. Mr. President decided that the bill be allowed to go through due process and be thoroughly debated.
It means that some aspects, especially the derivation debate could be amended if all parties are not agreeable to the proposal. if they feel it would shortchange their states, then they vote against it or for it to be expunged without throwing the baby with the bath water. For example if it would make Lagos or Sokoto get less in the new formula, then it should be amended to the old formula or better still, a more balanced one.
Mechanisms, systems and facilities that would enable the computation and collection of VAT at consumption locations in the states, must be fully in place, otherwise it will amount to ‘dwarfchange’ ! There’s also the issue of a VAT increase which I believe should be amended for now. If it must come in the new Act to save time, then a further date ahead should be chosen for implementation.
Reforms take time to manifest and yield results, but their crunching wastes no time. A tax increase at the moment would have the Nigerian hurricane effect on all other prices and individuals which would spur more inflation.
It would be too many stitches at the same time. The Tax committee man, Mr. Taiwo Ayodele should tarry a while on the VAT increase, and do more on widening his tax drag net nationwide. If he has to import nets, to achieve this, then he must do so!
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