This paper is a case study on tax policy reforms in Nigeria. It examines the main tax reforms in the country, highlights tax revenue profile and composition, analyses possible distributional impacts on the poor, discusses major problems that could prevent effective tax implementation in the country, and offers suggestions for reforms.

The paper argues that increasing non-oil revenue requires the various government tiers to seek improvements in the treatment of both the taxpayer and tax administrator, investment for the tax system, and the way in which taxpayers' money is spent.

Highlights from the recommendations include:

• a domestically driven resource structure should principally be derived from value-added production activities rather than from the current service-oriented operations
• tax administration machinery should have an effective redress and refund system so that disputes can be settled easily and corruption checked
• there should be a unified, effective and unbiased tax administration with full representation from the three tiers of government
• funding for tax authorities and custom services should be increased to 3-5 per cent of the targeted revenue to ensure efficient administration; officials employed within these services must adopt a client-friendly attitude for assisting taxpayers/importers as the need arises
• tax incentive structures should be internationally competitive
• a broad-based comprehensive scheme should be designed fully harness the potential from revenue from the self-employed and the informal sector
• tax incentives should be restricted to such important sectors as oil and gas, export-oriented industries, industries located in rural areas and solid minerals development
• the government must be honest and more transparent with regard to the way public funds are dispensed
• tax laws must be made understandable to all
• upstream oil companies need to report annual expenditures on the purchase of assets, services and financial charges and these expenditures should be computerised

Authors: Odusola, A.
Produced by: World Institute for Development Economics Research (UNU/WIDER) (2006)