In this interview with ROLAND OGBONNAIYA of Independent Newspaper, our Managing Partner, Eben Joels, discusses tax reforms in Nigeria, President Bola Tinubu’s one-year administration, and what the federal government must do to put the country on a path of progressive growth and socio-economic development
Tax reform is widely discussed in Nigeria. What do you think the government should prioritise in terms of tax reform?
If President Bola Tinubu remains in office for another eight years, his tax reform efforts in Nigeria should prioritise broadening the tax base and improving tax collection efficiency while lowering the tax rate. Broadening the tax base should entail implementing a tax system that requires every Nigerian to file a tax return with the government. I plan to propose a nominal federal income tax for individuals and require states to share data with the Federal Inland Revenue Service. This will increase the efficiency of the state’s Internal Revenue Services. I will eliminate all other taxes disguised as levies for specific purposes, such as the Education Tax, Police Trust Fund, NITDA levy, and so on. All of these levels have resulted in our corporate tax rate being among the highest in the world. For example, Russia recently raised its corporate tax rate to 25%. That is a country with a wartime economy. However, ours is approximately 34%. These special causes taxes I mentioned are primarily used to offset the administrative costs of the bureaucracy they fund, or they are mostly stolen. I would rather have a lower tax rate and a broader tax base.
There are other radical tax proposals. For example, given that Nigeria is a republic, I am not sure why the President and Governors are exempt from paying taxes. This is absurd, given that even in a monarchy like the United Kingdom, where the King and Prince of Wales are tax-exempt, they choose to voluntarily pay taxes to the state. If the President of the world’s largest economy, the United States, is not tax-exempt, I see no reason for a relatively poor country like ours to exempt certain offices from taxes.
Finally, I hope the President is brave enough to implement an inheritance tax system in Nigeria. Most advanced countries impose a high tax on estates, sometimes exceeding 40%, when they are passed down. This tax is one way for these capitalist countries to ensure that wealth is redistributed in some way. The tax applies only to the very wealthy. In the United Kingdom, the threshold is estates worth over GBP325,000. The system provides substantial relief to anyone who chooses to donate to a charitable non-profit. This is another way to expand the charitable non-profit sector. Consider this: anyone inheriting assets worth N5 billion or more must pay 40% to the state, or 20% if they donate a certain amount to charity. There are several advantages. However, I hope that such a system reduces the incentive to steal large sums of money and leave them to your heirs.
Diageo, the owner of Guinness PLC, is exiting Nigeria and selling its 58% stake in the company to Singapore-based Tolaram. What are your thoughts on this, and what does it mean for the immediate future?
Diageo’s decision to exit Nigeria and sell its stake in Guinness PLC to Tolaram suggests that it sees better opportunities elsewhere or believes that the challenges in the Nigerian market outweigh the potential benefits. This move could indicate a strategic shift in Diageo’s global portfolio or a reassessment of its investment priorities. Diageo has devised a more profitable way to generate revenue in Nigeria without having to deal with the harsh operating environment for businesses.
Tolaram Group will likely see this acquisition as an opportunity to strengthen its presence in Nigeria. They already have operations in Nigeria, primarily through subsidiaries in various industries, such as Dufil Prima Foods Plc, which manufactures popular Indomie instant noodles, and the Lekki Deep Sea Port project. The acquisition of Diageo’s stake in Guinness PLC demonstrates that they recognise the value of the Nigerian market and are willing to invest in it. Tolaram may bring a new perspective and strategy to the table, which could lead to changes in how Guinness PLC operates in Nigeria. It may also indicate increased competition or consolidation in the Nigerian beverage industry. While Diageo’s exit raises concern about the Nigerian market’s attractiveness to multinational corporations, Tolaram’s investment indicates continued interest and opportunities for growth in the region.
Kimberly-Clark, an American multinational and baby product manufacturer, Huggies, GlaxoSmithKline Consumer Nigeria Plc, Sanofi-Aventis Nigeria Limited, and Procter & Gamble are among the multinationals that have recently ceased operations in Nigeria, either completely or partially. Some International Oil Companies (IoCs), including Shell, ExxonMobil, and ENI, are rumoured to be actively selling assets to exit Nigeria. Should we be concerned about multinationals’ exit from Nigeria?
The departure of multinational corporations from any country, particularly those as large as those you mentioned, should normally raise concerns. These exits can have an impact on employment, economic growth, and overall stability. These multinational corporations are among the few places where you can find best practices in employee recruitment, training, and compensation. They are among the few companies where graft is not tolerated. Many Nigerian-owned businesses do not adhere to best practices. However, it is critical to understand the reasons for these exits. They are influenced by a variety of factors, including economic challenges, regulatory issues, and security concerns, which lead to companies making strategic business decisions to exit the market. Addressing these underlying issues may attract and retain multinational investments. The government should prioritise improving the business environment, increasing security, providing regulatory clarity, and promoting economic diversification to mitigate the negative effects of multinational exits and encourage future investments.
Some of the clauses in the new bank recapitalisation plan have sparked heated debate. Do you think the Central Bank of Nigeria has good intentions for the banking sector?
Overall, whether the CBN has good intentions for the banking sector is determined by the balance it strikes between strengthening financial stability, promoting competitiveness, and ensuring that the needs of the economy, businesses, and consumers are adequately met. Open dialogue and collaboration among the CBN, banks, regulators, and other stakeholders are critical for navigating these challenges and achieving positive outcomes for the banking sector and the broader economy. Overall, I am hopeful. The previous round of capitalization fueled the capital market and boosted the economy. I hope this yields the same result.
Despite CBN efforts to reduce non-performing loans, many banks still have a high percentage on their books. What can be done to make banks solvent and reduce their debt burden?
To address the persistent issue of high non-performing loans (NPLs) in Nigerian banks, a multifaceted approach is required. To begin, banks should prioritise proactive risk management practices, including thorough credit assessments and stringent monitoring mechanisms to detect potential defaults early on. This includes restructuring loans for distressed borrowers and implementing strong recovery strategies to effectively mitigate losses. Simultaneously, regulatory bodies such as the Central Bank of Nigeria (CBN) should strengthen supervision and enforcement of prudential regulations, ensuring that banks have sufficient capital to absorb potential losses and remain resilient in the face of economic volatility. Furthermore, improving credit information systems and encouraging economic diversification away from volatile sectors can reduce systemic risks and improve bank stability, resulting in a lower debt burden and a healthier banking sector. Most importantly, the CBN should require regular stress testing. It is recommended that impairment indicators be reported regularly.
Do you think Heritage Bank’s licence revocation was timely? Some believe it could spark a run on other banks, causing panic.
The timing of Heritage Bank’s licence revocation by the Central Bank of Nigeria (CBN) is a critical decision with far-reaching implications. While the CBN’s reasons for taking such action are likely to be specific, such as concerns about the bank’s financial stability or regulatory compliance, the timing must take into account the broader impact on the banking sector’s stability. The revocation of a bank’s licence can raise concerns among depositors and investors, potentially leading to a run on other banks and causing panic in the financial system. As a result, the CBN must carefully manage communication and ensure transparency to mitigate any spillover effects and restore trust in the banking sector. To avoid widespread panic and systemic disruptions, the CBN should continue to reassure affected depositors of its commitment to maintaining financial stability.
The Central Bank of Nigeria (CBN) has dissolved the boards and management of Union Bank, Keystone Bank, and Polaris Bank. What distinguishes these banks’ cases from that of Heritage Bank?
The CBN appointed new management teams to stabilise the banks and protect stakeholders’ interests. In contrast, Heritage Bank did not face a similar intervention from the CBN; instead, its licence was revoked. I suspect this is due to Heritage Bank’s poor financial health and governance, which may render it unsalvageable.
The Naira has faced the most difficult challenges since it became legal tender in Nigeria four decades ago. The value has been completely eroded by the unprecedented drop in the foreign exchange market. Do you think the CBN has done enough to hedge the Naira against the dollar so far with its recovery strategy? And will these efforts be sustainable?
The Central Bank of Nigeria (CBN) has implemented several measures to hedge the Naira against the dollar, including foreign exchange market interventions, monetary policy rate adjustments, and the implementation of various forex management policies. Despite these efforts, the Naira has continued to depreciate significantly, indicating that current strategies may be insufficient to address the underlying issues affecting the currency’s value. Structural economic challenges, such as reliance on oil exports, limited foreign reserves, and a large import bill, particularly the continued importation of petroleum products, continue to put pressure on the Naira.
Stabilising the Naira will necessitate a multifaceted strategy that extends beyond short-term interventions. To reduce reliance on foreign exchange, the CBN must prioritise diversification of the economy, increased domestic production, and an improved business environment. In addition, policy consistency and open communication are critical for restoring investor and market confidence.
Access to credit remains a major concern for businesses, particularly SMEs, due to the high-risk quotient. What can be done to reduce the burden on businesses so that they can easily access credit at low interest rates?
The government and financial institutions must implement several strategies. First, the CBN can improve its existing credit intervention programmes, such as the Anchor Borrowers’ Programme and the Micro, Small, and Medium Enterprises Development Fund (MSMEDF), by increasing funding and streamlining application processes. These programmes can be expanded to include additional sectors and lower interest rates. Furthermore, financial institutions should be encouraged to create tailored financial products that meet the specific needs of SMEs, such as flexible repayment terms and lower collateral requirements.
Furthermore, strengthening Nigeria’s credit infrastructure is critical. Establishing and maintaining a comprehensive credit registry system to track businesses’ credit history can help lenders reduce perceived risks. Strengthening credit guarantee schemes can also provide additional security to banks, encouraging them to lend more to SMEs. For example, I do not know of any credit insurance companies in Nigeria. On a broader scale, fostering a stable macroeconomic environment with low inflation and consistent policies will help to reduce the overall risk profile, allowing businesses to obtain credit at lower interest rates.
Nigerian graduates often complain about a lack of opportunities and the need to know a highly-placed person to get a job. What can we do as a country to promote job growth among young people?
To increase job opportunities for Nigerian youth, an enabling environment that encourages entrepreneurship and supports small and medium-sized businesses (SMEs) is required. We live in a society where we worship powerful men without considering their source of wealth. We define success as having a lot of cash in your bank account, regardless of whether it came from a criminal enterprise. As a result, many young people today are focused on making quick money. It is not so much about learning how to sell. As a result, we create a large number of unemployed individuals. People with the incorrect values.
I remain convinced that there is always room for merit. For example, we are a top destination for the best-graduating students from most local universities, and you do not need to know anyone to work with us. You only need to be competent and have the right mindset, which is one of continuous learning, as well as the right values.
The nearly 40% inflation rate has had a significant impact on people’s standard of living due to the excruciating cost of goods and services. What steps can be taken to mitigate this?
A multifaceted strategy is required. Tighter monetary policies to control the excessive money supply have proven ineffective. Raising interest rates and increasing bank reserve requirements have also proven ineffective. I believe the government should focus on stabilising the exchange rate by increasing foreign reserves and decreasing reliance on imports. This is the time to strengthen the agricultural sector by providing subsidies and support programmes to improve local food production, allowing us to enjoy lower food prices.
On the fiscal policy front, Nigeria’s government should improve public spending efficiency and reduce waste. Investing in infrastructure, particularly transport and energy, can reduce the cost of doing business as well as the prices of goods and services. Implementing social safety nets and targeted subsidies for essential goods can help to alleviate low-income households’ immediate financial burden. Encouraging competition in critical sectors such as telecommunications and energy can also reduce prices through market forces. Fostering an environment that encourages local manufacturing will result in more jobs and higher wages.
Among the challenges confronting businesses in Nigeria is the proliferation of taxes and other levies across the subnational level, rendering the entire ideal and concept of ease of doing business a mirage. What concrete measures can be implemented to ease business operations and increase productivity and efficiency within the country’s business ecosystem?
To address the issue of a plethora of taxes and levies that impede Nigerian businesses, comprehensive tax reform is required. The government should simplify the tax system by combining various taxes and levies into a single, simpler tax regime. This can be accomplished by implementing a unified tax policy at the federal, state, and local levels, which eliminates overlapping and redundant taxes. Establishing a centralised tax collection system would reduce administrative burdens for businesses, making compliance simpler and more efficient. Additionally, providing clear guidelines and ensuring transparency in tax policies can assist businesses in better understanding their tax obligations and planning accordingly.
Furthermore, the government can improve the ease of doing business by streamlining regulatory frameworks and reducing bureaucratic red tape. Nigeria can boost productivity, attract investment, and, ultimately, drive economic growth by making its environment more business-friendly.
Nigeria’s infrastructure is in shambles, and the country is constantly dealing with power outages and other intractable issues. How much money does the government need to invest in infrastructure to put the country on a path of progressive growth and socioeconomic development?
The government must make substantial investments in infrastructure. According to estimates, Nigeria will need to invest around $3 trillion in infrastructure over the next 30 years to bridge existing gaps and support its growing population. Immediate priorities should include significant investments in the power sector to address the chronic power outages that stifle business operations and everyday life. Investment in renewable energy sources, national grid upgrades, and increased electricity access have the potential to transform the energy landscape, promoting industrial growth and improving people’s quality of life.
In addition to power, the government should prioritise investments in transportation, healthcare, and education infrastructures. Modernising and expanding the road, rail, and port networks will improve connectivity, lower transportation costs, and increase trade efficiency. Similarly, improving healthcare facilities and educational institutions is critical to developing a healthy and skilled workforce. Public-private partnerships (PPPs) can help mobilise capital and ensure efficient project execution. By committing to comprehensive infrastructure development, Nigeria can create a more conducive environment for economic activity, attract foreign investment, and achieve long-term social progress.
The administration led by President Bola Tinubu has been in place for one year. In your opinion, what has he done right or wrong, and what are the low-hanging fruits he can easily pick to make things right?
President Bola Tinubu’s administration has taken some significant steps in his first year in office, including prioritising economic reforms. He needs to be more aggressive in tackling corruption. His efforts to increase foreign investment through better business policies have been met with cautious optimism. The administration’s emphasis on infrastructure projects, such as road construction and increased power generation, seeks to address critical issues affecting economic growth. However, there have been concerns about the speed of these initiatives and their immediate impact on the lives of ordinary Nigerians. The administration has also struggled to effectively manage the country’s security situation, as ongoing conflicts and insecurity persist in several regions.
President Tinubu can concentrate on low-hanging fruit, such as improving the agricultural sector through targeted subsidies and support programmes to increase food production. They can also concentrate on simplifying the tax system to alleviate the burden on small and medium-sized businesses (SMEs). They can address power shortages with quick-win projects, such as deploying renewable energy solutions in underserved communities. By focusing on these attainable goals, President Tinubu can boost public trust and lay a solid foundation for long-term development.
The organised labour in Nigeria recently called a strike and reduced their minimum wage demand to N250,000 per month, while the federal government offered N60,000. What do you think the minimum wage should be?
Setting an appropriate minimum wage in Nigeria necessitates balancing workers’ needs with the economic realities of businesses and the government. Given the significant difference between the organised labour’s demand of N250,000 per month and the Federal Government’s offer of N60,000, a compromise must be found. A reasonable minimum wage should take into account current inflation rates, the cost of living, and the need to keep businesses running without causing undue financial strain. A new minimum wage is ineffective unless it is accompanied by policies that promote economic growth and productivity, which can support higher wages in the long run. Implementing inflation-reducing measures, such as stabilising the exchange rate and increasing domestic production, can help to sustain wage increases. Improving social services such as healthcare and education can also help to reduce workers’ overall financial burden. Nigeria can create a more equitable and sustainable economic environment for its workforce by implementing a comprehensive approach that includes a fair minimum wage and supportive economic policies.
Nigeria’s economy, which was said to be Africa’s largest in 2022, is expected to fall to fourth place in 2024. What caused this, and how can it be reversed?
A variety of factors can contribute to the slip. Persistent issues like political instability, insecurity, and corruption have hampered economic growth. High inflation, a depreciating currency, and inadequate infrastructure have all contributed to a difficult business climate. These factors, combined with the slow implementation of economic reforms, have harmed investor confidence and stifled growth across a variety of industries.
To reverse this trend, Nigeria’s economy must diversify away from oil dependency by investing in key sectors such as agriculture, technology, and manufacturing. Implementing policies that promote economic stability, reduce corruption, and improve governance is critical. Improving the business environment through infrastructure, particularly in power and transportation, will attract both domestic and foreign investment. Improving education and vocational training can result in a more skilled workforce, which promotes innovation and productivity. By focusing on these areas, Nigeria can create a more resilient economy capable of sustaining growth and regaining its position as Africa’s largest economy.
Source: Independent Newspaper
