Nigeria is one of the nations with multiple taxation system, which a lot of economic and tax experts say is inimical to easy payment and collection of taxes. The economy, under the supervision of former minister of finance, Mrs Kemi Adeosun and chairman of the Federal Inland Revenue System, Tunde Fowler came up with a review of the nation’s tax system for easy collection of tax.
Unfortunately, while the review of the tax system focused on tax collection through different initiatives including Voluntary Assets Declaration and Income Scheme (VAIDS). The government initiated the passed national darft tax.
Till date, the FIRS has initiated various tax reforms including the TaxPro Max a flagship tax administration solution for automated end-to-end processing of its tax administration function. With all that, the government is concerned with tax collection that continence payment of tax.
For many Nigerians, tax payment is like a burden to many people, but it is an obligation that the citizens of Nigeria must pay to the government to improve and maintain the infrastructural standards of the society; however, the line for taxation gets blurred when the rates begin to increase on a frequent basis.
This has been the case for several sectors in Nigeria. One major sector that has witnessed this increase over the last couple of months is the food and beverage sector.
The sector accounts for 5 percent of the nation’s GDP, according to the National Bureau of Statistics. Not to mention, the sector also generates an estimate of 1.5 million jobs in the country, according to the managing director of Trade Fair, Martin Marz.
The sector also contributes average of N202 billion to Value Added Tax (VAT) and N207 billion in company income tax over the last five years.
Recently, the food and beverage sector has been subjected to the reintroduction of excise tax at a rate of N10/liter. This has led to a revenue decline of -8 percent between June 1 and August 31. The sector has also declined by -16 percent between September – December 2022, according to the Coca-Cola report on the “aggressive taxation on beverages by government.”
With the loss projection of revenue to be at 16 percent by the end of 2022, the industry’s company tax contribution will drop by -31 percent, while the TET (Tertiary Education Tax) and VAT (Value Added Tax) will drop by -48 percent and 13 percent respectively. The overall drop in revenue in all these categories will hinder the industry’s ability to pay other taxes.
Some experts who say Nigeria urgently needs to harmonise its tax system are quick to point to the fact that the N10/liter excise tax on non-alcoholic beverages otherwise called sugar tax will have a toll on the economy. As if this is not bad enough, the 20 per cent ad-valorem tax expected to begin on January 1, 2023, will further exacerbate the challenges.
For economic expert, Stephen Kanabe, government needs to look at convince in tax payment with a harmonised system. He said, “we need to talk more about how to create an enabling business environment, how the companies can pay more tax and what we have to do to engender public confidence in government.”
The major question on everyone’s mind remains the same, how will the sector pay for all these taxes? Especially with the systematic and infrastructural challenges the industry faces and the increase in the cost of critical inputs by 40 percent from January to October 2022.
The multiple taxation issue also exists in other areas such as the telecommunications sector. Although unlike the food and beverage sector, the telecommunication sector has not been heavily impacted by the hefty taxation.
Tax consultant Umar Yusuf told this reporter that Nigeria has tried in areas of tax reforms but “needs to look at how companies can easily pay tax and grow the economy.”
According to the National Bureau of Statistics report in August 2022, the telecommunications sector, in the 2nd quarter of 2022, contributed to 18.44% to the national GDP. This value was higher than other sectors within the country.
Despite the major success, mobile network operators are subjected to 40 different taxes and levies. Some of these taxies directed towards the telecommunications sector include the income tax of a company, the Tertiary Education Trust Fund (TETFUND) capital gains tax, withholding tax, stamp duty, effluent discharge levy, ecological levy, emission levy and a host of other taxes.
The NBS reported that the telecommunications sector paid N62,393,397,247.01 in VAT in the 4th quarter of 2021 and N51,050,942,200.80 in CIT sectoral collection in Q4 of 2021. Another study from The National Bureau of Statistics “Company Income Tax” report reveals that Nigeria’s revenue from company income tax (CIT) increased by 29.53 per cent in the 2nd quarter of 2022, which totaled to N714.40 billion.
In essence, this value is good for the telecommunications sector, and it is very encouraging that Nigeria is taking the necessary steps to ensure that corporations pay their taxes for doing business within the country; however, the over taxation of companies could in the long run negatively impact the country and discourage businesses.
One major disadvantage for the persistent increase of higher taxation in Nigeria is the fact that it will put off other companies from coming to Nigeria to set up shop for their business. It is without a doubt that a business man or woman not only takes into consideration the business climate of the place, but also the amount of taxes that would be paid back to the government. Unfortunately, businesses tend to be displeased by a high tax rate as their main goal is to maximize profits, instead of paying astronomical fees. As many Nigerians were in uproar of Twitter’s decision to open its first headquarters in Accra, Ghana, questions need to be asked whether Nigeria would have provided this company with the right frame work to succeed in the country.
The second problem that the unexpected higher taxation brings is the increase in companies trying to circumvent or find loopholes into getting around the taxes stipulated by the government. A perfect tax avoidance example that corporations used in the past was enabled by tax havens. The Shell Group specialized in this action by arranging an agreement with its two affiliates, Shell Petroleum Development Company of Nigeria and the Shell Petroleum International Mattschappij (SPIM).
Services and expenditures (from 1992 and 1993) were charged to the offshore account (SPIM) so the company could report no profit over eight years. Although Tax havens are not illegal, the over taxation of foreign companies formulates this strategy, which would see Nigeria miss out on millions in tax revenue. Oil production remains important to the Nigerian economy as the country received up to N15,795,449,899.48 IN VAT for the first quarter of 2021, according to the National Bureau of Statistics.
Unexpected high taxation may also lead to a decrease in salary from employees. This instance could happen if the company pays a lump sum in taxes to the government, while leaving the company with limited money to pay employees. A lower payout for clients could also affect the job market, as many people might seek to look for other jobs that have a stable pay. This again could be difficult as the unemployment rate in Nigeria sits at around 33 percent, according to statista.
There are ways to address this problem of high taxation in Nigeria. One example will be for the government to align with industry specialists to reformulate products that cause greater harm to society. A report from Coca-Cola suggests that the government should consider imposing a nutrient tax to broaden tax base by minimally taxing products with high levels of sugar and salt. This way would be effective in generating revenue without single handedly killing a sector.
For the oil and gas sector, Carbon tax could be imposed to reduce fossil fuel emissions. While this may impact on the functionality of oil and gas companies, it can bring about the start of new innovative ideas in the tech and telecommunications sector, which will be critical for Nigeria in the long run, as the country seeks to expand the tech sector. Another way would be for the industry to support the Nigerian government in driving the notion of tax compliance for value chain suppliers in order to assist the government in generating revenue, while also growing the food & beverage sector in Nigeria.
It is important to reiterate that taxes are essential for the government; however, there must be a limit to how these companies are taxed for citizens to not only benefit from their services, but to also encourage these companies to continue doing business in Nigeria.
