The Presidential Tax Reform Committee, led by Chairman Taiwo Oyedele, has proposed sweeping changes aimed at simplifying Nigeria’s tax system by eliminating all state-level consumption taxes except the Value Added Tax (VAT).
These reforms, announced in an explainer on Monday, seek to address longstanding issues of multiple taxation, ease regulatory burdens on businesses, and ensure fair revenue distribution among states.
Oyedele emphasized that the reform bills are designed to remove complexities in Nigeria’s tax framework, particularly by discontinuing overlapping consumption levies imposed at the state level alongside VAT.
“The imposition of parallel consumption taxes in some states increases the tax burden on the people and contributes to multiple taxation. This reform seeks to address that by making VAT the singular consumption tax across Nigeria,” Oyedele explained.
Addressing concerns regarding the new derivation model for VAT revenue allocation to states, Oyedele assured stakeholders that no state would be left disadvantaged.
To address disparities, the new legislation proposes a five per cent equalisation fund, a measure dedicated to compensating states that might experience reduced revenue under the VAT formula.
Oyedele clarified the rationale behind this provision, stating, “The five per cent to be ceded by the Federal Government can be set aside for equalisation transfers to cover any revenue shortfalls for states 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 to long term.”
The proposed tax reform also addresses potential changes for key revenue agencies like the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Customs Service (NCS), following inquiries about whether these bodies might be restructured under the tax harmonization plan.
Oyedele reassured the public that while these agencies will continue their regulatory functions, they will no longer be directly responsible for collecting regulatory fees in their jurisdictions. Instead, their budgets will be funded through traditional allocations within the federal budgeting process.
By streamlining taxes and reallocating revenue responsibilities, the proposed reforms aim to foster a more efficient tax system that alleviates financial pressure on Nigerians and enables states to generate revenue without the complications of multiple taxation.
The tax reform bills are anticipated to drive substantial economic growth, ultimately providing a fairer and more sustainable financial environment for the entire nation.