By Chimezie Godfrey
The Civil Society Legislative Advocacy Centre (CISLAC) in collaboration with the National Institute for Legislative and Democratic Studies (NILDS) has advocated for the reform of tax expenditure governance in Nigeria.
Speaking on Monday in Abuja at the opening of the two-day event on ,”Reforming Tax Expenditure Governance in Nigeria: Legislative Pathways,” CISLAC’s Executive Director, Auwal Rafsanjani noted that taxation remains the most viable and reliable fiscal policy tool for revenue mobilization towards sustainably financing development.
Rafsanjani said there was need to strengthen efforts towards repositioning Nigeria’s economy for the benefit of all Nigerians, considering the country’s revenue situation.
According to him, Nigeria as a country, have long explored a tax expenditure regime with the aim of realizing significant growth and development in pioneer industries, and foreign direct investment.
He pointed out that in principle, tax waivers, concessions and exemptions are sound and ideal arrangements both as economic tools and from the viewpoint of competitive international trad, adding that this is because local businesses/industries need to be positioned for the improvement of their fortunes for attainment of international competitiveness.
Rafsanjani however noted that the Nigerian case appears plagued with challenges including abuses observable to the Nigerian public.
He said,”According to the Global Tax Expenditure Database 2020 report, Nigeria had a Tax Expenditure of N5.84 trillion (3.8% of its GDP) which was just over 50% of its 2020 budget. In a similar manner, the Federal Government noted that the Tax Expenditures in 2021 amounted to 6.68 trillion Naira, approximately 4 percent of the GDP.
“Reports of indiscriminate waivers and concessionary approvals have all contributed to questioning the bearing and economic sustainability of this initiative of government.
“The law regulating the granting of incentives places enormous discretionary powers to the executive arm of government. The governance of the incentive regime is also at best opaque and lacks the scrutiny necessary to guarantee transparency and accountability in the process leading to a situation where the supposed benefits are not optimized.
“The offer of these incentives, though put in place presumably for the purpose of growing the economy, is however not without associated costs. Recent studies have shown that these incentives are not seen by investors as key factors to attract inbound investments and tend to be injurious to the economies of implementing countries in the long run. This is as it is seen to reduce the propensity to generate needed resources for providing socio-economic services, encouraging local industrial revolution and gross domestic production, growth and national development.
“In 2021, at the sub-regional level, the ECOWAS Support Programme for Tax Transition in West Africa (ECOWAS-PATF) produced a methodological guide for the regional evaluation of tax expenditures in West Africa. Following this in 2022, a workshop was conducted to enhance the technical and non-technical capacity of relevant public officers in tax expenditure evaluation and reporting and supported the production of the first Tax expenditure report on VAT in Nigeria in 2023.
“In-country, the executive arm has kickstarted its agenda with the inauguration of the Presidential Committee on Fiscal Policy and Tax Reforms. On its part, the 10th Assembly has reportedly launched over 50 probes into the alleged mismanagement of funds and other infractions by MDAs, directing either standing or ad hoc committees to carry out the exercise within a time frame. This includes the recent House probe into the Fourteen trillion-naira (N14trn) revenue loss to tax incentives, waiver abuses by public institutions and companies benefitting from such incentives on July 13, 2023.
“While we commend these efforts, they are yet to yield any significant prosecutorial actions and/or outcomes as the National Assembly lacks the constitutional power to prosecute erring officials. The constitutional provisions that make the implementation of the resolutions and recommendations made by parliament non-binding on the government, leaves it at their discretion to implement such recommendations.
“Our intervention is premised on the above, with the aim of complementing efforts towards improving the understanding and capacity of members of relevant legislative committees on the concept of Tax expenditure governance in Nigeria, gaps in its implementation and its implications for revenue mobilization, debt management and citizens’ welfare.
“We believe this is an opportunity to contribute to identifying legislative pathways, initiating efforts towards a deliberate legislative agenda on tax issues, as well as the alignment of the executive and legislative agenda in tax reforms in Nigeria, particularly on tax expenditures.”
Delivering the keynoted address on,“Identifying and strengthening legislative pathways for reforming tax expenditure governance in Nigeria”, the Director General, NILDS, Prof. Abubakar Sulaiman said the collaboration demonstrates the commitment of the leadership of the 10th National Assembly to enhance partnerships between civil society organizations and organs of the National Assembly towards enhancing legislative and democratic governance.
Represented by Prof. Nuhu Yaqub, the Chairman, Academic Advisory Committee (NILDS), Sulaiman reiterated that the NILDS is the only organ of government established by an act of parliament to conduct capacity-building programmes for the legislature.
“While we are aware that NGOs and CSOs have an interest in thematic borders on legislative and democratic governance, I encourage such CSOs and NGOs to partner with NILDS to ensure maximum impact. This is particularly important as NILDS serves as the knowledge hub of the legislature and is thus able to facilitate and provide technical support. I, therefore, use this opportunity to congratulate the leadership of CISLAC for their partnership with our institute on this two-day sensitization and capacity-building workshop.
“I also commend the chairpersons, deputy chairpersons, and clerks of the relevant committees that have been invited to this event. Your invitation was carefully done to ensure that the legislature is kept abreast of the key leading issues in tax expenditure and to understand the role they play in the tax expenditure discourse.
“Despite abundant opportunities, Nigeria has been confronted with a revenue challenge amidst a rising debt profile. Yet all sectors of the economy require increased government funding to address lingering challenges. Amidst this need for increased public spending, tax expenditures offer an opportunity to fund national development.
“As reported in a publication by the United States Congressional Research Office, tax expenditures are exclusions, deductions, credits, and net preferential rates in the federal tax system that cause government revenues to be lower than they would otherwise be for any given structure of tax rates.
“The United States Congressional Budget Act of 1974 simply refers to tax expenditures as revenue losses attributable to provisions of the federal tax laws that allow for special exclusions and exemptions.
“While these exemptions are meant to encourage business growth, they may be viewed as alternatives to other policy instruments, such as spending or regulatory programs. Therefore, as the government continues to seek new ways of reforming the fiscal policy space, this 2-day workshop presents an opportunity for stakeholders to engage in ways to harness the opportunities that tax expenditure presents for the nation’s development,” he said.
He added,”Experience from OECD countries shows that there are legitimate reasons for tax expenditures. They are used to promote business growth, encourage job creation, and reduce the burden that tax producers place on consumers by transferring the “tax burden”.
“However, there are challenges. Tax expenditures are politically tempting as they may not be subject to regular scrutiny. In most cases, tax exemptions, for instance, are issued by policy statements. Overseeing such a space may, therefore, be cumbersome, as the benchmark for such oversights is not clearly provided for in a legislative framework.
“The debate over whether or not a legislature can oversee policy is another reason why tax expenditures can slide under the legislative lens. But again, issues around tax expenditures are not binary. It requires clear understanding and proper contextualization and understanding.”
The DG pointed out that fairness, justice, and equity are issues related to tax expenditures, adding that while big firms receive tax waivers to continue operations, poor people continue to pay higher prices for goods and services.
“Furthermore, it appears that over the years, tax policy has been aimed at taxing the poor rather than the rich. Hence, finding a fair balance is crucial.
“It is for this reason that topics and resource persons have been carefully chosen for this 2-day workshop. The topics include conceptual clarification, understanding the role of legislators in tax expenditure, and identifying entry points for legislative action on tax expenditure governance in Nigeria. A report that highlights the status and updates on tax expenditures will also be presented.
“I am, therefore, confident that Members of the National Assembly here present and their bureaucracy would enhance their understanding on issues of tax expenditure and also translate those entry points into actions that would address social and infrastructural gaps as well as help to eradicate poverty and engender inclusive growth and development,”
Also speaking, the Country Manager, International Budget Partnership (IBP) Austin Ndiokwuelu represented by the Senior Program Officer, (IBP) Chika Okey, said IBP’s Tax Equity Initiative is being implemented in four African Countries, Nigeria, Senegal, Ghana and Tanzania. As already noted, many countries like Nigeria are struggling with the triple challenge of debt, widening inequities and massive recovery needs following the COVID Pandemic.
Ndiokwuelu stressed that promoting a tax system that is equitable will help countries to mobilize revenue and provide better services for all Nigerians.
“Our tax policies therefore needs to be fair and transparent. Revenue generated should benefit many Nigerians rather than favoring a few. This is the objective of tax equity.
“It is estimated that TE cost Nigeria over 6 Trillion in 2021. This means that revenue that would have gone to the provision of public services are forgone. While government is losing revenue through tax expenditure, vulnerable groups especially those in the informal sector are subjected to harassment and intimidation through multiple taxation at the subnational level.
“The role of the legislature in improving equity in our tax system cannot be overemphasized. I call on the Distinguished Senators, Honourable Members and Clerks of the NASS to prioritise this very important conversation and take up the challenge of reforming our tax system for improved equity.
“Civil society is always ready to partner with the NASS. IBP and her partners including the Tax Justice and Governance Platform, CISLAC, Association of Nigerian Women Business Network, Society of Women in Taxation, Follow Taxes, African Centre for Tax and Governance have resources that the National Assmebly can benefit from.
“I encourage you to leverage this partnership to improve our tax system for the greater benefit of all Nigerians,” he said.
