By Oche Echeija Egwa
By nature, most people would like to dodge payment of taxes if the system allows it. It’s not surprising that some easily agree with the saying that tax collectors rarely have many friends. But, for governments, taxes are a major policy instrument for shaping, and reshaping, the economic destinies of their countries. In this regard, President Bola Tinubu’s sense of urgency can be understood.
At his inauguration on May 29th, 2023, economic transformation topped the President’s agenda. With the historic precedence in Lagos State as a former Governor (1999-2007) the President knows the dynamics, and centrality of fiscal and tax reforms in dictating the vibrancy, competitiveness and inclusiveness of an economy, especially in tackling debilitating poverty.
Barely a month into office, the President had swung into action, appointing a seasoned and national award-winning career officer, Adewale Bashir Adeniyi, MFR, as Acting Comptroller General of Nigerian Customs Service (NCS), which was roundly applauded. Adeniyi was confirmed four months later, in October, for making a clear difference in revenue generation, trade facilitation and staff motivation.
To further improve the reforms, the President changed the gatekeeper of another major revenue earner, the Federal Inland Revenue Service (FIRS), by appointing his former Special Adviser on Revenue, Zacch Adedeji, a first-class graduate of Accountancy, as the acting Chairman/CEO of that agency.
Adedeji, at a young age, served as Commissioner for Finance in Oyo State under the late Governor Abiola Ajimobi, bringing on board a wealth of experience on tax reforms. Adedeji was confirmed by the Senate on October 31.
Walking his vision for economic turnaround, President Tinubu inaugurated an all-inclusive Presidential Committee on Fiscal and Tax Reforms headed by a renowned expert, Mr. Taiwo Oyedele.
To avoid a trickling-down, and enhance implementations, the committee captured the critical people in the various sectors of the economy, including farmers, traders and students. The mandate was clear: simplify the tax system for more efficiency and effectiveness.
In less than two months, the committee tendered its report, October 24th, 2023, detailing the “Quick-wins’’ that will ameliorate noticeable burdens within a month.
The President had directed reduction of tax regimes to a single digit, following the disclosure by the Chairman of the committee that Nigerian economy was struggling with 60 legal taxes, across the federal, state and local councils, and additional illegal taxes that brought the total to about 200, which was clearly a disincentive to starting and growing businesses, particularly to the lifeblood of economies, small and medium enterprises.
While the tax reforms were going on Nigeria, at a study tour, October 10-30, 2023, organized by the Peoples Republic of China, in Beijing, with focus on Public Finance and Government Budgets for Developing Countries, Prof. Young Ho, said regular tax reforms were redemptive measures by governments, citing oft-celebrated lifting of 700 million Chinese citizens out of poverty.
Sharing the Chinese experience with participants from ten countries, including Nigeria and bureaucrats from the African Union (AU), Prof. Ho, who is an Associate Dean, School of Public Finance and Taxation, at the Central University of Finance and Economics, Beijing, said tax reforms must be regular, and purposeful to reflect the vision and direction of governments.
Other participants at the conference were from Rwanda, Lesotho, Zambia, Zimbabwe, Cambodia, Tajikistan, Oman, Pakistan and Kenya.
“China has grown exponentially by using tax as an instrument for development, like prioritizing on Foreign Direct Investments that will impact the economy. We had a tough time in eliminating double taxation and we had to start using either the credit or exemption method,’’ she noted.
To cure the Chinese economy of multiple taxation, the tax expert emphasized that the country invested heavily in innovative technology, that provided solutions to plug leakages, and provided access for voluntary payments, through websites and apps, which is a path Nigeria had taken with focus on data mining by the FIRS.
Prof. Ho disclosed that most transactions in China had been intentionally digitalised, with little human interference in domestic and cross-border transactions. Where a weak link was observed and exploited by corrupt people, she said the government punished the defaulters and culprits, and further tightened the bolts with new technology.
In her presentation at the Central University of Finance and Economics, titled, “International Tax Reforms and their Impacts on Foreign Direct Investments’’, Prof. Ho explained that in order to reduce poverty among the 1.4 billion population of China, the government exempted all agricultural raw materials from all forms of taxation.
“Only the end product of agricultural materials could be taxed, not the input, or the process. Our farmers were exempted from paying taxes, while financial institutions, like our policy banks, were encouraged to favour farmers with credits and subsidies,’’ she added.
The Chinese government operates four policy banks that support the vision of the government, she explained, stressing that only processed or manufactured agricultural products could be taxed in China.
“We have lower taxes of about 4-6% on small businesses, and it is based on their growth levels. Agricultural products, at raw stages, are exempted from tax base. Newspapers and journals are also excluded so we don’t pass the cost to the ordinary people,’’ the lecturer added. Other items that get preferential treatments are medical and educational equipment, and the public schools (private schools pay taxes).
The Associate Dean also pointed out that Chinese multinational companies pay 25 per cent taxes to the government, and where they had been taxed abroad at lower rates, they pay the balance at home. They can only be exempted when the tax in a foreign country is the same or above.
“The government tries to avoid double taxation. The Small and Medium Scale Enterprises get facilities at lower interest rates, and their taxes are between 3% to 6%.
“The biggest tax in China is Value Added Tax (VAT). Mostly, the 13 percent VAT is on high profit businesses like banks, petroleum companies, other financial institutions, some manufacturers, some online service companies, social media and telecoms. Most times, construction companies are not included because of the focus on infrastructure development,’’ Prof Ho stated.
She disclosed that VAT contributes 32-35 per cent of the government’s total revenue, and can be preferentially staggered to 9%, 6% and 3% for various businesses at different growth levels. The lecturer said China has 19 different taxes, with the corporate, income, consumption taxes on luxury items and the VAT was controlled by the central government, which was usually shared by other structures. Local councils administer taxes on land and transportation.
“Before 2008, China had separate laws for domestic tax payers and foreigners and to attract FDI, it was harmonized, with even lower rates for the foreigners,’’ Prof. Ho said. Incentives were also given for single corporate tax laws, research and high telecom companies, which were focused on skills transfer to citizens.
According to her, developing countries should design their tax to attract FDIs, and reduce the sufferings of the ordinary people. She said “The Golden Tax System’’ of China had gone through different phases, from 1-4, and graduation into online payment for flexibility and accessibility. Some taxes, like the Green Tax, favour sustainability, and encourage new technology.
In another presentation, “The Reform and Practice of China’s Fiscal and Tax Development’’, an Associate Professor, School of Accounting, Chongquin University of Technology, He Fan, pointed out that tax reforms were regular features in China, with four Provinces, Beijing, Shanghai, and Tianjin, also implementing the various aspects.
More than 80% of China’s revenue, he pointed out, comes from different taxes, spread across VAT (36.8%), Corporate Tax (8.9%), Corporate Income Tax (24.3%) and Personal Income Tax (8%). For more details, Fan told participants that cigarettes were taxed 45% because of health implications, makeup 30%, wine 20%, jewelries 5%, solid-wood for flooring 5% and chopsticks 5%. Based on grade and emission, cars were taxed 40%-50%.
The Chinese tax researchers noted that the secret of effective tax administration lies in heavy investments in technology, and deploying intelligent systems for collection, distribution and monitoring. Fan disclosed that apps and websites play a central role in providing solutions, particularly in collection.
The lecturers also said repositioning the Chinese economy for prosperity, a long-term plan since 1978, was a deliberate policy choice, and successive governments followed through, consistently refining the process with new technology, opening up the economy for partnerships, offering cheap labour that enabled skills transfer, and imbibing global best practices.
President Tinubu’s vision and speed is well thought-out while the speed of implementing the economic reforms has been impressive. The overall economic plan is comprehensive, with focus on the non-oil sector. Already, Nigeria’s main revenue-earner for many years, crude oil, is fast losing value in the global market, with rising alternatives for energy, and fluctuating prices that affect planning and implementation of budgets, particularly unhealthy for foreign exchange reserves.
Nigeria’s leader remains optimistic on the outcome of his reforms, so that the “poor can breathe’’, and the applause from global institutions and partners has further strengthened his resolve, that only a multifaceted, streamlined and digitalized reform will jolt the economy, and give it a pride of place in the comity of nations.
Oche Egwa, Assistant Director of Information in the Presidency, participated in a three-week conference in Beijing, with staff from the Accountant-General’s Office and the governing party, APC.
