Tax reform bills tops Nigeria's parliament agenda

Nigeria's Senate deliberated on the 2024 Tax Reform Bill as top of its agenda during its plenary session. The proposed tax reforms aim to address key issues such as an increase in Value Added Tax (VAT) rates and the modernization of the tax system. Theo Emuwa, a Partner at Aelex, shared insights on the potential impacts of the tax reform bills with CNBC Africa. Emuwa highlighted that while the House of Representatives had passed the bill after making some adjustments, concerns still lingered. One contentious issue revolves around the proposed increase in VAT rates from 7.5% to 10%. Despite resistance from the public, Emuwa noted that the government requires additional tax revenue, making it challenging to avoid a rate hike. He emphasized that neighboring countries have higher VAT rates, suggesting that Nigeria's current rate is relatively low within the region. Moreover, Emuwa discussed a significant change in VAT calculations under the proposed legislation. Previously, only manufacturers could deduct input VAT from output VAT. However, the new bill extends this benefit to service-based businesses, potentially reducing the overall tax revenue collected by the government. Emuwa pointed out that unless the VAT rate is raised, tax income might decrease due to these adjustments. The interview also delved into the ambitious nature of the tax reform agenda. Emuwa expressed concerns about the simultaneous amendment of multiple tax laws, some dating back to the 1950s. He cautioned that such comprehensive reforms could lead to prolonged legal disputes, similar to ongoing litigations under the Petroleum Profits Tax Act. Emuwa suggested a more phased approach to avoid potential implementation challenges. Furthermore, Emuwa highlighted the importance of expanding the tax base through technological solutions and improved data tracking. He underlined the need for a robust identification system to monitor citizens from birth, enabling effective tax collection as individuals enter the workforce. Emuwa acknowledged that Nigeria's current system lacks comprehensive digitization, limiting tax authorities' ability to monitor economic activities effectively. The discussion also touched upon the underutilization of technology in tax administration. Emuwa noted that while technology could enhance tax compliance, infrastructural limitations in Nigeria hinder its full implementation. He cited examples of malfunctioning banking apps and point-of-sale (POS) systems, showcasing the challenges in adopting technology at scale. In conclusion, Emuwa emphasized the importance of balancing tax reforms with infrastructure development to attract businesses and prevent tax erosion. He warned that excessive taxation could drive away potential investors to lower tax jurisdictions, necessitating a holistic approach to support economic growth. As Nigeria navigates its ambitious tax reform agenda, stakeholders must address critical issues to foster sustainable revenue generation and economic prosperity.