Reviewing Nigeria's tax policies

Nigeria is at a critical juncture, looking to diversify its revenue sources away from oil by expanding its tax base. The nation's tax policy is under scrutiny, with calls for major reforms to strike a delicate balance between generating tax revenue and fostering business growth. In a recent interview on CNBC Africa, Ajibola Olomola, a partner at KPMG Nigeria, shared insights on the necessary adjustments needed in Nigeria's tax laws to achieve this equilibrium. Olomola emphasized the importance of using taxation as an instrument to modulate the economy and incentivize productive activities without stifling growth. He highlighted the significance of aligning existing tax laws with the updated national tax policy issued by the Nigerian government. This policy aims to outline the direction in which taxation should be used to drive the economy, reflecting a modern approach that considers current business practices. One of the key challenges identified in Nigeria's tax framework is the need to capture transactions in the digital economy. As online transactions become increasingly prevalent, the current tax laws are inadequate in addressing these modern business practices. Olomola pointed out that Nigeria could learn from global frameworks like BEPS (Base Erosion and Profit Shifting) articulated by the OECD and the UN to expand the tax net and adapt to digital transactions. He stressed the urgency for regulators to catch up with industry practices to ensure effective taxation in the digital era. Furthermore, the synchronization of federal and state taxes emerged as a crucial issue in Nigeria's tax landscape. The multiplicity of taxes at different levels of government has led to frustrations among business owners and prompted some companies to relocate to neighboring countries with more favorable tax policies. Olomola highlighted the importance of harmonizing tax rates and administration to prevent businesses from leaving Nigeria while still accessing its vast market potential. He commended the government's efforts to streamline tax processes through initiatives like the ease of doing business council, aimed at incentivizing business activities and reducing administrative burdens. The discussion also delved into the debate surrounding the value-added tax (VAT) rate in Nigeria. With the current VAT rate set at 5%, significantly lower than neighboring African countries, there have been calls to increase the rate to boost tax revenues. However, Olomola cautioned against a hasty VAT rate hike, especially during a recession, as it could burden businesses and hinder economic recovery. Instead, he advocated for expanding the tax base to bring more taxpayers into the system, which could potentially increase revenue even at the existing rate. In conclusion, Olomola emphasized the need for Nigeria to stay abreast of global tax policy trends and commit to reforms that align with international standards. By modernizing tax laws to accommodate digital transactions, harmonizing tax regimes, and enhancing tax collection efficiency, Nigeria can strike a balance between revenue generation and business growth. As the country navigates its tax policy landscape, collaboration between policymakers, regulators, and businesses will be pivotal in achieving sustainable economic development.