NIGERIA TAX REFORM: CHALLEGES & PROSPECTS
Let me as a matter of due courtesy, commend the Business Club Ikeja, for organising this luncheon talk which I learnt has been sustained for some time now. Events like this create an opportunity for all stakeholders in the nation’s economy to take a critical look at some burning issues within the Nigerian economy. This forum is not only timely but highly desirable for the Nigerian polity that is currently experiencing far reaching transformation. Distinguished ladies and gentlemen, in discussing this topic, which could not have come at a better time than now when the Federal Government is taking various steps towards reforming the tax system, the recent pronouncement on the increase in the Value Added Tax (VAT) from 5 percent to 10 percent, particularly with the subsequent reversal and the controversy so far generated among stakeholders. Nigeria as a nation with federal political structure has a fiscal regime that adheres strictly to the same principle, a fact which has serious implications on how the tax system is managed. It is also characterised by unnecessary complex, distortionary and largely inequitable taxation laws that have limited application in the formal sector that dominates the economy. This paper is therefore, aimed at x-raying various steps so far taken by the government and stakeholders in the nation’s tax system with a view to correcting perceived flaws in it. It will also dwell more on VAT vies-a-vis the entire reform process in the nation’s tax system and how to improve the efficiency of tax practitioners and administrators and help in mapping out ways towards a more efficient tax administration in Nigeria.
2.0. Pre 2002 Tax Reform Efforts
The Federal Government had taken far-reaching steps aimed at reforming the nation’s tax system before the Pre 2002 reform efforts. Among these are; The 1978 Task Force on Tax Administration headed by Alhaji Shehu Musa. The major thrusts of the report of the task force are; • • • Introduction of the Withholding Tax (WHT) regime Imposition of 10 per cent special levy on Bank’s excess profits Imposition of 21/22 per cent turnover tax on building and construction companies.
The 1992 Study Group on Nigerian Tax System and Administration headed by Professor, Emmanuel Edozien, recommended; • • The establishment of FIRS as the operational arm of FBIR and Setting up of Revenue Services at the other tiers of government (State and Local Governments).
The 1992 Study Group on Indirect Taxation headed by Dr. Sylvester Ugoh recommended a policy shift from direct taxation to indirect/consumption (VAT evolved).
2.1. HISTORY OF THE CURRENT TAX REFORM PROCESS (Overview of the report of the Study Group (2003) and the Working Group (2004) on the Nigerian tax system) The current reform process commenced on August 6, 2002, after series of proposal forwarded by our Institute to the Federal Ministry of Finance. A Study Group was eventually inaugurated to examine the tax system and make appropriate recommendations to the government, on ways to entrench a better Tax Policy and improve tax administration in the country. Distinguished participants, it is instructive to note that the Study Group on the Review of the Nigerian Tax system that was inaugurated on August 6, 2002 with the 11-Point Terms of Reference. In all intents and purposes, the Study Group which had three members of our Institute, was set up to take a critical look at the existing tax laws, the inherent lapses and proffer ways and means of enhancing the tax system through feasible recommendations. A comparative analysis showed that Terms of Reference of the 2002 Study Group was broader in scope than the 1991 Study Groups in that while the latter’s exercise covered the review of direct taxes under the jurisdiction of Federal and State Revenue Services, the 2002 exercise was more comprehensive as it covered the entire gamut of taxes at Federal, State and Local...
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