Why Some Nigerians Reject the Proposed Tax Reforms and Advice for Stakeholders

The recently introduced tax reform legislation by President Bola Tinubu has ignited extensive discourse, eliciting considerable opposition from various segments of Nigerian society. Although the reforms are designed to establish a more efficient and equitable tax system, they have encountered opposition from stakeholders who are apprehensive about their potential effects on regional development, businesses, and individuals with low incomes.

The following delineate the principal grounds for the opposition:

1. Concerns Regarding Regional Disparities

Legislators and administrators from the Northern region have expressed significant opposition to the proposed modifications regarding the distribution of Value Added Tax (VAT) revenues. The newly implemented formula, which distributes a greater proportion of Value Added Tax (VAT) revenue according to state-level generation rather than population metrics, is regarded as preferential towards economically advanced states in the southern region, such as Lagos and Rivers.

Criticisms:

• Northern states, which experience diminished value-added tax (VAT) revenues as a result of subdued economic activities, would observe a decrease in their federal allocations.
• Critics contend that this may exacerbate regional disparities, thereby constraining the capacity of less developed states to finance vital services such as healthcare and education.

2. Concerns of Small Business Owners

Micro, small, and medium-sized enterprises (MSMEs) have articulated their apprehensions regarding the proposed modifications to the Corporate Income Tax (CIT). While small enterprises with revenues below ?50 million are exempt from taxation, the implementation of a unified tax rate for medium and large businesses may unintentionally elevate costs for suppliers and service providers within their value chain.

Criticisms:

• Small enterprises express concern regarding the potential transfer of indirect costs from larger corporations, as this could result in increased operational expenses.
• It is widely believed that the tax system may exacerbate the financial strain on businesses that are already facing challenges in the aftermath of COVID-19 and in the context of escalating inflation.

3. Economic Disparity and Marginalization of the Poor

Civil society organizations and advocacy groups have expressed significant concerns regarding the proposed increase in the Value Added Tax (VAT) from 7.5% to 10%, with additional increments anticipated in the following years.

Criticism:

• An elevated Value Added Tax (VAT) disproportionately impacts individuals with low incomes, as they allocate a substantial portion of their earnings towards products and services subject to VAT.
• Activists contend that this regressive taxation system imposes an excessive burden on the impoverished, thereby exacerbating economic inequality.

4. Distrust in Government Accountability

A considerable number of Nigerians express skepticism regarding the government's capacity to utilize the increased tax revenue efficiently. Historical inefficiencies and corruption have engendered a climate of distrust, prompting critics to scrutinize the likelihood that the funds will be allocated towards essential infrastructure and public services.

Criticism:

• Some individuals contend that the reforms merely serve as a mechanism to extract additional funds from citizens, without adequately confronting underlying systemic issues such as corruption and inefficient expenditure.
• There exists a deficiency in clarity regarding the government's strategy to guarantee accountability and transparency in the allocation and utilization of the funds.

5. Resistance from Labor Unions

Labor unions, including the Nigeria Labour Congress (NLC), have expressed their opposition to the proposed tax legislation, with particular emphasis on the increase in Value Added Tax (VAT).

Criticism:

• Labor unions contend that the proposed reforms are being introduced during a period when employees are facing elevated fuel expenses and economic uncertainty resulting from the elimination of fuel subsidies.
• They assert that the government ought to prioritize the expansion of the tax base instead of imposing additional tax burdens on citizens who are already financially strained.

Guidance for Individuals Resisting Change

It is imperative to articulate concerns regarding the proposed tax reforms; however, stakeholders should employ constructive strategies to ensure that their dissent fosters positive change.

1. Participate in Meaningful Discourse: Instead of straightforward dismissal, initiate substantive dialogues with the government. Identify particular areas of concern and suggest viable alternatives, such as: A gradual increase in Value Added Tax (VAT) accompanied by supplementary measures designed to mitigate its effects on low-income households.The implementation of tax incentives for enterprises located in economically disadvantaged areas aims to mitigate regional disparities.
2. Promote Enhanced Transparency: Advocate for the establishment of transparent accountability mechanisms regarding the allocation and utilization of any additional tax revenue. It is recommended that an independent oversight authority be established to oversee the allocation of funds designated for infrastructure, education, and healthcare.
3. Recommend Policies for an Expanded Tax Base: Advocate for the government to prioritize the expansion of the tax base instead of raising tax rates. Promote strategies that integrate participants from the informal sector into the tax system without imposing excessive burdens, thereby facilitating a more equitable distribution of the tax obligation.
4. Engage in Collaboration with Regional Leadership: Utilize collective bargaining power through collaboration across various states and sectors. Northern and less-developed states have the capacity to establish coalitions in order to negotiate modifications to revenue-sharing arrangements that more accurately represent their distinct challenges.
5. Inform and Enlighten the Public: Collaborate with civil society organizations to inform citizens regarding the ramifications of the reforms. Cultivate grassroots support by illustrating the ways in which alternative policies can yield advantages for all citizens of Nigeria. Public pressure frequently results in modifications to policy.
6. Advocate for the Formulation of Inclusive Policy Design: Advocate for the incorporation of a diverse array of stakeholders in the reform process, including representatives from minor enterprises, labor unions, and regional governmental bodies. An inclusive approach guarantees that policies adequately represent the requirements of all segments of society.
7. Propose the implementation of impact assessments: It is imperative to advocate for comprehensive socio-economic impact assessments prior to the implementation of the proposed reforms. Evidence-based policymaking can facilitate the attainment of equitable and impartial outcomes for all stakeholders involved.

The proposed tax reforms, although ambitious in nature, have elicited opposition from multiple segments of Nigerian society. The criticisms arise from apprehensions regarding equity, regional inequalities, and the economic repercussions for marginalized communities and enterprises. To effectively resolve these challenges, the government must actively engage with stakeholders, transparently address their concerns, and ensure that the reforms yield substantial benefits for all Nigerians. Neglecting to address this issue poses a risk of alienating critical segments of society and jeopardizing the long-term efficacy of the reforms.