Tax Reform Bills: Separating the Wheat from the Chaff
Who is Creating Misconceptions that Tax Reforms Will Impoverish the Masses?
Taxes are never seen to be people-friendly anywhere in the world, Nigeria being no exception. The ongoing conundrum over the Tax Reform Bills before the National Assembly has created so much furore about the propriety or otherwise of the Bills, and whose interest the Bills seek to serve. Professor Mike Ozekhome, CON, SAN; Chukwuemeka Eze and Kede Aihie give a comprehensive analysis of the provisions of the Bills and their desired objectives
Regional Cracks Over Vaulting VAT
Prof Mike Ozekhome, CON, SAN
Introduction
In my book “Zoning to Unzone: the Politics of Power and the Power of Politics in Nigeria”, (2014); Mikzek Law Publications Ltd, pages XIX – XX), I decried the primitive sharing of National resources by political elites who only share from the national cake, but never cared about how it is baked. I wrote as follows: “from the forgotten oil wells of Oloibiri, (first discovered in 1956, down to the rocky (Olumo Rock) terrain of Abeokuta; the serenity and temperateness of the Mambilla Plateau; the steep hills and deep caves of Abakaliki, the fish-laden River Niger of Agenebode; the serene and occasionally uproarious and tempestuous Lagoon of Lagos; the hot desert and scenic undulating sand dunes of Sokoto, Katsina, Bauchi, Birni Kebbi and Potiskum; from the delicate swamps and now ecologically devastated mangroves of Amasoma and Gelegele, and the dense rubber and timber jungles of Sapele and Benin, the story is the same: share the national cake. Who bakes this cake, no one answers. No one cares. No one wants to care. No one cares to know. The sleazily corrupt political elite and their collaborators both in the military and civil populace grandstand about their God-given right to pillage our national treasury and loot our common wealth. They swear it is their inalienable right to roughen it over the down-trodden, the Frantz Fanon’s “wretched of the Earth”. They beat drums of war, chant expletives of hate and sloganeer religious bigotry, cultural diversity, status segregation and gender inequality”.
The national ruckus and furore that has so far heralded the tax reform agenda of the Tinubu Administration, epitomised principally by two, out of the four tax reform bills – the Joint Revenue Board Bill, the Nigerian Revenue Service Bill, the Nigerian Tax Bill and the Nigerian Tax Administration Bill – which he recently presented for passage before the National Assembly, continues to rage unabated. It merely recaps my above worries expressed over a decade ago in my book. Our Nationalists and first Republic regional leaders, Dr Nnamdi Azikiwe, Dr Michael Okpala, Chief Obafemi Awolowo, SAN, Sir Ahmadu Bello, Sir Tafawa Balewa, et al – will be rolling in their cold graves to see what nonsense has been made of the true fiscal federalism they enjoyed with their regional products which made them excel in governance. The usually sleeping magma which the thin regional cohesion represents, is threatening to blossom into a full-blown volcanic eruption of hate and threats between the North and South. Those two problematic Bills, the Nigerian Tax Bill and the Nigerian Tax Administration Bill (particularly, but not exclusively, their provisions dealing with Value Added Tax), have irked mostly Northern State Governments, their legislators and not a few of their high-heeled political elites. It throws up once more the pseudo federalism we tout, which is actually Unitarianism in practice. Are these lachrymal effusions and trumpeted concerns justified? Are the proposals ill-timed, coming so soon after the removal of fuel and electricity subsidies as well as the floating of the Naira (all of which have haemorrhaged the purchasing power of the average Nigerian, as to virtually make nonsense of the recent upward review of the minimum wage)? Are there any other unknown legitimate or valid grounds for opposing the Bills? We may attempt a few answers starting, as is usual with me, the law- my primary turf.
Who Can Regulate Taxes?
By virtue of Item 59 of the Exclusive Legislative List and Paragraphs 7-11 of the Concurrent Legislative List of the 1999 Constitution, both the National and State Houses of Assembly share the responsibility of enacting tax legislation – although admittedly, the former possesses by far the lion share of those powers. That provision of the Constitution (Item 59 of the Exclusive List as aforesaid, empowers the National Assembly to enact legislation in respect of the “taxation of incomes, profits and capital gains.” Of course, under the “doctrine of covering the field”, any clash between Federal and State legislations will see the former triumph. See AG Lagos v Eko Hotels (2017) LPELR – 43713, SC; AGF v AG of Lagos (2013) 16 NWLR pt 1380, pg. 249, SC; and INEC v Musa (2003) LPELR-24927(SC).
The silence of Item 59 of the Exclusive Legislative List (and that of the related provisions of Paragraphs 7-11 of the Concurrent Legislative List which are basically aimed at avoiding double taxation) on VAT, have propelled the legal challenges to that head of tax, culminating in its invalidation by at least one Federal High Court sitting in Port Harcourt. The matter is concurrently on appeal. To that extent, it is hard to disagree with the likes of Hon. Benjamin Kalu, the Deputy Speaker of the House of Representatives, who opined that the Tax Reforms Bills (or, at least, their VAT component) might not go far without a corresponding amendment of the Constitution using Section 9 of the 1999 Constitution. Time will however, tell. At this juncture however, before going further into a detailed critique of the Bills, it is pertinent to first review their key provisions.
Analysis of the Bills
Some of the major innovations introduced by the Bills are the following:
1. The rich to pay more tax, while the poor will stop paying tax.
2. Removal of all taxes on small businesses which are defined as those with a turnover of not more than N50 million;
3. Over 90% of workers in the public and private sectors, will no longer pay income tax.
4. Stoppage of Pay As You Earn Tax (PAYE) on those earning the national minimum wage of N70,000 and, an overall reduction of the tax burden on as much as 90% of workers in both public and private sectors;
5. Complete removal of between 82% and 100% of VAT on the average, on items consumed by low income persons, such as house-hold expenditure (consumption) on items such as food, education, healthcare, rent, public transport and fuel products/renewable energy;
6. Gradual reduction of corporate income tax from 30% to 25% over 2 years, as well as replacement of earmarked taxes on companies, with a reduced single harmonised levy;
7. Consumption tax collected by States, will be eliminated completely.
8. Introduction of new (supposedly equitable VAT sharing formula), which provides that VAT will no longer be calculated based on where companies have their headquarters, but, where their goods are consumed. This is aimed at ensuring that States with fewer company headquarters, are not worse off than those with more;
9. Repeal of over fifty so-called nuisance taxes and levies, and harmonisation of the rest into a single-digit;
10. Those earning less than N1.7m monthly, will now pay less income tax;
11. Customs, NUPRC and other government agencies will no longer collect tax, as only one Agency will be responsible for collection of all taxes in Nigeria;
12. Those receiving less than N9 million per annum, could have their income tax cut by half;
13. The Bill could lead to abolition of other multiple tax laws, such as stamp duties;
14. Gradual increase in VAT from 10% in 2025 to 15% in 2030, with almost every good consumed by low income earners exempted from VAT;
15. Over 90% of small business would no longer pay profit tax;
16. The Bill seeks to put an end to multiple taxation of over 60 types of taxes, which kills many Nigerian companies.
There are more salutary provisions, but the above are the major innovations. However, the VAT aspects have over-shadowed virtually all the other provisions in the aforementioned two tax reform Bills.
Critique
The most stringent criticism of the Bills, has been directed at their VAT provisions. So, what is VAT? VAT means Value-Added-Tax. It is simply a Consumption Tax, that is levied on the value added to goods and services at each stage of production and distribution. VAT being an indirect tax, is levied on the consumption, rather than the business itself. VAT is charged on sale prices of goods, and is paid to government. In Nigeria, it was introduced by the Military Government of late Gen. Sani Abacha, and, is currently based on the location of the headquarters of the producers of goods and services, rather than where such goods and services are actually consumed. Even though undefined under the existing VAT Act or any other law, this is how the term ‘derivation’ has, all along been understood, resulting in awarding as much as 20% of such revenue to the ‘lucky few’ States where such companies (or producers) are headquartered.
This is provided for in Section 40 of the VAT Act of 2007, under which the Federal Governments gets 15% of such revenue; State Governments and FCT, 50%; and Local Governments, 35% – with the said 20% derivation formula being applied to the share of States and Local Governments as discussed above. The States and Local Governments share is allotted on the following basis: 50% on equality 30% on population and 20% on derivation (after deducting 4% and 2% as cost of collection, by FIRS and Nigerian Customs Service, respectively). The actual VAT rate itself is 7.5%.
Chapter VI of the new Nigeria Tax Bill seeks to alter this legal regime by providing (specifically, in Section 146) a new graduated VAT rate, as follows:
1. 2025 year of assessment: 10%
2. 2026, 2027, 2028 and 2029 years of assessment: 12.5%
3. 2030 year of assessment and beyond: 15%
Furthermore, Section77 of the Nigerian Tax Administration Bill 2024, stipulates that 60% of the amount standing to the credit of States and Local Governments is to be distributed on the basis of derivation. Unfortunately (just as in the existing VAT Act), neither the Nigerian Tax Bill 2024 nor the Tax Administration Bill, 2024, defines “derivation”. So, we may have to fall back on the status quo which favours States where the headquarters of the companies which produce the vast majority of the goods and services in the country are located, that is, Lagos, Rivers and Ogun. Accordingly, these three States will take the lion share of the “derivation” components of VAT revenue.
The Injustice of the Current VAT Regime
The following sample statistics from some select States in the month of August, 2024, will illustrate the glaring anomalies (if not outright injustice) inherent in the present system of VAT derivation and payments:
• Bayelsa State contributed N7.12billion as VAT and received a lower sum of N5.58billion therefrom;
• Imo State contributed a mere N235.41million (less than 5%), but received a whooping N6.01billion;
• Katsina contributed only N1.68billion and received a humongous N7.27billion;
• Delta contributed a whooping N13.09billion, but received virtually half of her contribution – N7.72billion;
• Zamfara contributed only N432.8Million and received princely N5.65billion;
• Rivers contributed a staggering N70.54billion, but received a mere N15.54billion; just about a mere 20% of her contribution.
• Abia contributed only N663.42million (a little over 10%), but received an incredible N5.43billion;
• Kebbi contributed a meagre N665.17million and received an astonishing N5.66billion;
• Cross River contributed N1.08billion, but received for her 20% contribution, N5.51billion;
• Lagos contributed a fearsome N249.77billion and received a meagre N40.22billion (just about 16.09%);
• Jigawa contributed only N1.59billion and received a humongous N6.42billion;
• Kaduna contributed N2.03billion and received N7.47billion (a sum nearly four times her contribution);
• Niger contributed just N1.73billion and received a mind blowing N6.21billion.
The above figures mean that Lagos State which is the highest VAT contributor received only 16.78% of her contribution, while Imo State was allocated a staggering 1,715.98% of her contribution. In the first 10 months of 2024, Lagos State contributed N2.21 trillion in VAT (the highest share of the total pool). Meanwhile, Imo State which contributed a mere N3.33 billion (the lowest among the States) received N57.09 billion, a figure much higher than her contribution.17 States including Kano and Kaduna, received between 101% and 300% of their contributions; while 11 States, including Ekiti and Bauchi States, were gifted 301% – 500%. Indeed, Abia, Kebbi, Imo and Cross River States got over 500% of their VAT contributions.
The scenario smacks of the sad situation of “monkey-dey-work-baboon-dey-chop.”
People have expressed concerns and fears particularly regarding the 60% derivation allocation. Their argument is that it disproportionately favours Lagos State, the primary contributor to the VAT pool. Their position suggests that under this system, Lagos State will receive a substantial chunk of the VAT generated, leaving the remaining 36 States and the Federal Capital Territory (FCT) with a significantly smaller share.
In my humble opinion, the above fears and objections to the reform, stems from a complete misunderstanding of the impact and import of the provisions. Currently, VAT is attributed to where returns are filed, mostly in Lagos due to the concentration of major corporations there. The reform, however, changes this by attributing VAT based on the actual location of consumption, ensuring that VAT stays in the State where the supply is consumed. To assess if the new formula is detrimental to other States aside Lagos, a data-driven analysis of actual VAT consumption across States must be undertaken to compare the outcome with the current distribution template. Any conclusion reached without this rigorous analysis would, at best, be speculative and hypothetical. This is what the Northern Governors are doing – fear of the unknown.
Is Derivation ‘The Elephant in the VAT Room’?
By the terms of the proposed Bill, the oil-industry template of derivation (based on the location of production or head office of the producer of the goods or services) will be discarded in favour of the location or places where the products are actually consumed (that is, retail customers). This makes sense, as VAT is, by definition, a Consumption tax and the existing interpretation of derivation has been based on a false model.
To that extent, I believe that the change ought to be embraced by neutral parties who approach it with an open mind. Alas, if only the average Nigerian was like that – especially those who feel threatened by any change in the status quo, whether it is reasonable, rational, or not. A close scrutiny of the fine print of the Bills might show that their fears are exaggerated, if not outrightly unjustified.
To start with, the present formula of FG, 15%, States 50% and Local Governments 35% will only be slightly adjusted in the proposed change by the FG ceding 5% of its share to the States to become FG 10%, States 55%, and LGs 35%. In terms of the basis of distribution, the current formula for sharing VAT among States is as follows: 20%: derivation, 50% equality and 30%: population.
The new Bill proposes a different model of derivation which will attribute VAT to the place of supply and consumption, as opposed to the present one which attributes VAT to the State where it is remitted. The latter had historically favoured States where the corporate headquarters of the producers of goods are situated. Additionally, the new derivation model fixes it at a much higher rate of 60%. This will theoretically ensure greater equity and that a much larger pool is available for distribution – albeit under a new consumption-based derivation formula as aforesaid.
It is this aspect that appears to fuel the perception that, the proposed formula will lead to lower revenue for some (mostly Northern) States. However, as explained by the Presidential Fiscal Policy Tax Reform Committee, the 5% share of the Federal Government which it proposes to cede to the States will be set aside for what it calls “equalisation transfers” to cater for any shortfall to a State under the new model, thus, ensuring that no State is worse off in the short term, while significantly boosting economic activities and revenue for all States in the medium-to-long term. Time will however, tell.
Challenges to the Validity of the VAT Act
The most fundamental question of all, is the one which very few people have alluded to – the constitutional validity of the VAT provisions in the new tax Bills. This issue came up in relation to the existing tax law enacted by the National Assembly, in EMMANUEL CHUKWUKA UKALA v FIRS (2021) 56 TLRN 1. There, the Federal High Court sitting in Port Harcourt held that the powers of the National Assembly to make tax laws is limited to items expressly listed in Item 59, Part 1 of the Second Schedule to the 1999 Constitution which relate only to “income, profit and capital gains and stamp duties on instruments”; but, do not extend to VAT.
The court further held that any tax law enacted by the National Assembly outside those in respect of which the Constitution expressly empowers the Assembly, will be a nullity. This decision is currently on appeal. Accordingly, unless the decision is overturned by the Court of Appeal (or the relevant provisions of the Constitution are amended), it is hard to see how the VAT provisions of the new tax Bills can pass the validity test.
Recommendations
I agree with some of the criticisms of the proposals in the new tax Bills on VAT (particularly those of Prof Ahmad Bello Dogarawa of the Department of Accounting of Ahmadu Bello University, Zaria) to the effect that the proposal contained in Section 77 of NTAB is unfair to States where VAT revenue is actually generated vis-à-vis States of consumption. It is important to emphasise that VAT is a general consumption tax and, therefore, those who do the actual consumption ought to reap more of the benefits of the tax – as opposed to the producers or manufacturers of such goods and services which is currently the case.
This truism is otherwise known as the rule of “attribution based on the location of consumption”. Therefore, I agree with Prof Dogarawa that the situation can be addressed in any of the following ways:
1. By clearly defining the term ‘derivation’ in the two Bills to mean where the goods or services are actually consumed, regardless of the location of their producer or manufacturer; or
2. Divide the levying of VAT between the Federal and State Governments. This will reflect the principle of federalism, which is the foundation of the Constitution; or
3. Discard the whole idea of derivation entirely, by completely removing it as a basis for distributing VAT revenue.
The problem with this third suggestion is that producers of goods who suffer the consequences of environmental and other forms of degradation arising therefrom, will be short-changed in the enjoyment of produce from their lands.
Beyond that, however, I believe a lot can be said for a return to the position in the First Republic, where Sections 134 and 140 of the 1960 and 1963 Constitutions, respectively, prescribed the sharing formula in respect of royalties extracted or mining rents derived from a region to the tune of 50% of the proceeds of such activity, with the Federal Government keeping 20%, while the rest of the regions shared the remaining 30%, including the region that had already taken her 50%. I believe this is far more equitable, fair and just, as opposed to either the status quo, or even the proposed innovations under the Tax Reform Bills. The 1960 and the 1963 Constitutions espoused true fiscal federalism and engendered a competitive spirit among the regions. This led to fast development of the regions. This is unlike the present situation where States have become lazy and merely send their Commissioners for Finance to Abuja every month to share from FAAC under Section 162 of the 1999 Constitution. Thus, many States share from a baked cake without caring about how the cake is baked.
Conclusion
There is a sense in which, by introducing the Tax Reform Bills now, the Tinubu Administration appears to be trying to do too much too fast. The innovations are coming in a deluge. They are rather being rushed. And, this is why Nigerians are reeling from the simultaneous removal of fuel and electricity subsidies as well as the floating of the Naira, and the concomitant inflationary pressures which they have caused. The cost of living is at an all-time high. These challenges directly precipitated the #Endbadgovernance protests a couple of months ago. To be sure, Nigerians are dying in droves. Many of those still living are but Ayi Kwei Armah’s “living dead” or “walking corpses”. (Armah’s epic, “The Beautiful ones are not yet born”).
Accordingly, the timing of the new tax Bills (well-intended as they arguably are), is probably their greatest demerit. The Government should, quite literally, give us a break; it should give us some breathing space. We have all been tossed around too severely, driven from pillar to post, and are practically at our wits’ end by the cocktail of economic shocks inflicted on us by the apparent determination of this Government to implement its reforms under the IMF and World Bank drive agenda come what may. As a result, Nigerians have been sapped of strength, and are literally gasping for breath. The Tinubu Government should apply some much needed breaks. The tax Bills can come later – perhaps, in a year’s time. Only the living can enjoy the benefits of reforms, however well intended. The dead do not live. My take.
Professor Mike Ozekhome, CON, SAN
Resolution of Selected Tax Reform Bills Provisions
Chukwuemeka Eze
Family Income
Section 4(3) of the Nigeria Tax Bill, 2024 (hereinafter referred to as “NTB”), provides that the income of a family recognised under any law or custom in Nigeria as family income, in which the several interests of individual members of the family cannot be separately determined, is taxable. By implication, income earned from the sale of family lands and the income accruing from the wealth or estate of deceased persons are subject to payment of Personal Income Tax.
This means that the various lands being sold by families in Nigeria (usually referred to as “omoniles” in the South West) shall be taxed in accordance with the rates provided under the Fourth Schedule to the Nigeria Tax Bill. After payment of the tax, the family can proceed to share the remnant. Let’s assume that Family A, comprised of 60 members, sold two hectares of land for N30 million. Let’s also assume that it spent N5 million to achieve a successful sale. Its ascertained taxable income is N25 million. The computation is as follows:
First N800, 000 at 0% = 0; next N2,200,000 at 15% = N330, 000; next N9,000,000 at 18% = N1,620, 000; and the next N13,000,000 at 21% = N2,730,000. The summation of the Personal Income Tax payable by the Family is N4,680,000. The family would have a remainder sum of N20,320,000 to share among its 60 members. Whatever each member gets as income will subsequently be taxed pursuant to Section 4(1)(k) of the NTB, which provides for the taxation of any other income, profit or gain of an individual not falling within the categories of those listed in paragraphs (a) to (j) of subsection (1). In practice, the purchaser of the family land under reference will bear the responsibility of the payment of the tax (N4,680,000), which is recoverable when he applies for Governor’s Consent in order to perfect his papers for the legal possession of the land.
A second example of the applicability of this concept of taxation of family income, will arise in relation to the income obtained by the living from the estate or the wealth of the deceased. Let’s assume that a deceased upon his demise left wealth worth N50 million. The taxman will treat this wealth as income to his family, worthy of being taxed. Let’s further assume that the total burial, legal, and administrative expenses of his interment amount to N8 million. The amount that would be subjected to family income tax would be N50 million minus N8 million equals N42m. The relevant State Internal Revenue Service, where he was resident at the time of his demise, will apply the progressive rates contained in the Fourth Schedule to the NTB to determine the taxable family income.
Background
Nigeria had, between 1979 and1993, flirted with the Capital Transfer Tax (“CTT”), otherwise known as inheritance tax in some other tax jurisdictions. Before its abrogation in 1993, many States did not bother enforcing the payment of the tax,? because of the opposition of religious bodies that the tax conflicted with their religious injunction on inheritance. Using our latest example, between 1979 and 1993, the taxable income of the taxable income of N42 million would be as follows:
First N100,000 at 0% = N0; next N150,000 at 10% = N15,000; next N150,000 at 20% = N30,000; next N250,000 at 30% = N75,000; next N500,000 at 40% = N200,000; next 1,000,000 at 50% = N500,000; next N39,950,000 at 60%, that is, N42,000,000 – N2,050,000 x 60% = N23,970,000. The income tax collectable would have been N24,790,000. The family would only be left with N42,000,000 – N24,790,000 = N17,210,000. This sum is approximately 41% of the value of the wealth that the family inherited from the deceased, as 59% had been relinquished to the government.
On the other hand, under Section 4(3) of the NTB, the income tax computation will be as follows:
Let’s continue to work with the assumed sum of N42 million as the balance after the interment expenses of N8 million had been subtracted.
First 800,000 at 0% = N0.00;
next N2,200,000 at 15% = N330, 000;
next N9,000, 000 at 18% = N1,620, 000;
next N13,000, 000 at 21% = N2,730,000;
next 17,000,000 at 23% = N3,910,000.
The total income tax = N8,590,000, which is about 20.4% of the gross income. The family would be left with the revised income of N42,000,000 – N8,590,000 = N33,410,000.
While some may argue that comparatively, the family is left with a higher income under the tax reform Bills, others may argue that current inflation, exchange rate, fuel price, etcetera, are factors that have wiped out whatsoever benefit obtained from the differential.
Challenge of Implementation
In order to ascertain the exact wealth left behind by a deceased, tax authorities may become spies at burial occasions, or apply the best of judgement assessment principle. Whichever one applied would be devastating, as the grieving family may misplace their aggression upon the receipt of a demand notice from the relevant tax authority.
The fierce opposition of religious leaders during the operation of the Capital Transfer Tax, would be rekindled.
Moreover, computation of family income accruing from sale of lands has its complexities. A strict application will involve assignment of the tax payable to the purchaser, and this practice would escalate the cost of purchase of family land, which will stifle property and infrastructural development.
Recommendation
The Federal Government or the National Assembly should back down on this provision, by deleting Section 4(3) of the Nigeria Tax Bill, 2024.
Value Added Tax
Section 22 of the Nigeria Tax Administration Bill, 2024 provides for how Value Added Tax (VAT) returns should be filed. Subsection (12) provides:
“For the purpose of Attribution, any return under this section shall provide details of derivation of taxable supplies by location in a manner prescribed by the Service”.
Section 77 of the same Bill provides:
“Notwithstanding any formula that may be prescribed by any other law, the net revenue accruing by virtue of the operation of Chapter Six of the Nigeria Tax Act shall be distributed as follows – (a) 10% to the Federal Government; (b) 55% to the State Governments and the Federal Capital Territory; and (c) 35% to the Local Governments, Provided that 60% of the amount standing to the credit of States and local governments shall be distributed among them on the basis of Derivation”.
Section 101 of the Bill provides for the consequence of failure to make attribution thus:
A person who is required to make attribution but fails to do so, or having done so, fails to notify the relevant tax authority, is liable to pay an administrative penalty of N1,000,000.00″.
Explainer
Section 77 of NTAB made reference to Chapter Six of the Nigeria Tax Bill. This chapter, which covers fifteen sections (142-156), deals with the imposition and charge of VAT, taxable supplies, time of supply, rate of VAT, value of taxable supplies, value of imported taxable supply, taxable supply of non-residents, payment of VAT by taxable person, VAT invoice, collection of VAT by taxable person, collection of VAT by persons other than the supplier, remission of VAT, business sold or transferred, and fiscalisation of supplier for VAT.
For a clear understanding of the implementation of the sharing of the amount collected as VAT, one must read Sections 22(1), 77, and 101 of the Nigeria Tax Administration Bill, 2024, in combination. While Section 77 NTAB provides for sharing of VAT by derivation, Section 22(12) provides that attribution would form the basis of the derivation principle. Section 101 provides for an administrative penalty of N1,000,000 for failure to attribute.
It is already in the public domain that the previous sharing formula of VAT proceeds were 20% based on derivation, 30% based on population, and 50% based on equality.
Analysis
There has been much ado about the VAT sharing formula. Many of the critics might have read Section 77 NTAB in isolation. Nevertheless, their fears cannot be completely dismissed for the following reasons: (a) only a handful will rummage through the whole Bill to read these sections in combination, in order to make sense out of it; the punishment for failure to attribute is a slap on the wrist; and the form to be used for the attribution would be provided in future by the revenue authority.
The Way Forward
This writer suggests as follows: (i) The provisions on attribution in Sections 22(12) and 101 of NTAB should be integrated with the provisions of Section 77 NTAB, so that the latter will provide full and complete meaning of the intendment of the draftsman; (ii) in the alternative, Section 77 should be made subject to Sections 22(12) and 101 NTAB; (iii) the form to be used for the attribution should be prepared and (iv) made a schedule to the Bill; and the administrative penalty for failure to attribute should be amended from N1 million to N50 million.
The negligible amount for non-attribution will encourage experts charged with the filing VAT returns, to avoid the complexities of filling the attribution forms and instead pay the penalty.
An issue that will pose a major challenge to taxpayers, consultants, the Tax Appeal Tribunal (TAT) and the courts is in relation to the limitation of suits, pre-action notice, and the application of the Public Officers Protection Act, which are contained in Section 35 of Nigeria Revenue Service (Establishment) Bill (NRS) and Section 53 of the Joint Revenue Board of Nigeria (Establishment) Bill (JRBON) vis-a-vis their inoperability with respect to proceedings at the TAT in Paragraph 12 of the Second Schedule to the JRBON Bill.
Paragraph 12 of the Second Schedule to the JRBON provides that: “The provisions of any statute of limitation and Pre-action Notice under this Act or the provisions of the Public Officers Protection Act shall not apply to any appeal brought before the Tribunal”. This provision has no business being in the Schedule as it will eventually serve no useful purpose because limitation of suits, Pre-action Notice, and the Public Officers Protection Act applies to the Joint Revenue Board of Nigeria under Section 53 of the Bill, which is a main section, and the Nigeria Revenue Service under Section 35 of the Nigeria Revenue Service (Establishment) Bill, which is also a main section. Thus, this provision of Paragraph 12 of the Second Schedule tends to negate the above provisions.
This expectation may be a ruse, going by the position of the applicable laws. It is trite law that the main section of a statute, is superior to the provisions of a related Schedule to the Act. There are decided cases in support of this position.
In ADEBUSUYI v INEC (2009) LPELR-3599, the Court of Appeal examined the relationship between a section in a statute and a schedule by stating thus: “The Schedule is part of the Act and used in construing provisions in the body of the Act. The provisions in the Schedule will, therefore, be construed in the light of what is enacted in the Act and cannot override the body of the statute…. In Awuse v Odili (supra), the Court, in re-establishing the position more succinctly, affirmatively pronounced that a Schedule cannot override the plain words of a statute; this is apt because in the event of any contradiction between the Schedule and the enacting clause, the latter prevails”.
In BALARABE MUSA v INEC (2002) LPELR-11119, the Court of Appeal held that:
“It is now trite law that the provisions contained in an enactment, including the Constitution, are accorded more prominence than the contents of a Schedule especially, when there is conflict or contradiction between the Schedule and a section in the enactment”. The Supreme Court put it succinctly and aptly in Action Congress & Anor v INEC (2007) LPELR-66 thus: “It has been settled principle of statutory interpretation that although schedules of a statute can be useful handmaids in construing the provisions of a statute, they cannot however, be interpreted to overrule the plain words in the body of the statute. See Federal Civil Service Commission & Ors v J.O. Laoye (1989) 2 NWLR (Pt. 106) 652 at 711″.
Recommendation
The only way not to mess up the adjudicatory tax dispute resolution mechanism, under the Tax Appeal Tribunal system, is to transfer the provision of Paragraph 12 in the Second Schedule to a main section under Part V of the Joint Revenue Board of Nigeria (Establishment) Act, which relates to the establishment, jurisdiction, and operations of the Tax Appeal Tribunal.
Chukwuemeka Eze, Lecturer, Faculty of Law, Prime University, Abuja
Reforming Nigeria’s Tax System
Kede Aihie
Nigeria’s tax system is on the cusp of a significant overhaul, courtesy of the Proposed Nigeria Tax Administration Bill, 2024. This Bill is part of a broader effort to reform the country’s tax system, aiming to streamline tax processes, reduce administrative burdens, and promote transparency and fairness in tax administration.
Provisions of the Bill
A cursory look at the Bill reveals a much-needed reform of a tax regime that has been deemed unfit for purpose, allowing for opaque taxation practices in Nigeria. If passed into law, it will undoubtedly be one of the most significant sectoral reforms in Nigeria’s 64 years of independence.
The Bill proposes merging all tax laws into a single, comprehensive framework to reduce complexity and make compliance easier for businesses and individuals. It also introduces a more progressive Personal Income Tax (PIT) system, with reduced rates for low-income earners and exemptions for those earning below N800,000 annually. Additionally, the Bill raises the threshold for Companies Income Tax (CIT) exemption from N25 million to N50 million in turnover, benefiting small businesses.
The proposed Bill has sparked mixed reactions, with some welcoming the changes, and others expressing concerns about the timing and potential impact on citizens. Proponents argue that the reforms will simplify the tax system, reduce burdens on small businesses, and increase revenue generation. Critics, however, worry that the changes may add to the already high cost of living in Nigeria.
The Bill has also faced opposition from some Northern politicians, who claim that it will exacerbate poverty in the North. However, this stance appears disingenuous, as these same politicians have been in power for decades and have done little to alleviate poverty in the region. Senator Ali Ndume argued that the Bill should be withdrawn for further consultation, citing concerns about the revenue sharing formula and the potential for the Bill to exacerbate poverty in the North. However, other Senators like Senator Tahir Monguno, countered that the Bill’s provisions would actually benefit the North and other regions.
Ultimately, the passage of the Proposed Nigeria Tax Administration Bill 2024, would mark a significant milestone in Nigeria’s quest for a more efficient, transparent, and equitable tax system.
Kede Aihie, Publisher of London based Nigeria Magazine
