The statement credited to the International Monetary Fund (IMF) that the country may be operating one of the weakest tax regimes within sub Sahara Africa and beyond has sparked off a controversy of some sort with most Nigerians expressing fears that further reforms might translate to more taxes. Ibrahim Apekhade Yusuf in this report examines the issues
At a period when sizeable population of Nigerians are being compelled to pay or let’s say are grudgingly paying their taxes, the received wisdom out there is that the country’s tax system leaves absolutely nothing to cheer about.
The foregoing was the submission made by Abebe Aemro Selassie, Director, African Department, International Monetary Fund, albeit impliedly.
Selassie who spoke during a press conference at the Fund’s headquarters in Washington DC, United States, last weekend, said the federal government and the National Assembly must work together to review the country’s tax policies.
The IMF boss said there was a need for tax policies that would help the country to generate more revenue in order to close the huge infrastructure gap in the country.
He said, “The decision on the tax policy changes would be the government’s and the parliament’s but we would be providing a lot of support on policy advice.
“I cannot stress again that the key remains for Nigeria needs to do a lot more investments in human capital investment. In terms of designing tax policies changes, there is a way to do it; we advise countries and provide technical assistance in a way that is progressive so that taxes are collected by people of the richer segment of the society; so there is a lot of technical work that needs to be done. “
Expectedly, Selassie said the Minister of Finance, Mrs. Kemi Adeosun, had outlined plans to make the country’s tax administration system better such that more revenue could be generated.
As a result, he said the IMF would support her in order to generate more revenue to close the infrastructure gap in the country.
It is however instructive to note that in the past the main policies recommended by the IMF have had mixed results. The reduction in tariffs has been successful, as increased imports have so far more than compensated for the reduction in tariffs and resulted in an increase in trade tax revenue. However, the impact of domestic tax reforms has been less impressive. Most importantly, revenue collected from VAT and direct taxation has not increased as hoped, economic pundits have argued.
Fears over tax increase
Worryingly experts have warned that the pressure to both meet domestic expectations and display fiscal responsibility may be leading Nigerian government to exaggerate estimated future tax revenues. This allows the government to fulfil its expensive election promises and present balanced books to the donor community, but will ultimately lead to future budget cuts unless donors agree to cover the short fall in the near future, experts have further argued.
Comparative analysis
The World Bank estimates that Nigeria has the lowest tax-to-GDP ratios in the world, with 6.1 per cent compared to other African countries, such as South Africa (26.9), Egypt (15.8) and Botswana (35.2).
According to the Federal Inland Revenue Service (FIRS), of the country’s 70 million taxable adults, only 14 million pay income tax, with 96 per cent of them on the Pay-As-You-Earn (PAYE) system.
A 2015 Knight Frank wealth report listed Nigeria as home to an estimated 770 billionaires (in naira terms) out of whom only 214 pay income taxe of N20 million and above.
A similar nine-month tax amnesty initiative implemented in Indonesia this year earned the country $10 billion, attracted 970,000 new taxpayers and an additional $330 billion worth of assets to the tax net.
A case for effective tax reforms
Speaking at a public forum recently, Prof. Abiola Sanni, while noting that taxation was of fundamental importance to nation building, said matter-of-factly that: “Nigeria has one of the lowest and poorest GDP tax ratios in the world. Well, we are six per cent, during Baba’s (Obasanjo) time we move from under one per cent to about five per cent, which is a 500 per cent improvement.
“When you compare six per cent tax GDP ratio to 20 per cent in Ghana, 15 per cent in Benin, 18 per cent in Cameroun, 27 per cent in South Africa, 24 per cent in UK, 29 per cent in USA and I think Germany is over 40% you can then understand the serious economic and physical implication for Nigeria. With the number I have seen, the amount of tax we collect is just about sufficient to cover our debt service obligations.”
He urged Nigerians to emulate other countries where taxation grows to fund the provision of public goods and services, which every Nigerian should enjoy.
Echoing similar sentiments, former president, Chief Olusegun Obasanjo said that every responsible citizen must pay tax, as it is a major source of revenue to drive the economy. He however said if the people are faithful with the payment of tax, responsible government should spend the tax revenue judiciously.
Obasanjo spoke at the public presentation of a book, A Review of Tax System in Nigeria written by Assistant Inspector General of Police, Tunde Ogunsakin at the Nigerian Institute of International Affairs (NIIA) Lagos.
While noting that one of the major challenges of Nigeria is because it has not been able to determine the amount of tax revenue it loses annually, he was however quick to add that the country is not alone as the African Union reported that it loses $50billion per year from tax revenue.
The Association of National Accountants of Nigeria (ANAN) has also raised hope about the ongoing tax reforms in the country and its positive effects on the economy sooner.
President of ANAN, Alhaji Shehu Ladan, who commended the efforts of government in steering the economy amid recession lauded the unfolding gains of Economic Recovery and Growth Plan (ERGP), inauguration of the Nigerian Industrial Policy and Competitiveness Advisory Council.
He advised government that as a matter of policy, there should be a provision to ensure that all registered companies submit audited accounts in efforts to drive revenue, adding, “More individuals will be employed and that shall mean more taxes from Pay As You Earn.”
According to him, the revenue of companies can be verified by auditors and taxes from such revenue can be more accurate and this will shore up government’s revenue in the pursuit of development plans.
For Mr. Rotimi Balogun, Principal Consultant, Rotimi Balogun & Associates, a firm of chartered accountants, the nation’s tax receipts need to be greatly improved upon in order to grow the economy.
“It is true that the country may not be generating much revenue from tax collection. If you look at the report released by the Minister of Finance, Mrs. Kemi Adeosun recently analysing the tax performance of the country, you could see that all seems not to be well with our tax system,” he said.
Pressed further, he said: “From official information, it is not everybody that is eligible to pay tax that is paying, including corporate entities and individuals. A lot of them are still not captured in the tax net.”
Balogun who is a fellow of the Institute of Chartered Accountants of Nigeria (ICAN) further emphasised that one of the issues being tackled by professionals is the issue of multiple taxation.
“Our contention is that those who are already in the tax bracket are paying too much and that is why we have advised that there should be a collection strategy which will help find a way of capturing those not already in the tax net. We favour a situation where there will be efficiency in terms of collection and management,” he noted.
VAIDS to the rescue
It may be recalled that the federal government in its quest to turn the tide as far as tax compliance is concerned had come up with the Voluntary Assets and Income Declaration Scheme (VAIDS).
The initiative which was formally launched in Nigeria with the signing of the Executive Order by the Vice President Yemi Osinbajo on Thursday, 29th June, 2017, gives the needed regulatory approval for the Scheme.
Since its initial proposition by the Organisation for Economic Co-operation and Development (OECD) in 2010, more than 47 countries in the world have implemented the program in one form or the other, including South Africa, India, Indonesia, and Turkey, among others etc. Nigeria expects to rake in US$1 billion from the scheme.
The VAIDS is an initiative of the Federal Ministry of Finance in collaboration with tax authorities in Nigeria (both at the federal and state levels) to give a time limited opportunity to taxpayers to regularize their tax status relating to past periods, in terms of registration, returns filing, tax assessment and
Thus, the scheme offers companies and entrepreneurs, whose tax affairs are out of joint, a window to make amends between 1 July 2017 to 31 March 2018. While the window remains open, taxpayers will have the opportunity to voluntarily declare all previously undisclosed assets and income, thereby straightening out their tax affairs over a period of three years.
VAIDS applies to all tax-paying individuals, companies, executors and trusts and covers all taxes collectible by federal and state tax authorities. These include Company Income Tax (CIT), Personal Income Tax (PIT), Capital Gains Tax (CGT), Value Added Tax (VAT) and stamp duty.
Through VAIDS, the federal government desires to raise the percentage of non-oil tax revenue from the current 6 per cent to 15 per cent by 2020, improve tax collection and encourage voluntary tax compliance. In addition to raising revenue, VAIDS will boost investment and economic activities and create job opportunities, including 7,500 employment places for tax liaison officers by at the Federal Ministry of Finance, under the N-Power Scheme. The community tax liaison officers will be trained to educate on and sensitise Nigerians to the importance of paying tax and the country’s tax system.
Many other experts also believe that diligent deployment of information obtained via the AEOI Standard will complement the VAIDS by assisting to uncover previously concealed assets and revenue sources. Tax experts have equally pointed out that the agreement to share bank information, under Common Reporting Standard (CRS), with countries such as Argentina, Indonesia and Italy, which operate programmes similar to VAIDS, will help in tracking Nigeria’s taxes taken abroad.
But will the government be compelled to further review the tax system judging by the suggestions made by the IMF?
Time will tell.
