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Tinubu mulls new Executive Orders on tax, fiscal reforms

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Tinubu mulls new Executive Orders on tax, fiscal reforms

 

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President Bola Tinubu may issue five new Executive Orders on tax and fiscal reforms if he approves the recommendations of the Presidential Fiscal Policy and Tax Reforms Committee that he set up last year.

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The committee was inaugurated on August 8, 2023 and tasked with the mandate of addressing critical challenges around three main pillars; fiscal governance, revenue transformation and economic growth facilitation.

Speaking at a public consultation workshop for journalists and public analysts held in Lagos with the theme, ‘Proposed changes to the national tax policy, tax laws and administration,’ on Thursday, the Chairman of the committee, Taiwo Oyedele, revealed that the committee had proposed five new Executive Orders to the Federal Government and the outlook on the proposals were positive.

In his presentation, Oyedele said that the executive orders were stop-gap measures to accelerate reforms.

The first of the proposed EOs bordered on Inflation Reduction and Price Stability, which would cover import duty and Value Added Tax suspension on specified items, importation of paddy rice by millers, import duty exchange rate pegged at N800, prioritising productive spending, paying down Ways & Means, enforcing EO on default approval and concessional low-interest rate.

The second proposed EO focused on Employment Generation Relief, which would cover relief for wage awards, transport subsidy to low-income staff, the deduction for salary of incremental staff, an additional 50 per cent uplift on eligible deduction, and enabling foreign employment for Nigerians as remote workers.

Non-oil Export Promotion and International Trade are the focus of the proposed third EO, which would take into consideration tax exemption for repatriated export proceeds of services & IP, zero-rated VAT for all non-oil exports, relaxation of restriction on the use of export proceeds, removal of Tax Clearance Certificate as a condition for forex application and discontinuing CoCI.

The fourth proposed executive order is on Prudent Financial Management & Financial Sustainability, which would see MDAs remit operating surplus above N5bn, no foreign trips for events targeted at Nigerians, electronic payment of estacode, direct payment to MDAs’ contractors, access to funds subject to accounts and payment of fees in Naira.

The last proposed EO by the committee was on Tax Information Consolidation and Collaboration, aimed at addressing the Tax Information Consolidation & Collaboration Initiative, creating TICC Data Bank to be managed by the Joint Tax Board, mandatory use of NIN and RC numbers, one government directive on data generated by MDAs and a National tax data governance framework.

Speaking on the proposed EOs, Oyedele said, “We have several executive orders, the first one is on inflation reduction and price stability order. We had a serious brainstorming session, we had farmers in the room, educated farmers and they gave us beautiful data, one of which was if you are going to bring down food inflation, you have to do things differently.

“One of the things they told us was that millers of rice are operating at low capacity because we don’t have paddy rice, so why don’t you import paddy rice? Those farmers were so confident that if we imported paddy rice, the price of rice would crash by more than 50 per cent and it would have a ripple effect. We have an Executive Order like that that we have recommended and we are positive that government would approve the work.”

On the proposal to peg the exchange rate for import duty at N800/dollar, the former fiscal policy partner and Africa tax leader at PriceWaterhouseCoopers, said “On import duties, when we did the budget, we said naira to dollar would be N800. Now, it is not N800 but N1000 something, so Customs would change it but people need to plan, so we are saying, ‘Dear government, can you please sign an order that says for paying import duties, we shall use N800, even if it from now till the end of the year. We shall see as the economy stabilises. We proposed N800 and I was happy with my brother, Muda Yusuf, saying the same thing on TV as if he saw our notes. Let’s keep it stable so people can plan.

“If they are collecting N800 for import duty, they are not losing anything because that was what they had in their budget before. That would help the economy in terms of bringing down the price of importation, which will help with inflation. It will also help with stability and planning. So somebody who is opening an LC for something that would arrive in two months needs to take a loan from the bank and he doesn’t even know how much to pay. He knows the amount they are charging for the items, he needs to worry about the exchange rate for the goods, and he doesn’t need to worry about the exchange rate for the import duty. Even if it is not a permanent solution, let’s do this between now and December. When the economy stabilises, the exchange rate itself will also stabilise and this will no longer be necessary. In the meantime, we do think it is a good idea for the government to adopt.”

In light of the economic hardship on Nigerians, the EOs would also ensure that the government prioritises productive spending to ameliorate the pains of the people.

“We also have the one on government prioritising productive spending because when you remove fuel subsidy and you float the naira and the money that the government is collecting goes up, you know it is not money from heaven, it is money from people that have been transferred to the government and these people are poor, so it means that the money that has been transferred to you is spent to help them relieve the pain that they have to go through,” he said.

The committee chairman also pointed out that Nigeria can make 10 times more money from efficiently collecting five taxes than the over 60 taxes that are being collected across the country.

He said, “We think that Nigeria can make 10 times what we’re making now from over60 taxes from five and it’s not by asking anybody to pay an extra amount, it is by ensuring that people who are not paying are paying.

“Apart from the revenue we generate, it addresses a fundamental issue of not rewarding bad behaviour. Anyone who is doing business today and not charging VAT is getting an incentive and anyone who is charging is getting disincentivised.”

Speaking further, Oyedele pointed out that, “VAT today increases the cost of doing business and it makes the cost of food, health, education, transportation and to a large extent rent to go higher than it needs to be. That is where the majority of our people spend their money. Our proposal says to take out the VAT on those basic consumption so that the cost would come down. But because that means the government would lose a lot of money, we would adjust the rate of VAT to go up on other items that are not in that category, so that the government will still collect the rest but not significantly less so that they can approve the reforms.

“We will now tell them that where their money would come from is getting people who were evading VAT to stop evading and we have the data to show that a lot of people are collecting VAT and not remitting to the government, some are not charging it and I’m not talking about small businesses. We did an exercise in Lagos and Abuja, where there are people selling items worth N50m and they don’t charge VAT. Someone would ask whether they should charge VAT when it’s time to do the invoice. You see where the VAT revenue would come from.”

Using South Africa as an example, the accountant disclosed that Nigeria has never been able to collect the amount of money that the former collected as personal income tax in 2023.

He said, “South Africa in their last fiscal year made over N40tn equivalent from personal income tax alone. One tax. That N40tn is more than all the money we have ever made in Nigeria from all taxes by the FIRS, Customs Services, all 36 internal revenue agencies across the states, Federal Capital Territory, 774 Local Governments, over 63 MDAs, all the taxes that they have collected combined has never been N40tn. South Africa collected it from one tax.

“It cannot be that the solution to our problem is adding more taxes. The problem is actually that there are too many of them already. We may need to reduce them to a single digit, that is why many of you would have seen that intentionally, we are singing, a single-digit song. When we are done, all taxes combined would be single digits. Data shows us that we can do far more with fewer taxes not introducing new ones.”

He added, “You will be aware of certain taxes that have gone viral and some people tag me and say, ‘So this is what you are coming up with?’ I say ‘No, these are issues we are trying to address.’ The cybersecurity levy is from 2015, people just didn’t pay attention to it. It was just amended, the levy was adjusted, and the expatriate employment levy was approved in May last year by the former president. The government can do more with better coordination, but I can tell you the direction of this government is not to introduce more taxes. These are issues that we are trying to address that are still showing up. I’m sure we will get to the point where people can feel the impact of the harmonisation we are trying to do.”

According to the presentation, the proposed taxes would include, Income Tax, Value Added Tax, Property tax, Customs duties, Excise tax, Stamp duties, Special levy, Harmonised levy and Social Security Contribution(not a tax).

Breaking down the impact of proposed tax reforms, Oyedele said that companies would not have to pay company income tax if they were too small.

“It is the principle that if you are too small, just live your life and grow but those who are above the threshold and we are certain, you have to pay. Currently, 30 per cent plus many others but we are proposing that should come down to 25 per cent, maybe reduce it by two and a half per cent in 2025, and another two and a half per cent in 2026 because sometimes you don’t want to drop all the revenue at once. Otherwise, you will not get the approval of the policymakers.

“Even for the VAT adjustment as well. For the items where we adjusted the VAT upward, we also want to phase it, so it is not just a one-time adjustment that can impact. Even if it is the smartphone you are buying, you are not going to be happy if the prices go up at once, so we are pacing and phasing those reforms bearing in mind that that the objective of our reform is the people. It has to be that it affects their lives positively in a way that they can see and feel.”

He reiterated that about 95 per cent of the informal sector or micro businesses should not be bothered about taxes at all.

“Now, the top five per cent we are focusing on is a large number. Nobody knows exactly how many small businesses we have but we have something in the region of 30 million. If you do five per cent of 30 million, we are talking roughly one million additional businesses that we are looking at. We think that that number if we can manage it well can give you revenue can allow you to do economic planning and then you focus your attention on people with the capacity to pay. That is exactly what we are trying to do and we think it would work,” he said.

In terms of implementation, Oyedele revealed that the committee was working with all stakeholders to achieve the desired results.

“The implementation is not just about the Federal government. This is one particular area where we need all levels of government to come together. We are engaging with the FG, state governments, local governments and agencies of government. We think that at the end of the day when we create a framework that is acceptable to all of us, it would make it easier for us to implement. Plus, we are using a lot of technology to do this. Nobody should have to pay taxes with cash. Anyone you are asking to pay cash should have a mobile phone. If somebody is doing business and doesn’t have a mobile phone, you should not be taxing them.

“We think we can develop a system where people pay using their mobile phones and in fact, they can choose to pay in instalments. It will be on your phone, the government can track it, there is transparency and we can call into question how the government is spending it to benefit the people. We have also made recommendations to amend the constitution so that there can be a limit on the number of taxes people have to bear per time so that the reforms that we are trying to do now are not reversed in the next couple of years,” he posited.

Reacting to the proposed pegging of the import duty exchange rate at N800/dollar, the Chief Executive Officer of the Centre For The Promotion Of Private Enterprise, Muda Yusuf, expressed hope that the recommendation would be approved.

“It is a very good recommendation. It is my hope and prayer that the recommendation will be accepted. It shall bring predictability and certainty to international trade and reduce investment risk. It will also have a moderating effect on inflation by reducing the costs of imports.

“The current methodology of using the official exchange rate for customs duty computation has created serious dislocations to international trade and inflicted losses on many businesses. It has exacerbated inflationary pressures, caused trade diversion to neighbouring countries, resulted in the loss of jobs in the maritime sector, worsened uncertainty, made planning difficult for businesses, escalated trade costs and undermined investors’ confidence.”

“Let me emphasise that this recommendation does not conflict with the current foreign exchange reforms. It does not detract from the policy of rate convergence in the foreign exchange market. This is not about selling forex at a preferential rate to anybody or business. This is limited only to trade. It is only about the applicable rate for the computation of customs duty. And it will be non-discriminatory. It will be uniform for all importers. I will also plead that the rate should subsist for between three to six months. The business community will appreciate the acceptance of this recommendation,” he enthused.

 

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