No question, reforming a nation is a messy business, and the process of crafting transformative policies can be unsightly at times. Yet reform we must, if we are to unshackle Nigeria’s economy from its entrenched inefficiencies and legacy constraints. The consensus across political, economic, and social spectrums that the tax system needs an overhaul is a promising aspect of the debate. However, there remains a divide on timing—while the president seeks expedited passage, other stakeholders advocate for a more deliberate, drawn-out process. Both camps present valid arguments, but my professional experience in change management tilts the scale toward the president’s approach.
Effective change management requires addressing four critical states, each with specific timelines that guide transitions from one phase to the next:
1. Perceived State:
This is the state an entity believes it occupies. Often, there is a tendency to overestimate strengths and underestimate weaknesses, creating a false sense of security. For example, Nigeria may appear rich on paper due to its natural resource endowments, but systemic inefficiencies and skewed policies diminish real wealth.
2. Actual State:
The real baseline must be identified by rigorously interrogating and correcting flawed perceptions. For Nigeria, this involves dismantling outdated fiscal structures and building a robust foundation. The critical window for transitioning from the perceived to the actual state is six months to one year. Any delay beyond this compromises the effectiveness of the reform cycle.
3. Future State:
This represents the blueprint for long-term goals, providing clarity on desired outcomes and milestones. For national reforms, this phase typically spans two to four years, during which the benefits of change become visible. The ongoing economic reforms, including subsidy removal and currency harmonization, should begin yielding tangible results within this timeframe.
4. Ideal State:
This aspirational state serves as a model for orienting future reforms. Achieving this stage may take five years or more, depending on the scale of interventions. For Nigeria, it signifies a self-sustaining economy driven by innovation, equity, and inclusivity.
By situating Nigeria’s reforms within this framework, it becomes evident that the country is currently between the actual state and the future state, and the transition must adhere to strict timelines. Tax reform, the third plank of the administration’s economic agenda, must be passed into law within the president’s first two years in office to consolidate gains from the fuel subsidy removal and currency unification.
Tax Reform: Data, Metrics, and Stakeholder Concerns
The Tax Reforms Committee and the Federal Inland Revenue Service (FIRS) must prioritize transparency by providing precise data to support proposed VAT redistribution. For instance, rather than vaguely stating that VAT on telecommunications will be based on subscriber base, policymakers must disclose the estimated number of subscribers per state. Similarly, agriculture-dependent states in the North should be shown quantifiable data on how zero-rated VAT on food items and transportation could impact their revenue streams.
A proposed solution is an equalization mechanism that ensures fiscal balance. For example, domestic food production could be measured at fulfillment or distribution centers in local government areas, certified by reputable inspection agencies like SGS or Bureau Veritas, before transportation. This system could evolve into a national commodity exchange, creating new revenue streams while addressing the fiscal gap for agricultural states.
Retaining Balance: Population Advantage and VAT Sharing Formula
The 30% population-based allocation in the current VAT sharing formula must not be reduced to 20% as proposed. Population size is a structural advantage for the North and should be preserved to maintain balance and foster national unity. The instinctive response to perceived marginalization is rejection; hence, national planners must engage the North with empathy, ensuring the reforms are seen as tools for empowerment rather than punishment.
Progressive VAT: Addressing Misconceptions
The Nigeria Tax Administration Bill proposes significant changes to VAT allocation:
VAT will increase progressively from 7.5% in 2024 to 15% by 2030.
Basic goods and services consumed by the poor, including food, transportation, electricity, and medical supplies, are either exempt or zero-rated.
This ensures the progressive VAT rates will not disproportionately impact low-income earners, addressing a key concern of detractors. Additionally, the derivation formula shifts from company headquarters remittance to the place of supply and consumption, promoting equitable revenue distribution across states.
A Call to Action: Embracing the Vision
Prominent voices from the North have raised legitimate concerns about the proposed reforms, urging broader consultations. However, the president must act within the critical transition window to ensure the reforms align with broader economic objectives. The North stands to benefit significantly from these changes, with the potential to transform into an economic powerhouse if the reforms are leveraged effectively.
Key Statistics Supporting Reform
Nigeria’s VAT revenue in 2023: ₦3.1 trillion, with projections to rise by 20% annually under the new framework.
Agriculture’s contribution to GDP: 23%, highlighting the North’s dominant role in food production.
Tax-to-GDP ratio: 6.1% in 2022, one of the lowest globally, indicating significant room for growth under a reformed tax regime.
A Shared Prosperity Agenda
To complete the trifecta of economic reforms, the president must ensure that the proposed tax bills are enacted into law by May 29, 2025. This timeline is not just a political imperative but an economic necessity. The North must view these reforms as an opportunity to unlock its latent potential, transforming the region into a vibrant economic hub.
Reforms may be messy, but they are the engines of progress. It is time for Nigeria to embrace this moment, ensuring that the pains of today lay the foundation for shared prosperity tomorrow.
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