In developed and emerging economies of the world, taxation remains a veritable source of revenue for government to put in place necessary infrastructure and economic development initiatives. It is on that note that analysts have called for reform of the Nigerian tax system to cushion the negative economic challenges and recession currently facing the country.
The economic realities and fall in global oil prices has made Nigerian government to focus on diversification approach by reviewing the existing National Tax Policy in the country to streamline multiple taxation, tax evasion, tax incentives and waivers.
Economists have noted that there was need for tax policy review among the three tiers of government as part of the economic diversification framework. However, taxes collected in Nigeria amount to about 7% of the GDP in comparison to average of 20% common in emerging market economies.
As part of the federal government commitment to diversify the economy through its tax system, the Minister of Finance, Mrs Kemi Adeosun recently inaugurated committee to review National Tax Policy. She said government aimed at ensuring that over 87% non-oil sectors contribute their quota to the nation’s revenue, adding that a review of Nigeria’s tax policy would serve as a starting point towards achieving a diversified economy.
Already, the Federal Executive Council had approved a Multilateral Competent Agreement enabling government to effectively manage its tax laws and prevent tax evasion by multinational companies. Babatunde Fashola, Minister of Power, Works and Housing said the approval of new tax reform was in tandem with the government’s macroeconomic policy due to dwindling oil revenue.
Economic Confidential findings revealed that the Nigerian tax system was usually reviewed every 10 years, concentrating on both tax administration and policy. Recall that these systems were treated differently until 2002 when the gap was filled with the examination of the three legs of the tripartite tax system in Nigeria, incorporating policy, laws and tax administration.
In the same vein, the issue of tax reforms in Nigeria has evolved around eliminating or reducing tax rate for multinationals and small and medium enterprises (SMEs) in Nigeria to 25 from 45%. After series of consultation and recommendation by Professor Philip’s committee, the tax rate was fixed at 30%. The committee recommended that the government need a policy framework to drive Nigeria’s tax policy which eventually gave birth to the current National Tax Policy document that all tax agencies in the country must follow.
The document forbids state and local governments to introduce their own series of taxes as the law already prescribed the type of taxes to be collected by all levels of government. Federal government has about seven; states with 13 and local government council with 21 taxes and levies.
However, there are series of complaints from manufacturers and major stakeholders on the issue of multiple taxations which has lingered for sometime now despite the current regime of National Tax Policy. In 2012 alone, some states had over 69 taxes on their desks. Similarly, local government had the worst case in the collection of taxes which contributed to the challenges currently facing multinational companies in Nigeria.
Multiple taxations at the state, local and federal level has made many firms relocate to other African countries with efficient tax policies. The current hyperinflation facing the commodity market has been traced to multiple taxes and lack of policy framework to control tax agencies of government at various levels.
Experts have called for a review of the Nigeria tax system, which according to them collects pointedly below what it could.
The president of the Chartered Institute of Taxation of Nigeria, Olateju Somorin, said the tax gap in the tax system should be filled for the nation to make development progress in the face of lack of infrastructure nationwide.
She said: “A review of some tax laws has become overdue.
Sustainable economic growth cannot be attained without the review of the obsolete laws and tax rates in consonance with macroeconomic objectives and efficient tax administration machinery. Our tax system must be well structured, such that the framework of tax exemptions, tax incentives and waivers are streamlined.”
Also, an expert in the industry, Anthony Chidolue Dike, said that Nigerian economy must be weaned off oil taxes to a steady change to indirect taxes in non-oil industries so as to bring the informal economy into the tax system.
However, the director general of the Lagos Chamber of Commerce, Muda Yusuf said the company tax and the heavy burden of multiple taxes and levies on companies in the country must be reduced to bring the nation out of the current recession.
Value Added Tax (VAT) is an aspect of the taxes paid by general public in the process of purchasing commodities in the market. The Nigeria’s sales rate, besides company taxes, oil taxes, non-oil sector revenue is currently fixed at 5%. However, other African countries VAT are higher than what obtains in the country. For instance, South Africa has 14% VAT, Namibia with 15%, Mozambique has 17% VAT and it is 18% in Rwanda.
According to the International Monetary Fund’s recommendation for the nation’s economy, an increase of VAT to 7.5% was suggested and expansion of tax base and reinforcing tax administration as an economic diversification attempt from oil.
Economists have stated that the current tax system favoured the rich over the poor when compared to developed nations. Majority of taxes are related to corporate and VAT while property tax that affect the rich are not effectively manned by the agencies in charge of tax collection including the Federal Inland Revenue Service (FIRS).
Analysts have called on government to introduce technology-based tax reforms to expand the tax base while advancing the revenue collection systems for the nation.
The use of electronic tax returns for all income earners would also help the nation generate more revenue to effectively manage the economy and provide infrastructures that will create jobs for teeming Nigeria unemployed graduates.
The way out is for the Nigeria tax system to be reformed such that affluent people with many properties and luxuries are made to pay more taxes and focus shifted to non-oil sector. In that line the electronic tax returns will enable government collect taxes in the most easiest, safest and fastest way than the current traditional approach.
Reformation of the Nigerian tax system towards a technology-driven system with the help of national assembly in passing required bills for the reform would help the nation achieving economic diversification away from the oil revenue.