Nigerians may have been pushed beyond the breaking point by the Federal Government?s aggressive revenue generation drive, especially considering the spontaneous reaction to the recent speculation about a proposed five per cent increase in fuel tax. Due to a combination of factors, including a large informal economy, widespread tax evasion and a culture of poor tax compliance, Nigeria is said to have one of the lowest tax-to-GDP ratios in the world.

A litany of taxes

Since President Bola Tinubu came into office, however, his reform policies, focusing on enhanced revenue generation capacity, have put the citizens under intense financial pressure, adding more to the cumulative burden of fuel subsidy removal announced on the day of his inauguration on May 29, 2023. Although the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, has clarified that there is no immediate plan to implement the tax, debate is still raging as to whether or not the Federal Government is not pushing Nigerians too hard in its aggressive drive for revenue generation.

According to economic experts, tax revenue can be a powerful engine for economic growth. Yet, there are arguments for and against tax revenue as a driver of economic growth. From a macroeconomic perspective, increased tax revenue is crucial for economic development. Taxation is also a key tool of fiscal policy which can be used as incentives to encourage investment in specific sectors, redistribute wealth to reduce inequality, and manage inflation. As experts argue, a consistent and substantial tax base allows the government to invest in critical infrastructure projects like roads, electricity, ports, and public transportation. These projects reduce the cost of doing business, attract foreign investment, and create a more efficient and productive economy. It is also the primary source of funding for essential public services such as healthcare, education, and security.

Despite the inherent benefits of effective tax management, however, the Tinubu administration?s approach has been characterized by rapid and simultaneous tax increases coming in quick succession. Apart from sudden removal of the fuel subsidy, floatation of the naira and increased electricity tariffs, the government has repeatedly reviewed other taxes and service fees.

These include, among others, a four per cent Development Levy on the assessable profits of Nigerian companies (with the exception of small companies), increase in Changes to Capital Gains Tax (CGT) from 10 to 30 per cent, Digital Assets tax, cybersecurity level introduced by the Central Bank of Nigeria for commercial banks, which was met with widespread public condemnation and later suspended by the government, as well as increased fees for Corporate Affairs Commission (CAC) services.

Others are upward review of passport processing fees, Federal Road Safety Corps number plates and drivers licence, and police charges on tinted car permits to mention but a few. While each of these reforms might be considered necessary by economists for long-term benefits, their cumulative and immediate effects have been devastating. The Nigerian economy, and its citizens, were not given time to adjust to one shock before the next one was delivered. The public feels that they are being asked to pay more and more for essential services while their income and purchasing power dwindle. While the long-term goal of the reforms may be to build a more stable economy, the short-term reality is a cost-of-living crisis that has pushed millions to the brink, creating a widespread feeling of being suffocated by the economic policies of the current government.

The people?s pain

The founder of the All Progressives Grand Alliance (APGA), Chief Chekwas Okorie, expressed concern over the impact of rising tax burden on Nigerians in a telephone interview with Saturday Sun.

He said: ?I align with the overwhelming majority of Nigerians who are suffocating under the tax and other economic policies of the Tinubu administration. The last thing anybody will want to hear now is anything that has to do with additional tax, even if it is the minimum unit of the naira which is the kobo. The reason is that Nigerians are still groaning under the weight of the so-called subsidy removal and the fall out of that removal. For instance, I don?t know where they picked up the logic of branding consumers of electricity into categories of ABC and so on. They have never kept even for a day the promise they made to ensure regular supply of electricity for those under Band A. When you go round the city, you will discover that 80 per cent of inhabitants are on that Band A and electricity is not being supplied.?

Okorie warned the government not to take the patience of Nigerians for granted, noting that their pains are getting to an alarming point.

?Government should not take things for granted because of the complacency of Nigerians or the elasticity of their patience. They should stop thinking that the easiest way to generate revenue is to slam more taxes. This is getting a little bit dangerous. By the time the citizens will react to the pain they can no longer bear, it may take everybody unaware and become overwhelming for security agencies to contain.

?So, those in charge of churning out these policies should be mindful of what they are doing. They should be mindful of an eruption of anger that can hurt everybody including those in power,? he admonished.

The speculation about the five percent fuel tax arose because a provision for a five per cent surcharge on petroleum products was included in the new Nigeria Tax Administration Act 2025. This act, which is part of the broader tax reforms, is set to become operational on January 1, 2026, although the government has tried to dissipate the people?s fear by saying the tax might not start on the proposed date. Some of these policies have disproportionately affected the middle and lower classes. Due to the administration?s reforms, costs of fuel, food, and rent have skyrocketed, while salaries have stagnated. Many Nigerians who once had a stable income are now struggling to feed their families. This has fuelled the ?japa? (emigration) phenomenon, as a growing number of young, skilled professionals see no future for themselves in Nigeria. The public sentiment is that the government?s policies are benefiting a small group of elites while pushing the majority into abject poverty.

A renowned economist, Prof. Segun Ajibola, while admitting the complementary role of these reforms, urged the Federal Government to refocus its aggressive tax drive towards capturing ostentatious goods patronized by the rich into the tax net rather than putting unnecessary burden on the ordinary people with impositions that have direct impact on their lives. He, therefore, stressed the need for the government to include the informal sector in its tax net to widen the tax base, instead of simply increasing the tax burden on a shrinking pool of compliant taxpayers.

According to him, when a country relies heavily on consumption taxes or levies on essential goods, the tax burden disproportionately falls on the poor, who spend a larger portion of their income on these items. This can stifle consumer demand and worsen poverty, which can be detrimental to long-term economic growth. Without considering the impact of these complementary reforms, he said, an aggressive drive for revenue generation risks becoming a self-defeating exercise that chokes the economy instead of growing it.

His words: ?Tax drains what is in the pocket of the taxpayers. Tax in all ramifications is a drag on investments. There is what we call negative correlation between investment yield and level of tax. So, the higher the tax on an individual, the lower his purchasing power and the capacity to meet his basic needs and maintain a standard of living.

?For businesses, the more tax you pay, the less money is left to invest and pay dividends which is the return on investment. There are so many things to consider before imposing any form of tax.?

According to him, there is no justification for increasing tax on low income earners.

He added: ?If the average living standard is already challenged, there will be no economic justification for any new tax by whatever name or alias it is called. Any imposition of tax on fuel will definitely have direct linkage to the standard of living of the people because there is hardly anything that is not directly linked to fuel in Nigeria. What I expect the government to do, which is already being done and they could still do more, is to tax luxury goods, not basic needs. When you tax a commodity that even affects a mad man under the bridge, it creates another economic implication on the overall well-being of the masses.

?There are so many other things the government can tax in Nigeria apart from a commodity that affects the lives of everybody.?

Speaking further on the incessant upward reviews of service charges by government agencies, he attributed increased fees to the rising cost of inputs. ?Some of the service charges are justified based on the increase in price of inputs. But there are some like the one the Police are trying to introduce for tinted glass. We are being told that it will be renewable annually. To me, that does not make sense. It is questionable. There are few areas like that that need a serious rethink for the sake of sanity in the environment and for the sake of convincing members of the public. Some of us find it difficult to understand the justification for electricity banding.

?We find it difficult to explain why such should be sustained because that is not what will improve power generation, transmission and distribution. We continue to make mistakes in this part of the world that the only solution to service provision is to raise tariffs. You see it everywhere ? in electricity, petroleum, license and so on. Some of them can be justified where cost is incurred but there is a limit. There are so many other things outside the tax net that fall within what we call the informal sector. Those are the issues that need urgent attention.

?This is one of the areas where tax leakages can be blocked. There is a need for better tax administration, better tax architecture to capture those businesses that fall within the informal sector. If we capture that, tax-to-GDP will rise.?

Notwithstanding some of the noticeable lapses, Prof. Ajibola commended the Tinubu administration for the new tax reform initiatives.

?The current administration is doing a lot. Let?s give credit to them. In the UK, if well computed, tax is about 40 per cent of your income. But after that, power is guaranteed, gas is guaranteed, security is guaranteed and roads are there. So, the money works for you. That is the direction the President is going, given his antecedents in Lagos. What he is trying to say is ?Pay your tax and see how the tax works for you.? But it is still a work in progress in Nigeria.

?Over the years, tax-to-GDP is between six to seven per cent. So, it cannot happen in one day. The government is pushing ahead with the New Tax Reform Act. If they implement it transparently, one day, somehow, we will get there,? he assured.

As the government struggles to raise enough revenue to make a meaningful impact on infrastructure and public services, there is a general feeling that a series of choky reforms introduced by the administration have created a level of hardship that has surpassed the population?s ability to cope. For many, the hope of a better future has been replaced with the immediate and suffocating reality of a daily struggle for survival.

A case for the tax master

In partial alignment with the postulations of the erudite professor of Economics, Dr. Muda Yusuf, a former Director-General of the Lagos Chamber of Commerce and Industry, equally expressed optimism that the new Tax Reform Act would serve the long-term interest of Nigeria, while also protecting the low income earners from the burden of heavy taxation.

He argued: ?I will not agree with those people who feel that the tax policy is choking them, especially with the new tax reform. Part of the reasons for the Act is to harmonize these various taxes. They have also given some concessions to SMEs, withholding tax to manufacturers. They have also given some concessions to those earning income below N800,000 per annum. If you look at all these, it will be difficult to argue that the government is too aggressive in terms of imposition of all manners of taxes on people.

?What I think the government is trying to do is to bring into the tax net those who are supposed to pay taxes but are not paying. They want to ensure that tax administration is better to improve revenue generation.

?You cannot call service charges tax. These are charges for the services government agencies render. And in most cases, they apply cost principles. No matter how you look at it, the cost of providing any service in this country has gone up. If they must continue to maintain the same level of service without subsidy from the government, it is almost unavoidable that some of these charges have to go up.

?However, we can still interrogate some of the charges because things are very difficult. Government should ensure that they don?t inflict more pain on people at this time.?

Some of the new taxes and service charges that might go into effect from next year are:

Fuel Tax

There will be a five per cent tax on fossil fuels like petrol, diesel, aviation fuel, kerosene, and other petroleum-based products. But household kerosene, cooking gas (LPG), compressed natural gas (CNG), and renewable energy sources are exempt.

Company Income Tax (CIT)

Companies still pay corporate tax, but the new law adjusts how the rates work?especially for big companies and multinational firms.

Minimum Effective Tax Rate (ETR) for big firms

Large businesses and multinationals must pay at least 15 per cent tax on their profits. If they find a way to pay less, they?ll have to add more until they hit that minimum.

Personal Income Tax (PIT)

If you earn less than N800,000 a year, you don?t pay income tax. People who earn more will pay higher rates, depending on their income level.

Value Added Tax (VAT)

VAT stays at 7.5%. However, it now covers more goods and services, though some essentials remain exempt or zero-rated. Businesses also get better opportunities to reclaim the VAT they pay.

Capital Gains Tax (CGT)

This now applies to profits made from selling things like digital assets, cryptocurrencies, tokens, and other virtual assets, along with the usual properties and investments.

Development Levy

A new 4% levy has been introduced on company profits (except for small businesses). It replaces multiple old levies such as those for education and technology.

Stamp Duties

Stamp duty rules have been simplified. Some small property transactions are exempt from the charges. (Saturday Sun, but headline rejigged)

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