Donald Trump, the 47th President of the United States, has unveiled plans to establish an External Revenue Service to impose tariffs and taxes on other countries. This bold move could disrupt global trade, making exports more expensive and imports harder to afford.
In response to this shift, Mr. Taiwo Oyedele, the Chairman of the Presidential Committee on Tax Policy and Reforms, highlighted the urgent need for Nigeria to strengthen its domestic tax system. He emphasized that implementing ongoing tax reforms is vital for shielding the economy from these potential shocks.
The proposed external revenue service aims to generate revenue from foreign trade and international businesses. For economies like Nigeria, which depend heavily on global trade, this could mean reduced export earnings and higher costs for imports, further straining an already fragile economy. To navigate this challenge, Nigeria must focus on boosting local revenue generation and reducing its reliance on international trade.
Nigeria’s tax system is improving but still faces some issues. These include low compliance, a narrow tax base, and a large informal sector. While the informal economy contributes indirectly through taxes like VAT, inefficient tax collection often leaves these contributions unaccounted for. The ongoing tax reforms aim to address these issues by simplifying processes, broadening the tax base, and improving compliance.
Global tax policies, like the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) rules, also present challenges. These rules have led to significant global tax reforms, including a global minimum tax rate of 15%, implemented by over 130 countries which represents more than 90% of global GDP.
Since it is also designed to combat tax avoidance by multinational corporations, these rules could affect Nigeria’s ability to attract foreign investments. However, a fair and transparent tax system could position Nigeria as a more attractive destination for investors, insulating the economy from global trade disruptions.
Reducing reliance on imports and exports is equally critical. Strengthening local production and ensuring all sectors contribute fairly to the tax system would help build a stable revenue base. This would make Nigeria less vulnerable to external shocks, supporting steady economic growth even during tough times.
Ultimately, improving Nigeria’s tax system is not just a response to Trump’s policies but a long-term investment in the country’s economic resilience. With the right reforms in place, Nigeria can create a self-reliant, sustainable economy capable of weathering global uncertainties.