Despite having more than 100 different taxes with less than 10 of them actually generating about 98 per cent of the country’s tax revenue, indeed, there is need for Nigeria to review its tax laws, abolishing many that do not conform to current realities, tax practitioners told LEADERSHIP yesterday.
One of such that was canvassed for by the analysts is the stamp duty act which was introduced into the country by the British in the 1890s and was made into law in 1939.
According to the tax practitioners, while the government is looking at introducing more taxes to generate revenue, there is need for a review of the tax laws, more accountability on the part of the government and an overhaul of general tax administration in the country.
The practitioners believe that with this, the nation’s tax law would be compliant with current realities, more effective and generate the much needed revenue for the country.
Data from Organisation for Economic Co-operation and Development (OECD) showed that tax-to-GDP ratio in Nigeria increased by 0.6 percentage points from 5.7 per cent in 2017 to 6.3 per cent in 2018. In comparison, the average for 30 African countries increased by just under 0.1 percentage points over the same period, and was 16.5 per cent in 2018.
Since 2010, the average for the 30 African countries has increased by 1.4 percentage points, from 15.1 per cent in 2010 to 16.5 per cent in 2018. Over the same period, the tax-to-GDP ratio in Nigeria has decreased by 1.0 percentage points, from 7.3 per cent to 6.3 per cent. The highest tax-to-GDP ratio in Nigeria was 9.6 per cent in 2011, with the lowest being 5.3 per cent in 2016.
In 2020, the Federal Inland Revenue Service (FIRS) said it pulled in N4.952 trillion in non-oil revenue, lower than N5.076 trillion which it projected to make in the year and much lower than N5.261 trillion it made in the same period of 2019.
The FIRS, like in years past, had fallen short of its N8.802 trillion projections in 2019. Between 2015 and 2018, the country had recorded N16.395 trillion revenue as against N20.408 trillion that was projected during the period.
According to the International Monetary Fund (IMF), Nigeria’s non-oil revenue mobilization has been one of the lowest worldwide, reflecting weaknesses in revenue administration systems and systemic noncompliance.
“For corporate income tax, less than six percent of registered taxpayers are active. Estimates on payment compliance in the case of value added tax (VAT) vary between 15 and 40 percent, and Nigeria raises less than one percent of GDP in VAT revenue, compared to almost four percent of GDP in the countries of the Economic Community of West African States (ECOWAS). Tax exemptions and incentives are narrowing the base.
“International evidence shows that a minimum tax-to-GDP ratio of 12.75 percent is associated with a significant acceleration in growth and development of state capacity. It would allow increased expenditure for economic development and reduce budget exposure to oil revenue volatility,” the IMF said.
Speaking with LEADERSHIP, Fiscal Policy Partner and Africa Tax Leader at PwC, Taiwo Oyedele, noted that tax morale is low in Nigeria because “people don’t trust the government as transparency and accountability are very poor. This combination, unfortunately, means Nigeria is unable to generate enough revenues to take care of governance and the people.”
He also said that there are three major factors that hinder effective taxation in Nigeria. He listed legislation, administration and policy.
On tax administration, Oyedele of PwC noted that the administration of taxation in Nigeria hasn’t impacted revenue growth in the economy. He said, “We find a lot of things done manually paying taxes, filling forms, filing returns are cumbersome and a lot of untrained people who are collecting taxes, harassing business owners and a whole lot of others. Some of those taxes end up in private pockets and because they are being collected in very manual, crude and unrefined ways gives way to corruption.”
Speaking on legislation, Oyedele said, “Our laws are obsolete in many cases, it is just too ambiguous and complicated for those doing business in today’s world. There are many tax laws we inherited from the British laws before our independence, and we haven’t done much to improve them since then.
“To think about the stamp duty law of 1939 or thereabout long before our independence and apart from changing pounds to naira and kobo, there hasn’t been any major improvement. If you think about the personal income tax, there used to be a time when it was exempted for poor people and that was people earning N30,000 per annum and that is N2,500 per month, but that is completely ridiculous because no one earns N2,500 per month now. So, because we haven’t been doing reviews of our laws, they are very much out of date.”
In addressing this, Oyedele said apart from simplifying the tax law, “we need to repeal so many of them, harmonise them so that we have fewer laws. That way, we do not have over 100 different taxes when indeed more than 98 per cent of revenue comes from less than 10. Why don’t we repeal all those taxes that create troubles for everyone and interpret the tax laws into the main languages Yoruba, Hausa and Igbo in addition to pidgin and then simplify them? We have a law of 1939 which was before I was born which means it is very old, that means we are trying to tax transactions now that never existed at that time. We didn’t even have the internet then and now we are trying to impose stamp duties on money transfers. Electronic money transfer wasn’t in existence when this law was made so we are now trying to force a square peg into a round hole. There would be a lot of scars.
Oyedele also listed policy as a hindrance to effective taxation in Nigeria. According to him, the policy direction in different areas of tax collection sometimes are unclear, inconsistent and sometimes they are not well harmonised between the levels of government. He said, “That is why we see a lot of multiple taxation everywhere which affect particularly Small and medium-sized enterprises (SMEs), some of them are taxed to death. There is also the problem of overregulation.
‘‘The starting point of what Nigeria needs to do is to look at the tax policy framework. The National Tax Policy of 2017 hasn’t been implemented and now it is due for review. The government needs to review that, look at what it is that we want, who do you want to tax, how do you want to tax them, who should bear the incidence. So that shows the kind of tax system that needs to happen and I hope it can start with the tax recommendation sent to the National Assembly as part of the constitution review. In the area of administration we need to use a lot of intelligence, data and technology, a lot of what we do manually today is making our cost of collection to be extremely high.”
Also, the immediate past president of the Chartered Institute of Taxation of Nigeria (CITN), Dame Jumoke Simplice, called for a review of the tax laws in the country.
According to her, there is need for political autonomy as well as capacity building for revenue collecting staff. She suggested that qualified tax practitioners be employed into the tax system to ensure effective collection, rather than using political affiliations to appoint tax officers.
Simplice also explained that the level of corruption in the system discourages the citizens from paying taxes. “People get disenchanted when they see in the news that government officials are stealing billions of naira and there is no real consequence because no one has been jailed. So, it will not encourage voluntary compliance. We cannot continue to pay lip service to anti-corruption and then do plea bargaining with corrupt persons, it does not work. People will be discouraged when government takes so much and people can’t see what the money is being used for,” she said.