Olusegun Alebiosu, the Managing Director and CEO of FirstBank Nigeria, has expressed significant concern over what he described as an unacceptably low tax-to-GDP ratio in Nigeria. Speaking during a webinar focused on tax reform and its impact on the real economy, Alebiosu underscored the critical necessity of broadening the country's revenue base.
He stated that an expanded revenue base is essential for fostering sustainable development and equipping the government with greater capacity to navigate and respond to economic shocks.
His remarks set the stage for a comprehensive discussion involving economists and policy experts, who largely concurred that Nigeria's fiscal strategy is in the process of evolving towards a more systematic, transparent, and inclusive framework.
Chinwe Egwim, the Chief Economist at FirstBank, observed that the ongoing reform initiatives signal a conscious shift away from a narrowly defined and fragmented tax structure towards a more expansive and all-encompassing system.
Egwim elaborated that the nation's economy requires a wider and more robust revenue foundation, noting that current efforts are concentrating on enhancing coverage and addressing existing deficiencies in tax administration.
She explained that despite a slight moderation in inflation, businesses and households continue to face considerable cost pressures, positioning the current period as one of adaptation.
However, she stressed that a more predictable and stable tax regime would ultimately serve to diminish uncertainty and foster long-term investment decisions.
"The operating environment is becoming more structured," Egwim commented, advising businesses to pay increased attention to strategic planning, meticulous record-keeping, and a thorough understanding of their tax liabilities. She added that enhanced fiscal stability would not only improve governmental responsiveness but also contribute to more consistent pricing across the economy.
Egwim further pointed out that fiscal policy is increasingly being shaped not solely by government expenditure but by the methods of revenue generation. This paradigm shift, she explained, influences capital allocation strategies and encourages businesses to adopt more rigorous financial discipline.
Uche Uwaleke, Nigeria's First Professor of Capital Market and a participant in the discussion, highlighted the importance of safeguarding investors throughout the reform process. He noted that investments in state government bonds currently benefit from tax exemptions, a measure intended to stimulate participation in subnational financing.
He proposed, however, that introducing specific limits for instruments like treasury bills could help strike a balance between revenue collection and investor protection. Uwaleke also commended the government's decision to refrain from increasing the Value Added Tax (VAT) rate, cautioning that raising it from 7.5 percent to 10 percent would have exacerbated inflationary pressures.
"It would have presented a significant challenge for the economy," he remarked, adding that the current reform agenda is not about imposing new taxes but about improving the effectiveness and equity of the existing tax system.
Regarding implementation, Olufemi Olarinde, Head of Fiscal and Tax Reform Decision at the National Revenue Service (NRS), emphasized that the success of these reforms hinges on transitioning from reactive to proactive governance.
He stressed the paramount importance of clear communication regarding tax obligations, ensuring that taxpayers comprehend which taxes apply to them and maintain strict compliance.
Olarinde categorized taxpayers into two primary groups: those liable for income tax and those subject to consumption or business-related taxes.
In both scenarios, he stated that maintaining meticulous accounting records and accurate documentation, particularly concerning employees, is fundamental.
Olarinde revealed that new guidelines are nearing completion and will be issued shortly to offer more precise instructions to taxpayers.
He also acknowledged the critical role of the Pay-As-You-Earn (PAYE) system in tax collection, urging employers to ensure that deductions are made accurately and remitted promptly.
He reiterated that the overarching objective of the reforms is to establish a fairer and more transparent tax framework. "Evidence must support all claims," he stated, cautioning against poor documentation and unsubstantiated assertions.
Tax expert Albert Folorunsho drew attention to the substantial incentives currently available to small businesses under the existing tax framework. He noted that many small enterprises are exempt from income tax, describing these reliefs as significant advantages for fostering business growth.
He indicated that these incentives are already motivating an increasing number of businesses to formalize their operations through incorporation, thereby broadening the tax base while simultaneously supporting economic activity.
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