Nigeria is embarking on a comprehensive tax reform initiative aimed at streamlining its complex tax landscape. The objective is to reduce the number of taxes imposed by federal and state governments from over 60 to fewer than 10, in a bid to facilitate business operations and enhance revenue generation.
Nigeria, Africa’s largest economy, currently grapples with a low tax-to-GDP ratio of 10.8%, one of the lowest in the world. This deficiency necessitates extensive government borrowing to finance the national budget. Furthermore, investors often point to Nigeria’s intricate tax structure and the multiplicity of revenue collection agencies as obstacles that inflate business costs and deter investment.
Speaking on the reform efforts, Taiwo Oyedele, an advisor to President Bola Tinubu on tax reform, explained, “Nigeria has over 60 official taxes and levies collected by federal and state governments and local authorities, mandated by law.” He noted that when factoring in unofficial taxes—taxes imposed by agencies with or without legal backing—Nigeria contends with more than 200 taxes. This abundance of taxes, according to Oyedele, “is making life difficult for our people.”
He further elucidated, “The more taxes you have, actually, the less revenue you collect because it just creates the opportunity for leakages and some non-state actors collecting money and keeping it to themselves.”
The reforms aim to establish clarity regarding which level of government should be responsible for collecting specific taxes. This endeavour entails potential amendments to the constitution to delineate the roles and responsibilities of each tier of government in the tax collection process.
Some states, such as Lagos, which contributes significantly to tax revenue, took steps last year to enact laws granting them the authority to collect value-added tax, leading to a dispute with the federal government that is currently under litigation in the courts.
Nigeria’s ambitious tax reform program seeks to not only simplify the tax regime but also enhance the efficiency and effectiveness of revenue collection. By reducing the number of taxes levied and clarifying collection responsibilities, the government aims to create a more conducive environment for business operations while bolstering revenue streams to fund critical national initiatives.