Blog Details

INTRODUCTION

The session of the Presidential and Fiscal Policy Reform Committee was chaired by Taiwo Oyodele, who provided a comprehensive overview of the committee’s plans, proposals, and implementation strategies. Emphasizing the importance of inclusive fiscal policymaking, he highlighted the need to ensure that the impact of fiscal policies is felt by the public.

Mr Oyodele reintroduced the Presidential Fiscal Policy Committee as an advisory body with no executive powers. He clarified that the committee’s role is to propose policies aimed at improving the economy, which may or may not be adopted by the government. Stressing the importance of avoiding sensationalism, he reminded attendees that the committee’s work is still in progress and subject to change.

SESSION HIGHLIGHTS:

Socio-economic context: Mr Oyodele discussed the economic impact of the COVID-19 pandemic, highlighting ongoing recovery efforts. He also provided an overview of the current budget expenditure, outlining both work in progress and positive indicators.

Work in progress.

• Exchange rate convergence and stability
• High inflation and cost of living
• Rising poverty and social tension
• High interest rate environment
• Security challenges
• Need for more decent jobs.

Positive Indicators

• Balance of trade / current account surplus
• Slowing inflation in developed market and prospect of rates cuts
• Declining budget deficit
• Raising revenue and more spending on capex
• Less need for ways and means. Pay-down.
• Rising crude oil and gas exports
• Commencement of local crude oil refining
• Positive outlooks by rating agencies
• Capital market performance.

He addressed our socio-economic reality which he says that according to MDS 2022 report says 133 million Nigerian lives in multi-dimensional poverty which was even before subsidy and Naira fluctuation which is about 70 to 75 percent of our population lives in multidimensional poverty. This report is based on lack of quality education, food security, poor health care, poor sanitation, poverty, and lack of investment which has led to poor economic growth. The background of this gives the context of the fiscal system and areas of reform.

The Tax System: Perception of Tax Evasion

 
According to reports, only 17 percent of Nigerian adults currently pay taxes, with 83 percent acknowledging tax evasion as wrong, yet not feeling compelled to fulfill their tax obligations. Similarly, only 31 percent of businesses in Nigeria are tax-compliant, making Nigeria one of the lowest-ranking countries in terms of tax compliance.

The primary reasons cited by both businesses and individuals for non-compliance include a lack of trust in the government, complex tax policies, and instances of bribery and corruption among tax collectors. This trend has significantly impacted the economy, fostering a culture of complacency towards tax payment.

Efforts are underway to simplify the tax payment process, making it more accessible for both businesses and individuals. These reforms aim to address the complexities associated with tax payment and enhance compliance across the board.

Top of Form

The fiscal system and areas of reform

1. Fiscal governance: This encompasses the management of finances and country revenues in terms of borrowing and spending in a coordinated way across all national bodies.
2. Revenue transformation: Its not just about tax but tax components, the plan is to be able to make sure that people pay less taxes and make our enterprises to work efficiently and effectively.
3. Economic growth and competitiveness: the road map for companies to grow and the need to cover up loopholes and roadblocks that has led to over 30 million businesses struggling to survive. Most businesses outside oil importation find it very difficult to export their commodities due to the long period of clearing and certifications, which is not necessary. The fiscal policy reform is to make things easier and enable growth, and does not tax investment, growth, seed, capital, and poverty. With these more businesses will be willing to stay and not overwhelmed, that they will want to pack up.

There is the need to consider our national interest and SMEs and start up our country’s tax reform policies. The cost of governance is extremely high, and we need to cut down on their cost and prioritize more on human capital development.

The expected outcome

The Fiscal and tax reform committee is expected to get a possible outcome by the end of 2023.

• Economic participants, taxation system design, between government and the people
• Bills for constitutional amendments on fiscal matters
• Tax ombudsman and office of tax simplification.
• Harmonized new law (single digits) list of taxes and levies and harmonized revenue administration.
• National single revenue platform and model templates for subnational
• Model tax codes and templates for state.
• Digitalization of revenue administration datat4tax, VAT fiscalisation etc.
• Nontax revenue optimization (assets, investments, and natural resources)
• National tax amnesty scheme
• Revised national tax policy, spending borrowing, and reporting framework.
• Monetary and fiscal policy coordination
• National fiscal risk framework including benchmark and thresholds.

Public Engagement and Consultation: The committee’s priority is to carry membership of the private sectors, government institutions, trade organizations, trade associations, professional bodies, civil society, and others along in their engagement.

Deliverables Mapping to Thematic Areas:  The committee shed light on their quick win’s critical reforms and implementation with stakeholders which includes.

• Amendments to FRA and other PFM laws
• Fiscal risk framework
• Vertical and horizontal policy coordination framework
• Revenue/ Tax harmonization
• Taxation of digital economy
• Whistleblowing framework 2024 national tax policy
• Framework for informal sector taxation
• Nigeria’s response and position on the global 2-pillar solution
• Draft tax laws
• Constitutional amendments bills
• Draft executive orders and regulations
• Ports and customs process reforms
• MSMEs promotion
• AfCFTA treaty domestication and preferred location strategy

Quick wins progress report (key recommendations); The committee gave a summary of their achievements in various areas which are.

• Measures to ensure prudent public financial management and improve public sector efficiency.
• Optimize value from non-tax revenue e.g. government assets and natural resources.
• Develop a tax intelligence system Data4Tax to expand the tax net.
• Increase personal relief allowance for employees and tax deductions for employers in respect of salary increase, transport subsidy and net increase in employment.
• Option for Nigeria businesses (other than those in the oil and gas sector) to pay all their taxes and levies in naira.
• Address impediments to global employment opportunities for Nigerians based in Nigeria.
• Suspend VAT on diesel and tax waivers on CGN, CNG conversion, renewable energy items.
• Suspend multiples taxes which place burdens on the poor and small businesses and compensate with windfalls revenue of certain agencies.
• Promote export of goods, services, and intellectual property
• Modify tax ProMax to allow part payment and waive and interest on tax liabilities.

Deliverables and work-in progress; the committee gave insight on their deliverables and work in progress on economic intervention bill, revised national tax policy and proposed constitutional amendments which are on

• Withholding tax regulations,
• New spending and borrowing policy.
• Clarity on VAT taxing powers and cap on the number of taxes
• Excise taxes by FIRS.
• Funding for student loan scheme
• Tax identification and consolidation and collaboration (TICC)
• Limit the number of taxes per taxpayer to a single digit.
• Effective tax compliance for elective offices and appointments
• Vat on exclusive legislative list
• Tax expenditure better captured.

Proposed Changes to National Tax Legislation.

Withholding Tax Regulations

The proposed changes seek to address the identified challenges while promoting the stated objectives. They include.

• Exemption of small businesses from withholding tax
• Lower rates for businesses with low margins
• Exemptions of manufacturers and producers such as farmers
• Measures to curb tax evasion and avoidance.

Executive orders (key proposal)

• Value added Tax act (modification) order, 2023.
• Deduction at source (withholding) regulations, 2024
• Inflation reduction and price stability (fiscal measures etc.) orders
• Company income tax relief for employment generation, etc.) order, 2024
• Non-oil export promotion incentives and international trade facilitation order, 2024
• Prudent financial management band fiscal sustainability order, 2024
• Tax information consolidation and collaboration order, 2024.

Proposed changes to tax legislation: Policy direction and (structure). The policy direction seeks to simplify, harmonize, modernize, and align the structure with economic objectives.

1. Nigerian tax bill

• Company income tax
• Petroleum profit tax
• Personal income tax
• Capital gain tax.
• Stamp duties.

2. Tax administration bill.

• Nigeria revenue services
• Internal revenue services
• Tax appeal tribunal.

3. Nigeria revenue commission (JTB)

Income and capital gains taxes (key changes)

• Changes of (WREN) rule to wholly and exclusive (WE)
• Removal of restriction on deduction of rent relating to employees
• Restriction of interest deductible limited to intra group loans.
• Pre-commencement revenue expenditure to be deductible for income tax determination (maximum 5 years)
• Change of accounting date requiring only a notification to the tax authority
• Reduction of CIT rate and consolidation of earmarked taxes
• CGT taxable at the same rate as CIT
• Employment income criteria for taxation in Nigeria
• Increase in small business exemption threshold.
• BIK accommodation tax to be restricted to 20% of gross income.
• Reform of pre-merger relationship as a condition for carrying forward tax benefit.
• Capital gain allowance classifications, rates, and retention.
• Increase in compensation for loss of office or employment exempt threshold.
• Deletion of minimum tax except min tax rules under BEPS
• Adjustment to PIT bands and rates and increase in personal relief allowance.
• The importation of fiscal provision of PIA, PPTA, and DOIBA into the NBT
• Removal of commonwealth of relief and replacement with unilateral relief of double taxation by granting credit for foreign tax paid
• Changes to the pioneer rules and other incentives

Value Added Tax and Excise Duties.

• Full deduction of input VAT on all supplies including services and assets
• Compensating adjustment to VAT rate, and alignment with ECOWAS directive on VAT rate
• Faster refund process for VAT
• Zero rated list expanded to include agriculture, medicals, and educational and other basic consumptions.
• Exports of services and intellectual property to be zero rates
• Excise tax simplified and limited in scope with clarity of rates, liable party, and timing.
• VAT fiscalization and electronic invoicing
• Adjustment to VAT sharing formula and basis
• Inclusion in the exclusive legislative list

Tax Administration and Revenue Commission (Key Changes)

• Harmonization of all administrative provisions in different tax legislation into one
• Registration requirement with provision for deregistration and cancellation of TIN
• Clear filing and payment provisions
• Provision for mandatory disclosure of tax planning to curb abuse.
• Introduction of estimated returns for gas producing companies and LNG companies
• Settlement of dispute and provision
• Provision of joint audit and exchange of information among relevant tax authorities
• Special provision for VAT refund without the need for audit
• Integration of all offences and penalties into one chapter for ease of reference
• Codification of advanced rulings
• Removal of requirement of tax clearance certificate as a condition for transactions

Proposed amendments to the constitution (Key proposals)

• Implementation of treaties (section12)
• Qualification for election (section 65, 135, and 177)
• Authorization of expenditure from consolidated revenue fund (section 81 and 121)
• Ministers of the federal government (section 162)
• ‘Distributable pool account (section 175)
• Allocation of other revenue (section 163)
• Presidential pardon (section175)
• Jurisdiction (section 251)
• Legislative list second schedule (part1 and 2)
• Revenue mobilization and fiscal allocation commission

Key take away.

1. Small businesses will no longer pay withholding tax.
2.  

Summary and Conclusion

The Presidential and Fiscal Policy Reform Committee has made notable improvements to existing policies, addressing major concerns of taxpayers in both the public and private sectors. Throughout the implementation process, the committee has ensured transparency, actively engaging the public to gather input and feedback.

The committee’s focus is on implementing substantial changes to Nigeria’s fiscal and tax systems. These proposed reforms aim to streamline the tax system, enhance compliance, and stimulate economic growth. Successful implementation of these reforms is expected to lead to a more efficient and competitive Nigerian economy.