Nigeria’s current tax system outdated, shameful — Oyedele

The Chairman of Tax Reform Committee, Taiwo Oyedele said, Nigeria’s current tax system is one of the most outdated, shameful and embarrassing, hence, Nigerians and critics of the proposed tax reform before the National Assembly to support it in order to bring the nation out of tax doldrums.

Speaking on Channels Live Television over the weekend, Oyedele criticised the system, which still operates under a 1939 stamp duty law, calling it “embarrassing” and a “big shame.”

He warned that efforts to halt the reform process would be a setback for the nation, urging stakeholders to support the tax reform bill without delay.

Oyedele highlighted that fears among state governors and the National Economic Council (NEC) over the reform’s impact on revenue distribution could be addressed without withdrawing the bill.

According to him, this bill aims to make the tax system fairer, helping low-income earners, small businesses, and even large firms by reducing corporate income tax rates to stimulate investment.

“There is so much at stake,” Oyedele emphasised, stressing the importance of not delaying reforms as Nigeria lacks “the luxury of time.”

A central concern in the reform debate has been the collection of Value Added Tax (VAT). While some governors have pushed for state-level VAT collection, Oyedele warned that such an approach could “lead to chaos.”

Allowing states to collect VAT, he argued, would create disparities thereby reducing the revenue some states would collect and potentially hurting businesses.

“If we get a judgment from the Supreme Court today that VAT should be collected and administered by states, that will be chaotic. States will collect less, businesses will suffer, and the economy will retrogress,” Oyedele said.

“If it doesn’t work, that would be a big shame for our country. I don’t know whether it will happen again in my lifetime where you have this level of commitment from the highest level for a holistic reform. I have done all my career in Nigeria. Nigeria’s tax system is one of the most backward in the world. it’s embarrassing. We had laws we inherited from our colonial masters. The stamp duty law is the law of 1939. We are in 2024. So, anything that stops the process of trying to reform that will be really, really sad. So I do want to envisage that option, “ he emphasized.

The proposed tax reform bill, he explained, suggests a unified approach where the Federal Inland Revenue Service (FIRS) would handle VAT collection on behalf of all states. By centralising VAT and other tax collections, the reform intends to enhance data accuracy, improve economic planning, and reduce compliance burdens on businesses.
“Whatever you do in Abia, whatever you do in Kogi, reflects on the system, and that helps us a lot,” Oyedele noted, emphasising the benefits of a streamlined, centralised tax collection system.

One of the committee’s initial concerns was resistance from Lagos but the state accepted to work with the committee.

Oyedele pointed out that while Lagos generates significant VAT, much of the VAT on imported goods and international services—which is a major revenue source—remains federal.

This revenue is not attributed to any specific state, making a federal pool necessary for fair distribution.

Currently, VAT revenue is shared among states based on a formula: 20 percent based on derivation (where the tax is generated), 50 percent based on equality, and 30 percent based on population. The committee’s proposal increases the derivation portion to 60 percent, with 20 percent each for population and equality. This adjustment is meant to ensure more fair and balanced distribution across states while still encouraging economic growth.

To further address state concerns, Oyedele said the federal government has agreed to reduce its VAT share, ceding 5 percent more to states. “I thought that should be good enough. It’s actually just saying to you as a state that your risk is zero, but the upside is significant,” he added.

In addition to VAT adjustments, the bill proposes other significant tax changes.

For instance, it suggests raising VAT to 10 percent by 2025, reducing corporate income tax to 27.5percent, and increasing the personal income tax for high earners from 20 percent to 25 percent.

Oyedele believes these changes would not only boost revenue but also incentivise states to promote economic activities within their jurisdictions.

However, the tax reform initiative has met resistance from certain lawmakers and officials. Oyedele revealed that some legislators have not fully read the lengthy bill, leading to misunderstandings.

“We will summarise for them,” he said, acknowledging that “trust is a problem.” The committee is working to address these concerns through dialogue and engagement, including reaching out to local revenue authorities to foster understanding and trust.

He also pointed out a legal gap in the 1999 Constitution that did not address VAT, which had already become a major revenue source by that time. This oversight has led some to argue that VAT should be a state matter. If the Supreme Court sides with this interpretation, Oyedele warns it would drastically reduce revenues and burden businesses with multiple compliance requirements.

On the other hand, the reform proposal aims to treat everyone equitably, clearing up misconceptions that state-level VAT collection would bring substantial revenue gains.

Beyond VAT, the reform package also includes proposals to streamline tax collection across Nigeria’s complex bureaucracy. Oyedele said the bills would halt revenue collection by federal agencies like the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigeria Customs Service (NCS), which presently operate outside their core mandates by collecting taxes.

Under the proposed system, approximately 60 federal agencies would no longer collect taxes, focusing instead on their primary functions, while tax agencies would handle all collections.

The new framework, according to Oyedele, is designed to encourage cooperation between federal and state tax authorities, promoting data sharing and intelligence building across jurisdictions. The proposed Joint Revenue Board would enable a unified tax system, where data flows seamlessly between states, local governments, and the federal government. “Working together, particularly in terms of data and tax intelligence as well as capacity building, is going to transform the system today,” Oyedele explained.

The tax reforms, if implemented, would simplify Nigeria’s tax landscape, making it more transparent and efficient. President Bola Tinubu has urged the National Assembly to pass the bills, which include the Nigeria Tax Bill, the Tax Administration Bill, and the Joint Revenue Board Establishment Bill. These reforms are intended not only to boost revenue but also to align Nigeria’s tax policies with international standards, thus promoting a more business-friendly environment.

Oyedele stressed that the proposed tax reforms represent a historic opportunity for Nigeria. Delaying or withdrawing the bill, he argued, would be a significant loss for the country. “If it doesn’t work, that would be a big shame for our country,” he said, underscoring the unique alignment of political will and economic necessity driving this initiative. By modernizing outdated laws and streamlining tax processes, the reforms aim to secure Nigeria’s fiscal future and stimulate its economic growth.