New national tax template excites private sector, unsettles states  

• Oyedele’s committee pushes for single national tax system, harmonisation
• Committee to reduce number of taxes to nine, remove non-state actors
• Committee seeks executive orders to push through reform proposals
• Fundamental changes need legislative amendment, says Yusuf

The push by the Presidential Committee on Fiscal Policy and Tax Reforms for radical changes in the country’s tax administration system may stoke a political conflict between the federal and state governments in the coming months, The Guardian has learnt.

The committee, which was set up by President Bola Tinubu on assumption of office last year, is seeking a single-window national tax template that will collapse the number of collectible taxes to a single digit while streamlining the collection process, its working documents have suggested.

A single-digit tax will require state governments to collapse their number of taxes to at most nine just as the planned harmonisation could strip state governors of the power of discretion in the number of taxes, collection process and mode of payment, which is different from the sore point in the fluid fiscal federalism debate.

In the current regime, some states collect as many as 197 taxes and fees, the Chairman of the Committee, Taiwo Oyedele, disclosed at an impact and assessment forum with journalists at the weekend.

Many of the fee collections are done by politically exposed non-actors who the committee recommends should be eliminated from the tax system to improve transparency.

At the weekend meeting in Lagos, Oyedele also mooted the possibility of stripping the states of the responsibility of tax collection, a task, he said, could be ceded to a central body (perhaps the Federal Inland Revenue Service) that would be saddled with the sole responsibility of tax collection, with the state agencies becoming mere departments.

The thinking aligns with the push for the streamlining of all tax and revenue collections around a single agency of government, a recommendation Oyedele was sure would increase efficiency and transparency while allowing different institutions to concentrate on their core mandates.

While federal agencies that had frustrated efforts to hand over revenue collection to the Federal Inland Revenue Service (FIRS) may not do much to protest the plan, asking states to stay off tax collection could spike the historical inter-government crisis, some observers have noted.

Such a proposal is akin to toying with landmines and could renew the ancient rivalry between the central and state governments over tax administration. A few years ago, there was a protracted legal war over value-added tax (VAT) collection after some states dragged the federal government and the FIRS to court over the matter.

Already, the states are said to have received the Oyedele’s committee and their activities with cold shoulder. A member of the committee, who confided in The Guardian that there is no problem at the federal level in pushing through the recommendation, said it could be “reasonably challenging securing cooperation from the states”.
But a professor of applied economics, Godwin Owoh, said the reform is a win-win for both federal and state governments and that it is in the interest of the governors to support the planned harmonisation.

“The proposal is the right way to go. There are a lot of blockages on the roads such that you cannot even differentiate between criminals and tax collectors. Harmonisation is the way to go, and I don’t expect any governor to stop the process for a selfish reason.

“After all, it is for the benefit of the people. It is about fiscal convenience and making life easy for the people and businesses. If the masses will benefit, why should one person who calls himself a governor constitute himself as a hindrance? They also know that they need to deliver to the people, which is the objective of the reform. If the reform leads to an improved business environment, it is in the interest of the people, hence everybody should support it,” he said.

The committee is proposing bills for constitutional amendments on fiscal matters as well as model tax codes and templates for states as part of the legal framework to transition the fiscal space. But for quick wins, the committee is pushing for executive orders as “stop-gap measures” to accelerate the reforms.

But the Director General of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the major reforms would necessarily be delivered through legislative amendments.

Using federal machinery to collect taxes would make for better efficiency, said Yusuf. He, however, said some levies and taxes collected by state and local governments may not be conveniently collected by FIRS.

The private sector advocate envisaged a pushback in efforts to prune down the number of taxes but was hopeful that the process could kick off gradually as opposed to the radical approach contemplated by the committee.

“Even if it is not nine; if they can reduce the number significantly, it would be a good start. This is because there will be pushback from the states and local governments. The discussion will have to be taken to the National Executive Council (NEC) where it will be debated and the practicality considered.

“But what is important is that it will lead to improved revenue coming to the states. If the governors know they will gain something from somewhere even if they lose in another area, they will support it. It could be an incentive to support the reforms,” says Yusuf.

The CPPE boss insisted that the process is about efficiency rather than taking away the power of anybody or the government. He observed that FIRS has demonstrated the capacity of any state internal revenue agency. He, however, said the recommendation would eventually end up in the National Assembly where state representatives will have a say.

“It is not a matter of the President imposing the recommendations on any state. I am not sure the fundamental changes will come through executive orders; they will need to go to the National Assembly. Executive orders may only take care of aspects that require administration reviews,” he said, insisting that executive orders cannot take the plan of legislative amendments.

But the President of the Chartered Institute of Taxation of Nigeria (CITN) and member of the fiscal reform committee, Samuel Agbeluyi, told The Guardian, yesterday, that the envisaged single-collection window is not part of the immediate reforms being considered but may come later.

He insisted that tax reform, which has been part of CITN’s advocacy for decades, is a necessary step to achieve faster growth and development and that Nigeria has an opportunity to do it now.

Agbeluyi wondered why a state would collect 65 taxes and still depend on allocation from the federation account to survive if sustainability is about the number of taxes.

“Of the taxes we talk about, 62 or 65 depending on the state, about six or seven bring over 90 per cent of the revenue. Who needs the rest?” he asked, instating that efficiency has nothing to do with the number of taxes.

The CITN President told The Guardian the country does not have an alternative to reform. He, however, said the judicious use of the proceeds is a fundamental aspect of the new culture of taxation the current administration intends to build.

According to Oyedele, lack of trust, fiscal exchange and cumbersome processes are among the top reasons Nigerians do not pay taxes. He described a situation where taxpayers are asked to give bribes to enable them to pay their taxes.

The committee, he said, envisages a data-driven tax system, across its entire value chain. He explained that the current administration does not intend to create more taxes as what exists “are already too many” but to transition the country into a fair, just and efficient tax system.

Hence the recommendations are seeking tax exemption for low-income earners, production and investment even as the head of the committee insists no economy develops by taxing seeds and poverty.

The document is also seeking “tax exemption for repatriated export proceeds of services, zero-rated VAT for all non-oil exports, relaxation of the restriction on the use of export proceeds and removal of tax clearance certificate (TCC) as a condition for foreign exchange application”. These are expected to incentivise investment and growth of the economy.

The Committee’s activities could be misconstrued as a potential threat to the ideals of federalism when the real debate commences.

Perhaps, Oyedele has pre-empted the debate. At the weekend, he told journalists that fiscal federalism and specifically VAT collection at the state level could be chaotic as shown in the case of Brazil.