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Nigeria, Africa’s largest economy, has announced a sweeping review of its existing tax incentive framework with the aim of boosting revenue collection and fostering economic growth.
This ambitious initiative is part of a broader strategy to achieve N20 trillion in revenue which is nearly double its current N10.1 trillion collection, simplify the tax system, and stimulate economic prosperity.
The reforms, spearheaded by the Presidential Fiscal Policy and Tax Reforms Committee chaired by Taiwo Oyedele, are expected to stimulate economic activity, attract foreign investments, and encourage specific sectors.
Oyedele revealed that approximately N6 trillion is disbursed annually as tax incentives, often without yielding the intended benefits for the nation’s economy.
“If you look at our tax expenditure reports over the past three to four years, on the average, we are giving away around N6tn per annum. That is significant. What we have not been measuring enough is the benefit we are getting from that,” he said.
Balancing Economic Growth and Revenue Generation
The Nigerian government’s decision to revisit tax incentives comes in the wake of the need to strike a balance between promoting economic growth and increasing revenue generation.
Simplifying the tax system is an essential element of this reform. By reducing the complexity of the tax code and streamlining the number of taxes payable by Nigerians, the government aims to create a more business-friendly environment and reduce the burden on taxpayers, ultimately fostering economic growth.
The first pillar of these reforms is a commitment to data-driven decision making. By harnessing data and evidence, the government aims to design incentives that are tailored to the nation’s specific needs and goals.
This approach will ensure that incentives are targeted, effective, and subject to periodic evaluation.
Another vital aspect of this initiative is the harmonization of tax collection. Streamlining the processes and procedures for tax collection will ensure greater efficiency and minimizes potential revenue leakage, according to Oyedele.
He said the harmonization will also reduce the administrative burden on both taxpayers and government agencies.
The committee Chairman added: “So to close that gap, we will rely on automation and the efficiency of collection including harmonisation of how those taxes are collected.
“The other thing is, if you also consider the incentive rationalisation maybe it’s not N6 trillion we should be giving away maybe it’s N2 trillion which must be targeted at people that need them the most.”
He further acknowledged that while challenges abound, the reform strategy has the potential to unlock Nigeria’s full economic potential and position the country as a regional and global powerhouse.