Attempts to shore up the country’s revenue with the upward review in taxes have always been resisted. Experts say only fiscal diversification can rescue the economy, which has been weakened by tumbling global oil prices, Assistant Editor CHIKODI OKEREOCHA reports.
Not a few Nigerians have resisted previous attempts by successive administrations to broaden the nation’s revenue base with the introduction of new taxes. They have always argued that the government has not been able to justify what accrued to the coffers in the past.
The endemic corruption in tax administration, which hindered past administrations from making judicious application of revenues generated in the past to improve socio-physical infrastructure has also not helped matters.
Besides, Nigerians were reluctant to buy into government’s proposal of widening its tax net as a way of diversifying the economy from oil.
Some have also cited the weak manufacturing base, which according to them, rendered the economy unproductive and therefore not supportive of remittance of new taxes by impoverished operators.
However, despite these misgivings, tax experts and some real sector operators have pitched tent with the government. They are insisting that there is no better time than now to embark on fiscal diversification of the economy.
The experts told The Nation that the prevailing economic realities have made the payment of more taxes inevitable, considering the urgent need to mitigate the crippling impacts of dwindling revenue triggered by crashing oil prices at the international market.
One of them, Mr. Taiwo Oyedele, said fiscal diversification, which involves increasing tax revenues from the non-oil sector to reduce reliance on oil revenues for financing spending has become imperative.
Oyedele, who is Head, Tax & Regulatory Services, PriceWaterhouseCooper (PwC), explained his support for such position. He said that as at 2014, the contribution of taxes to Gross Domestic Product (GDP) ratio was estimated at eight per cent, making it the second lowest in Africa and the fourth lowest in the world.
Oyedele, who spoke in Lagos last week at a stakeholders’ forum on the state of the economy on the theme: ‘Nigeria: Looking beyond oil said despite the fact that Nigeria’s population is thrice that of South Africa, the Rainbow nation rakes in more revenue from tax than Nigeria.
The forum, organised by the Lagos Chamber of Commerce and Industry (LCCI) in collaboration with PwC Nigeria, was organised to provide a platform for experts to brainstorm on how the country can wriggle out of its economic challenges through diversification.
In his presentation, Oyedele said that at eight per cent, Nigeria’s tax to GDP is also lower than those of other African countries including Kenya and Angola.
Both countries boast of tax to GDP ratio of 17 per cent and 43 per cent respectively.
According to him, Nigeria is trailing far behind the United States (U.S.) China and Germany, which paraded tax to GDP of 17 per cent, 23 per cent and 45 per cent. He added that the ease of paying taxes in Nigeria remains one of the lowest in the world, raking 181 out of 189 nations assessed.
He argued that the trend accounts for why oil related receipts continue to dominate budget revenues. In 2014, oil related receipts accounted for 80 per cent of the country’s total earnings.
“Non-oil revenue remained largely unchanged as a share of non-oil GDP at about 3.3 per cent over the past four years to 2014,” Oyedele said,
Describing development as regrettable despite a flourishing non-oil sector, Oyedele blamed it on the existing tax system, which comes across as cumbersome and ambiguous for tax payers to comply with.
“Compared to an average of 16 per cent for emerging markets and 18 per cent for sub-Saharan African economies, there is massive room to improve tax receipts by improving compliance and broadening the tax base to include the informal sector, which is estimated at 58 per cent of GDP,” the expert recommended, pointing out that Nigeria’s tax revenue declined by 20 per cent to $30 billion two years ago.
Some real sector operators have also thrown their weight behind the need to improve tax compliance and also broaden the tax base.
To the LCCI President, Mrs. Nike Akande, the need for appropriate taxation has become imperative considering the dwindling revenue from the Federation Account and the failure of state governments to meet their obligations.
Waxing patriotic, she spoke of the need to encourage individuals and corporate bodies to pay taxes.
Her words: “Without adequate taxation the government would not be able to provide key infrastructure. Everybody that is in a position to pay tax should do so without prompting. That is the only way government can work.
“The challenging economic environment provides opportunity for innovative policies that should encourage people to pay their taxes and for government to reward those who are faithful to their civic responsibility.”
Incidentally, Mrs. Akande, a former Minister of Industry, is one of the tax ambassadors appointed by the Lagos State overnment.
The award, which she earned for her diligence in income tax payment, may have been a shot in the arm, prompting her to be one of those leading the renewed advocacy for appropriate taxation.
At the stakeholders’ forum, the LCCI president pointed out that the sustained decline in global oil prices since 2014 has boxed the nation to a corner and consequently led to various fiscal and economic challenges.
Some of the challenges include: drop in foreign earnings; decline in foreign reserves; huge financial bailout for some state governments and unstable macro-economic environment.
Mrs. Akande admitted the desirability of a holistic and sustainable economic diversification strategy.
She said: “We need to put an end to the high dependence on oil. Strategic decisions and policies that will put the Nigerian economy on a path of sustainable recovery have become imperative.
“Without doubt we need to pay greater attention to manufacturing, agriculture and agro-allied industries, solid minerals, Information and Communications Technology (ICT), entertainment, tourism and many other areas in the non-oil sector.”
In her admittance of need for appropriate taxation, she, however, cautioned against multiple taxations.
“Multiple taxation is unhealthy for the manufacturing sector”, Mrs. Akande said, calling for the harmonisation of taxes among the various levels of government to create an enabling environment for businesses to thrive.
Imperative of tax harmonisation
The position of other experts in tax administration must have brought about the imperative of tax harmonisation.
They argue that if the country gets it tax administration right, revenue from tax alone could sustain the economy without oil.
President, Chartered Institute of Taxation (CIT ), Mrs. Somorin Teju, was emphatic that revenue from taxes could sustain the country, even if earnings from oil dwindle further.
Recalling that recession was not alien to as had similar experience in 1991, which necessitated the introduction of Value Added Tax (VAT) to replace sales tax, Mrs. Somorin said that with the current fiscal challenges, the government could earn enough revenue to finance capital and recurrent expenditures in the budget from tax sources.
She said: “The government has to pay adequate attention to tax. Without tax, I don’t see how government can do what it plans to do in a particular year. People must pay tax; businesses must pay tax, if they are making profit.
“But, the tax must be based on the principle of progression, fairness, and equity among others. What we are going through, as a nation is not the first time.
“It happened in 1991, when government set up a study group to look for alternative revenue sources, from direct to indirect taxes and to shift emphasis from oil. It was then VAT was introduced to replace sales tax. Since then, VAT has attracted lots of revenue. So, revenue from taxation alone will be sufficient for the country, with good attention.”
According to the CIT president, taxation is based on income and profit. “If there is no income, there will be no tax. But when you are jobless and you have investment income, like rent from landed property, you have to pay tax”, she said, calling for reform and autonomy for states’ Inland Revenue Services for efficiency and better performance.
Mrs. Somorin said: “The reform in the Federal Inland Revenue Service (FIRS) has made to become efficient as it attracted competent hands from other sectors of the financial institutions.
“So, it became more efficient, when it became autonomous. The states Inland Revenue Services should be given autonomy also for them to be more efficient.”
She urged Nigerians to be patient with the government, admitting that the country has been going through a temporary recession, which is global in nature.
Those pushing for fiscal diversification as a viable option for the government to generate revenue from tax, toed the line the Managing Director, International Monetary Fund (IMF), Ms. Christine Lagarde.
The IMF chief, during her recent visit, advocated the broadening of the country’s revenue base by increasing the VAT paid on goods and services.
According to Ms. Lagarde, it had become imperative for the Federal Government to broaden the country’s tax base, pointing out that Nigeria’s VAT rate was not only among the lowest in the world, but below VAT rates in other countries of the Economic Community of West African States (ECOWAS).
“The current VAT rate is among the lowest in the world and well below the rates in other ECOWAS members. So, some increase should be considered,” she had recommended.
Her recommendation appeared to have hit the right chord in the ears of some senators, who during a debate on the general principles of the 2016 Budget of N6.08 trillion, called for heavy taxation of Nigerians to make up for the shortfalls that may arise in the projected revenues.
The senators argued that heavy taxation could be a better option than relying heavily on borrowing to implement the budget.
Senate Chief Whip Olusola Adeyeye (APC Osun Central), who led the debate, said that without spreading the dragnet of taxation, there would be no money to fund the budget, especially in the face of dwindling oil revenues.
However, the President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr. Bassey Edem, said though he supports taxation, multiple and spurious taxation are injurious to business and should be discouraged.
He also aligned with Mrs. Akande on the need to harmonise state and local government tax agencies.
Frontline industrialist Mr. Duro Kuteyi, dismissed as erroneous that manufacturers unwilling to pay taxes, but that they want to be taxed fairly.
The fear
However, as altruistic as the experts’ calls to widen the tax net may be, it has not gone down well with many.
A Lagos-based legal lawyer and public affairs analyst, Mr. Obiora Akabogu, said an unproductive economy like Nigeria’s cannot survive with the upward review of IGR and VAT.
He said that raising the IGR and VAT to cushion the effects of the oil revenue shortfall will not work because not a few Nigerians have been impoverished by the economy’s unproductiveness.
Akabogu told The Nation: “VAT is derived from a productive economy, but an economy that is near comatose makes it difficult for federal and state governments to raise money by increasing IGR and VAT, because the masses are impoverished.
“Nigeria is operating a mono-cultural and precarious economy, which is dependent on one major revenue source, which is oil.”
He insisted that imposing heavy taxation on already impoverished masses in whatever form amounts to overkill.
According to him, the hash operating environment caused by the nation’s huge infrastructure gap, particularly electricity supply, has rendered the real sector, including manufacturing and agriculture unproductive and uncompetitive.
“Diversification is the only way to go,” Akabogu said, pointing in the direction of manufacturing, agriculture and agro-allied industries.
He said other sectors that hold promise of turning around the economy if properly exploited, include: solid minerals, ICT, entertainment and tourism among others.
Besides economic reasons, Akabogu said alleged corruption in the nation’s tax administration system could pose serious hurdles to the proposed shift to tax revenue as to bail out the economy.
He said: “The truth is that most Nigerians are unwilling to pay tax unless they are compelled. And they hinge their refusal on the belief that government’s officials will misappropriate any money they pay.
“The thinking, and rightly so, is that Nigeria’s tax system allows for compromises, which tax officials have exploited to defraud the government of its revenue. This is why despite the fact that tax is the most reliable source of revenue for government all over the world, of tax evasion rate has been very high in the country.”
Apart from alleged collusion between tax collectors and tax defaulters to defraud government of the needed revenue, many individuals and corporate organisations are unwilling to pay tax because they believe the authorities have not shown evidence of previous remittances.
Those on government payroll who remit through the Pay As You Earn (PAYE) method also complain that the authorities do not account for deductions.
Analysts believe that such public perception of the tax system may take more time to change, even as they agree on the importance to save the economy from total collapse.
Mrs. Somorin said that small-scale enterprises must be assisted to stimulate production.
“A lot of people are being encouraged to go into production. Small-scale enterprises should be encouraged to engage more hands outside the white-collar jobs. Small-scale industries are dying because there is no form of assistance from the government. They need to be assisted.”
She added that tax revenues could be generated from the SME sector if given necessary encouragement.
Edem said the challenge of inadequate electricity supply must be
Tackled once and for all, urging the government to invest in the energy sector by harnessing alternative sources of energy, such as wind, coal and solar, to improve electricity supply to support the manufacturing sector.
How far the government demonstrates its political will to address these issues will determine the success of fiscal diversification to revamp the battered economy.
