experts call for expansion of tax base, as raising VAT appears not feasible in near term As
Nigeria faces the challenge of revving up revenue, the Federal Inland
Revenue Service (FIRS) is now planning a collaboration with the
Corporate Affairs Commission (CAC) to enable it get adequate information
on taxable corporate entities as they register to do business in the
country.
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| FIRS |
BusinessDay gathers that the plan is
that as the companies register and make necessary payments at the CAC,
the FIRS database will be populated automatically with that information.
Samuel Ogungbesan, immediate past acting
chairman, FIRS, told BusinessDay that the strategy would equally allow
the CAC generate the Tax Identification Number for the companies during
the registration process.
But much as there is urgent need to
increase tax income, the proposed policy on raising Value Added Tax
(VAT) from 5 percent to 10 percent may still not be possible in the near
term because of the current tight economy realities, he said.
The policy was proposed to take effect
since July 1, 2015, but it needs to be discussed with the Buhari
administration to see the possibility.
“We are working with the CAC. We want to
have a handshake so that at the stage you are registering your company,
we get all the data we need from you.
“In fact the CAC will be the one
collecting tax duties on our behalf now,” Ogungbesan said, while
speaking on the issue of government strategies to widen the tax net and
even deal with the issue of multiplicity of data.
“You do your payment there, you also pay
your filing fees after paying your stamp duties and they will help us
generate the Tax Identification Number printed on the certificate,” he
said.
Ogungbesan is further concerned that the
FIRS has been using ‘Best of judgement’ strategy to figure out what a
tax payer should pay based most times on face-value judgement and not
necessarily actual worth.
When the information on tax payers are
available, they are not frequently updated, Ogungbesan said, as he
called for a common database for the country and urged the Federal
Government to disabuse the penchant to want to develop separate database
for all agencies to make efficient delivery.
Nigeria, with an economic size of about
$510 billion and Africa’s largest economy, has quite a low tax to GDP
ratio of mere 20 percent. The PriceWaterHouseCoopers (PwC) even puts the
ratio at 8 percent, (when oil taxes are removed).
The country’s tax system is not only
plagued by low compliance by those already captured in the tax net, but
tax base is relatively small as government still struggles to figure out
the actual number of the huge population that is eligible to pay tax
and even the exact amount they ought to be paying.
Lagos, Nigeria’s commercial centre and
the highest generator of taxes for instance, currently has about 4
million people in their tax net – but the government there claims that
tax paying adults should be up to 8 million plus. This means that Lagos
has only about 50 percent compliance rate.
“You can then imagine that if you go to the rest of the country, some are doing 5 percent,” a tax expert argued recently.
President Goodluck Jonathan proposed a
new tax approach following a thorough diagnosis of the Nigerian tax
system jointly conducted by the FIRS and McKinsey and Company, a global
management-consulting firm.
The diagnostic, in 2012, showed that 75
percent of “registered” firms in Nigeria were not in the tax system and
65 percent of registered taxpayers did not file their returns in two
years.
It was estimated that tax leakages due
to unpaid real estate rentals in Nigeria amounted to about $250 million
per annum at the time.
Also, 75 percent of the Micro, Small and
Medium Enterprises (MSMEs) were not yet in the nation’s tax system,
while up to 35 percent of companies operating under the Pioneer Status
Incentives abuse their tax exempt status.
Ogungbesan acknowledges the much
improvement in the tax system so far, but noted that challenges were
that even where the information was available, they were not frequently
updated.
Taiwo Oyedele of PwC, totally agrees
that “expanding the tax net is the way to go because we are over-taxing
the few people who are compliant and we are not taxing the rest of us,”
observing that “most of the companies are registered with the CAC and
not registered with the tax authority.”
He suggested that the tax authority
could even propose incentives for compliance and even declare tax
amnesty, “jut to say to people that it is no longer business as usual
but they should come and declare their past tax defaults in the past,
with an aim to get data.”
He cited instances with some countries
that make tax paying a pre condition for social services, “meaning that
because citizens know they cannot get services, except they pay taxes,
they simply pay.”
Oyedele suggested that for Nigeria,
which does not yet have such social service programme, needed to think
smart to connect the dots.
“To be able to expand the tax base, look
at what people do when they have money – they buy cars, which are
registered by the state. They build houses – the papers come from the
state. People go on vacation; they get their passports from the state.
“When people want to send their children
abroad, they keep money in the bank to get foreign exchange, remit it.
You then find out that if you can connect all these dots, capture the
top of the society and tax appropriately,” he said.
Opeyemi Agbaje, CEO, Advisory Services,
is also of the view that the number of captured tax payers is quite
small relative to the population.
His concern is that “the government
strategy should be expanding the number of tax payers rather than trying
to increase collection from the existing payers.”
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