Nigerians are worried that the planned upward review of the existing tax laws in the country by the Federal Government may further inflict untoward sufferings on the already overburdened taxpayers, reports Ibrahim Apekhade Yusuf
It is anybody’s guess why the mention of the three letter word, ‘tax’ always sends jitters to peoples’ spine. This is exactly what happened when the Federal Government recently mooted the idea of review of the National Tax Policy.
The Minister of Finance, Mrs. Kemi Adeosun, who inaugurated the committee at the headquarters of the ministry in Abuja, stated that the government was determined to simplify the country’s tax code for effective revenue generation.
Justification for tax review
Hitherto, oil revenue and the petroleum product tax offered a lot of financial buffer for the government. However, with the dwindling oil receipts, it has become inevitable to look at other revenue streams to make up for the shortfall, thus enforcing tax compliance.
Apparently justifying the need for the review, Adeosun stated that one of the areas of the tax code and laws in need of review was the simplification of the processes as well as the reduction of the tax burden on small businesses.
The country, she said, could no longer continue to rely on oil revenue following the volatility in the global market, hence the need to look at effective ways of generating more revenue from taxes.
She lamented that despite the fact that revenue from oil accounted for about 70 per cent of the nation’s earnings, the sector’s contribution to the Gross Domestic Product was just about 13 per cent.
Adeosun noted that time had come for the economy to begin to take advantage of the opportunities of the 87 per cent potential in the non-oil sector through the diversification strategy of the Federal Government.
“This administration is committed to diversifying the sources of government revenues away from oil. Oil is just 13 per cent of our economy but accounts for 70 per cent of the government’s revenue. Our challenge is to ensure that the other 87 per cent of economic activity makes its own contribution to government revenue. An effective tax system is key to this and such a system must be underpinned by an effective and appropriate tax policy.”
The minister added, “Businesses react to tax policies and we are determined to ensure that ours sends the right message that Nigeria is open for business and is encouraging businesses with a tax system that is easy to understand and comply with.
She said the committee, headed by Prof. Abiola Sanni of the University of Lagos, had four weeks to conclude its assignment.
The committee is also saddled with the responsibility of recommending policies that will ensure inter-agency cooperation between the Federal Inland Revenue Service and other revenue agencies toward enhancing the internally generated revenue of the Federal Government.
Existing tax legislations & tax policy
As at August 2016, the existing tax legislations in the country are over 20. According to a release obtained by The Nation from the website of the Federal Inland Revenue Service (FIRS), some of these tax laws include but not limited to Associated Gas Re-Injection Act, Capital Gains Tax Act, Companies Income Tax Act, Deep Offshore and Inland Basin Production Sharing Contracts Act, Tertiary Education Trust Fund Act, Federal Inland Revenue Service (Establishment) Act, Income Tax (Authorised Communications) Act, Industrial Development (Income Tax Relief) Act, Industrial Inspectorate Act.
Others include: the National Information Technology Development Act, Nigerian Export Processing Zones Act, Nigeria LNG (Fiscal Incentive Guarantees and Assurances) Act, Oil and Gas Export Free Zones Act, Personal Income Tax Act, Petroleum Profits Tax Act, Value Added Tax Act, Stamp Duties Act, Taxes and Levies (Approved List for Collection) Act, Casino Act.
It is however instructive to note that some of the tax laws were amended in the respective years specifically the Companies Income Tax Act – 2007, Value Added Tax Act- 2007 and Personal Income Tax Act – 2011.
Perhaps as an imprimatur of support for the planned exercise, the FIRS stated that: “Reviews, amendments and modifications to tax legislations are continuous, evolving with global best practices and in keeping with the local socio-economic realities. The review and amendment of tax legislation is in keeping with the formal tax amendment process as provided for in the Nigerian constitution.”
Ongoing narrative on tax
During an interface and discussion session at a forum to commemorate Prof. Wole Soyinka’s 82nd birthday, experts and stakeholder groups lend their voice to Nigeria’s tax question.
Firing the first salvo, Motunrayo Famuyiwa-Alaka, Coordinator of the Wole Soyinka Centre for Investigative Journalism, organisers of the event raised some posers: “In a country of about 180 million – mostly very poor people, struggling with an epileptic 3,000 megawatts of electricity and living in a common space that is in a state of disrepair, taxation appears baseless. Why pay to a common purse when individuals and enterprises still play the roles of government – generating their own power, sinking personal boreholes to guarantee water supply, commuting with difficulty, paying unbelievable fees to privately school their children and making money contributions to fix their roads and their lives? Tax is compulsory. Yet, it is a social contract with obligations, as well as responsibilities. Citizens are bound to pay taxes in exchange for the provision of social amenities that support living and enabling prosperity.”
She was however quick to admit that: “With Nigeria’s current economic challenges, exacerbated by fallen oil prices, the government is seeking to enforce taxation as a sure means of raising funds to support development. The Federal Inland Revenue Service is enforcing compliance by shutting down companies for tax avoidance and issuing ultimatums, among other activities. Truly, every country worth its salt has made it so, partly because of a functional tax regime, and Nigeria has all it takes to be on the list of developed countries.”
Speaking earlier, Mrs. Adebimpe Balogun, the first female President of the Chartered Institute of Taxation of Nigeria (CITN), who led other discussants like Auwal Musa Rafsanjani, Director of Civil Society Legislative Advocacy Centre (CISLAC), Modupe Oyekunle, President of NECA’s Network of Entrepreneurial Women (NNEW) Emuesiri Agbeyi, tax partner at PricewaterhouseCoopers, among others stressed the need for better understanding of the appropriate tax regimes to ensure compliance.
Outcry over planned review
Laudable as government intension seems, members of the organised private sector and other key stakeholders have argued that, while the development will increase the revenue made by the Federal Government, particularly as the government needs to shore up its internally generated revenue against the consistent slide of crude oil prices, a review of the tax regime may mean only one thing: drastic drop in profits and wait for this: a death knell on businesses!
In the view of manufacturers, tax burden is likely to increase at the end of the review. Some of the new taxes as contained in the schedule to the taxes and levies (Approved list for collection) Act (Amendment Order), 2015 , include: “ National Information Technology Development Levy, Economic Development Levy, Environmental (Ecological) Fee or Levy; Inter-state Road Taxes; Mining, Milling and Quarrying fee; Infrastructure Maintenance Charge; Social Services Contribution Tax, and Wharf Landing Fee where applicable. Others are Entertainment Tax, Produce Sales Tax, Property Tax (where applicable); Fire Service Charge; Slaughter or Abattoir fee, where state finance is involved, etc.”
According to the Manufacturers Association of Nigeria (MAN) currently, manufacturers are paying corporate income tax of 30 per cent which they said is a disincentive to their investments and are imploring government to reduce it to 20 per cent.
Specifically, MAN also complained about 10 per cent on Value Added Tax; Education Tax (2 per cent), 5 per cent Stamp Duty, Withholding Tax on companies (10 per cent), and the latest, which is the imposition of taxes by the National Lottery Regulatory Commission on companies for conducting promotion activities to boost their sales as part of effort to respond to challenges of competition.
Reacting to the development, Dr. Frank Jacobs, President of MAN, remarked that if the additional taxes and levies are allowed to sail through, it is going to destroy manufacturing sector.
Way forward
In the view of Mr. Taiwo Oyedele, Partner/Head, Tax Regulatory Services, PricewaterhouseCoopers (PwC) “Nigeria’s tax contribution to the GDP is the lowest in the world being three percent compared to United States 19 percent, China 21 percent and Japan, tax contributes 35 percent. In Germany tax accounts for 45 percent of GDP, France 52 percent, Ghana 22 percent, South Africa 27 percent and Kenya 17 percent.”
“Being aware is not enough; proactive tax risk management and continuous tax risk assurance should be the mantra of every forward looking tax function.”
To Chief Mark Dike, former President of CITN, it is important to ensure efficient utilisation of tax proceeds as a measure to address high level of tax evasion in the country.
According to Dike, in advanced economies where tax payment is rigorously enforced and offences strictly penalised, citizens do not hesitate to pay their taxes as and when due because the proceeds are seen to be judiciously applied.
Dike also attributed the difficulty in tax collection to the involvement of non-professionals who he referred to as quacks and the perception among tax payers that proceeds are not judiciously employed, especially to the development of infrastructure and building the economy to create jobs.
The president of the Lagos Chamber of Commerce and Industry (LCCI), Chief Nike Akande, there is need to situate the current drive for tax revenue and internally generated revenue by the state governments in the context of current investment environment challenges.
However, she said, “Ensuring a balance on these issues is worthy of engagement with tax authorities. Documentation for taxation In the light of these developments, it has become necessary to bring stakeholders together to share perspectives on the current status of the Nigerian tax system as well as educate and enlighten business owners on proper documentation for taxation.”