THE Presidential Fiscal Policy and Tax Reforms Committee said it proposed a reduction of the multiple taxes paid to various levels of government to a single digit of eight taxes.

The tax reduction is part of the committee’s reform proposal to help lower the tax burdens placed on individuals, households, and businesses.

The committee’s chairman, Taiwo Oyedele, discussed some of the changes at a public consultation workshop with journalists, analysts, and media experts on Thursday, May 30, in Lagos on the proposed changes to the National Fiscal Policy.

He said the committee was at the stage of concluding its policy formulation framework and submission of its proposals to the National Assembly and other regulatory authorities.

On July 6, 2023, President Bola Tinubu set up the presidential fiscal and tax committee and appointed Oyedele as chairman.

The committee was inaugurated on August 8, 2023, with the mandate to reform and harmonise the country’s fiscal policy and tax system.

During his presentation, Oyedele noted that since 2020, following the COVID-19 pandemic, Nigeria has been faced with unpleasant macroeconomic challenges as exemplified by the current domestic socio-economic reality.

These realities include slow economic growth, high inflation and unemployment, widespread poverty, low revenue, high public debt, declining investments, an increasing rate of emigration, and worsening standards of living.

He pointed out that one of the critical challenges facing the tax system in Nigeria was the high level of non-compliance due to low tax morale.

He described tax morale as the willingness to comply with taxes and the belief that tax evasion is wrong.

According to Oyedele, only 17 per cent of individuals and households believe evasion is wrong and punishable, stressing that the people do not trust the government and its tax officials and are dissatisfied with social services.

He also said only 31 per cent of small and large firms considered evasion as wrong and punishable and were worried about the multiple taxes, taxing agencies and the high frequency of tax audits.

In dealing with this issue, Oyedele said his committee proposed suspending multiple taxes, which place burdens on the poor and small businesses, and compensate with windfalls revenue of certain agencies.

The issues, he noted, were proposed in a draft National Fiscal Policy framework, which the committee submitted to the National Assembly.

Reduction of taxes to single-digit

Currently, the federal government has about 17 approved taxes and levies, states about 21, and local government about 17.

The committee said it proposed that the taxes be pruned to eight.

The proposed tax items are income tax, value-added tax, property tax, customs duties, excise tax, stamp duties, special levy, and harmonised levy. There is an additional social security contribution, which the committee said should not be regarded as a tax.

The key objective is to do away with nuisance taxes with very low revenue yield, high cost of collection, and ultimate burden on the poor and small businesses and focuses on high revenue-yielding taxes, that are broad-based and relatively easy to collect.

It is also to merge taxes and levies that are imposed on the same or substantially similar tax base, keep the total number of taxes across all levels of government to a single digit, and institutionalise the tax harmonisation reform to ensure sustainability.

Exemption on withholding tax

The committee also proposed an exemption of manufacturers and farmers from paying withholding tax to reduce tax burden on businesses.

According to the Federal Inland Revenue Service (FIRS), a withholding tax is an advance payment of income tax which may be used to offset or reduce tax liabilities.

The committee proposed that the focus was to exempt small businesses, manufacturers and producers, such as farmers, from withholding tax obligations, lower rates for businesses with low margins, reflect emerging issues and adopt global best practices.

The chairman noted that withholding tax is the most difficult to comply with in Nigeria due to its complexity.

“We have created an exemption for manufacturers- so if you are a manufacturer, don’t worry about withholding tax. If you provide input to manufacturers like farmers, don’t worry about withholding tax,”  Oyedele said.

Customs exchange rate at N800/$

The committee proposed pegging the Customs duties exchange rate at N800/$.

Oyedele expressed worries that frequent changes in the Customs duties rate did not favour any form of long-term planning and were detrimental to business operations.

He added that a fixed exchange rate for customs duties should last the rest of the year.

The ICIR reported at v how the government changed the exchange rate for the Customs duty at different times, especially since the beginning of this year.

Changes to tax legislation

One of the key reforms is the committee’s proposal that the Federal Inland Revenue Service (FIRS) be given a new name as the Nigeria Revenue Service, adding that states internal revenue services be branded in that line by adding the state’s name to their name.

VAT exemption and zero-rated

The committee proposed that basic consumptions such as health, education, transportation, and accommodation, which constitute 90 per cent of the spending of 80 per cent of the Nigerian population, be placed on zero-rated instead of being exempted from value-added tax (VAT).

Oyedele explained that exemption means that all the VAT a product paid to produce a commodity would not be paid back by the government which the producer invariably adds to the cost of the product unknown to consumers.

On the other hand, zero-rated means that for all the VAT a producer pays to produce a commodity, the government will pay it back to the producer, as such the VAT will not be added to the cost of the product.

With this proposal, government VAT revenue could drop by about 64 per cent, Oyedele said. “We know that realistically, nobody can approve that,” as VAT has been one of the highest-yielding revenue for the government.

He also pointed out, “Remember that 85 per cent of it goes to states. So, how do you think that state will approve of this brilliant idea?”

So for this idea to work, Oyedele explained that the committee proposed that VAT be adjusted upward.

“This was the thing that was misreported,” he added which he said some media platforms did not put into proper context.