FG mulls 95% tax exemption for informal sector, targets middle class, elite to improve collection, efficiency

Vice President Kashim Shettima has said the tax reforms under the administration of President Bola Ahmed Tinubu are targeted at improving the system for the overall benefit of all Nigerians.

Vice President Shettima said this weekend at the closing of a retreat of the Presidential Fiscal Policy and Tax Reforms Committee held at the Transcorp Hilton in Abuja.

“We are not here to frustrate any sector of our economy but to create an administrative system that ensures the benefits of a thriving tax system for all our citizens,” he said.

Represented by the Special Adviser to the President on General Duties, Dr Aliyu Moddibo Umar, the VP said the dynamics of the nation’s fiscal landscape prompted the Tinubu administration to pause and reconsider the direction it was going.

“Our aim remains the revitalisation of revenue generation in Nigeria while sustaining an investment-friendly and globally competitive business environment,” he said.

While expressing confidence in the ability of the committee to deliver on the mandate, Shettima emphasized the significance of the task ahead.

“We are gathered today because we are transitioning from the phase of proposal in the operations of this committee’s work to the phase of implementation.

“I am confident that both the federal and state governments stand ready to ensure the effective implementation of your reform proposals, and we shall provide the institutional framework to guarantee the adoption of the consensuses of this committee, aligning them with our economic agenda,” he said.

Policy to exempt 95% of informal sector — Oyedele

Also speaking at the occasion,  Chairman Presidential Fiscal Policy and Tax Reforms Committee Taiwo Oyedele  said  the new tax reforms proposed by the federal government  legally targets at excluding  95% of businesses and individuals operating in the informal sector from paying any tax.

He said the committee’s data-driven approach led them to the conclusion that the informal sector comprises people simply trying to earn a legitimate living.

To this end, he listed the categories of those to be excluded as withholding tax, company income tax and payroll taxes, emphasising that government officials and elite would be targeted for tax compliance going forward.

Oyedele said: “So, we’re using data to inform our decisions, currently if you earn N25million a year or less, you don’t have to pay company income tax, you don’t have to worry about VAT.

“We’re looking at increasing that significantly, first to recognise the inflation we’ve had to contend with over the past few years and also because we think that this whole idea and concept of ‘your money is in the informal sector’ is not supported by data.

“We think that the informal sector are people who are trying to earn legitimate living, we should allow them be and support them to grow to a point where they can then have the ability to pay taxes.

“So, we think that 95% of the informal sector should be legally exempted from all taxes; withholding tax, company income tax, even payee on their staff, let them be.

“We can then focus our attention on top 5% of that sector and of course, the middle class and the elite. We think that the days of being above the law in paying taxes are over.

“The same thing we’re saying to our leaders, whether they are elected or appointed, we think they have to lead by example by showing that they have paid the taxes, not only on time, but correctly to the lawful authorities as contained in the various laws.”

The committee chair who noted that notwithstanding the proliferation of taxes and levies at federal, state and local levels, Nigeria’s tax collection remains low  as a percentage of the GDP.

He said: “So, I think everybody, even if you’re not a business person, you’ll feel the impacts of multiple taxation almost everywhere you turn, there’s one tax or the other.

“It affects small businesses even more than large businesses, and also the poor and vulnerable population are having to deal with it. Unfortunately, despite these many taxes all over the place, our tax collection as a percentage of GDP is low.

“So we’re convinced, and that’s what the data tells us, that the right thing to do, the path we need to follow, is the path where we repeal many of these taxes, harmonize whatever is left, and we think we can keep that within single digit across local government, state and federal government combined, and then improve the efficiency of collecting those taxes.”

While assuring of government’s resolve to fixing challenges in the nation’s problematic tax system, the tax expert said: “We have to admit and recognize that these problems will not disappear overnight, it’s work in progress. We have not even submitted our work to the National Assembly.

“So our expectation is, as we progress now from ideation, proposal to implementation, you’ll see less and less of those issues and then you’ll see that harmony in the direction of the fiscal system, not only in the number of taxes we collect being very few, with threshold for poor people and small businesses.

“You will also see an improvement in how those monies are being spent in terms of priority of spending, in terms of the efficiency of spending, and then in terms of focusing on what impacts on the lives of majority of our population who live in multi-dimensional poverty. That is the direction we’re going and we’re positive about that.”

Oyedele further said the tax reform proposals were currently undergoing private sector consultations, with plans to submit them to the National Assembly.

He said after internal approvals by June, the proposals would  go to the National Assembly in the third quarter of 2024, with some components like the National Tax Policy effective by year-end.

“So, it’s ready, we’re waiting for the final signature. We also have a new National Tax Policy that communicates this direction of our tax system, how we’re going to be spending our money, we have a Spending Policy now, as well as Borrowing Policy so that the social contract with the people is delivered to them in a meaningful way.

“So, all of that will happen before the end of the year, but where we are enacting the law and proposals to amend the Constitution, will happen in 2025, and maybe 2026, in the case of the Constitution because I think the timeline that the National Assembly has is about two years,” added the tax expert.

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