What to expect from Nigeria’s new ‘Committee on Fiscal Policy and Tax Reforms’

By asking Oyedele to lead the group that will likely have the most direct influence on federal taxation policy, Tinubu is signalling a willingness to listen to tax policy experts. Having expert advice on the menu is always good, but it does not guarantee that the government will act on recommended policies.

Per local media reports, president Tinubu has appointed Taiwo Oyedele, PwC’s Fiscal Policy Partner and Africa Tax Leader to oversee a newly established presidential tax reform group. This is the latest signal of Tinubu’s fiscal policy direction following a series of recently announced tax policies.

Taiwo Oyedele, an associate professor at Babcock University, a private university in southwestern Nigeria also leads PricewaterhouseCoopers’ tax business in Africa. His appointment came on the back of new tax programs including a planned expansion of value-added tax to street traders and informal businesses. Nigeria’s government is seeking to increase the revenue it collects from taxes to contain a deficit budget, beef up declining oil earnings and manage staggering debt that is at historic highs. By December 31 2022, public debt levels stood at $103 billion, according to Nigeria’s debt management office.

Despite its reputation as an oil-producing country and decades of oil receipts, the country struggles to finance its budget. Between 1981 and 2022, Nigeria only recorded budget surpluses in 1995 and 1996. During his campaign, Tinubu frequently pointed to the rapid increase of state revenue during his 8-year stint as governor (between 1999 and 2007) as evidence of his plans to boost government revenues.

As a first step in that direction, Nigeria announced a new annual vehicle ownership verification program. Under the program, car owners would pay N1000 ($1.3) per vehicle yearly, to obtain confirmation that they owned their vehicles. This was quickly followed by an expanded VAT collection plan announced earlier this week. Nigeria’s Federal Inland Revenue Service (FIRS) said it would work with the Market Traders Association of Nigeria to collect VAT from informal traders using “unified systems technology.” The tax plan generated muted uproar on social media networks and Nigerian media publications. The announcement came weeks after the government removed petrol subsidies and floated the naira.

Oyedele roundly condemned the vehicle verification program, writing on LinkedIn and Twitter, “This tax is retrogressive. It is ill-conceived and poorly designed. Apart from the payment which seems to be solely for revenue generation, and perhaps more for non-state actors than for the government, it is illogical to have to prove annually that you own a vehicle for which you already have a certificate of proof of ownership issued by the government.” Oyedele however, expressed support for the VAT expansion program while cautioning that it needed “safeguards to prevent abuse.”

The government followed that up with four executive orders that rescheduled the start date for new tax programs while suspending the collection of new taxes on telecom services, Single Use Plastics, tobacco, alcoholic beverages and some imports. On social media, Oyedele praised the executive orders

This is not Oyedele’s first public service rodeo. Since 2017, Oyedele served as a member of Nigeria’s National Tax Policy Implementation Committee under immediate past president Muhammadu Buhari. He continued in the same role under Tinubu until the recent announcement.

Why is this all important?

Nigeria like several African countries has been under scrutiny for debt distress following Sri Lank’s default and the dramatic political fallout. Around 96% of the Nigerian government’s revenues go to paying off the interest on its national debt. Against the background of Ghana’s debt default woes, Zambia’s drawn-out restructuring and Kenya’s fiscal stress, Nigeria’s economic policy decisions are keenly watched by investors and business people alike.

Taxes affect consumption habits. Nigeria infamously has an even lower consumption capacity (measured by the number of people who spend $10 daily) compared to neighbouring Ghana. MTN Nigeria, the country’s largest mobile carrier by market share frequently reports lower average revenues per user compared to South Africa or Kenya, for example.

By embracing a managed float of the naira, the government sent an early signal that it will embrace traditional economic management. But the unwillingness of the government to allow its bonds to reflect market price expectations has muted investor response even as bank stocks and inflation soared.

If the events of the previous two days are any guide, Nigerians may expect mixed policy signals as Tinubu’s fiscal policy is fully revealed. Social media reactions show an expectation that Oyedele will provide a moderating influence on how federal tax policy is formed and implemented. But the new government’s reform zeal will be tested in the coming months as the impact of painful policies fully settles across the economy.