• Experts refuse to increase taxes in the midst of poverty
• Call for plugging of revenue leakages
• Explore the property tax, Yusuf urged the government
There is concern in the private sector as the Federal Government seeks to pile more taxes on businesses through the controversial Finance Bill 2022.
The National Assembly hastily passed the Bill, along with the 2023 Grant Bill, without subjecting it to public hearings, an aspect that is now opposed by the private sector (OPS).
According to the 2023 Appropriation Act, the total revenue available to fund the budget is about N10.49 trillion. And this includes the gross profits of 63 government-owned companies totaling N3.87 trillion.
Out of this, the federal government’s oil revenue is estimated to be N2.29 trillion; non-oil tax, N2.43 trillion; and the revenue of the Federal Government, N2.6 trillion.
While the Senate gave 24-hour notice of public hearings, which some OPS advocacy groups described as unrealistic, the House of Representatives passed the piece of legislation ahead of the advertised public hearing.
An independent source who spoke to The Guardian said that the OPS, which is seeking a full review of the document, would reject it, if it were to be carried out as the MPs are considering.
Members of the private sector are concerned that the additional tax burden will only discourage operators.
According to the Minister of Finance, Budget and National Planning, Zainab Ahmed, the document, which is under review, will force the reform of the tax system and improve business facilities.
But industry players say some of the provisions will hurt business, increase the tax burden and make the operating environment more hostile to private investment.
The finance bill seeks the imposition of a 0.5 percent tax on all eligible imports from non-African countries to finance Nigeria’s obligations to international organizations and an increase in the Tertiary Education Tax from 2.5 percent to three percent of company profits.
This has been criticized by economists who believe that the new tax will have far-reaching implications for investors and citizens, affecting production costs and undermining investor confidence. They also fear that the tax could increase inflationary implications.
Currently, Nigeria’s corporate tax regime, which is currently 30 percent, is said to be one of the highest in the world.
Experts believe that the solution to the country’s revenue problem is not only to increase taxes, but to reduce leakages in revenue sources, reduce government costs, fight corruption and explore other sources of revenue that currently exist.
He also said that with declining living standards, resulting in low purchasing power, high unemployment and low capacity utilization by manufacturing companies, imposing more taxes could be counterproductive.
The Senior Special Adviser (Industrialization) to the President of the African Development Bank (AfDB), Prof. Oyebanji Oyelaran-Oyeyinka, told The Guardian that Nigeria should look at the issue of taxation from the perspective of the government and citizens.
“There is a strong relationship between citizens’ willingness to pay and the wages they earn,” he said. “In a situation where the majority are poor, there is less desire and ability to pay. So, point number one: paying taxes to poor households will make them poorer.
He said a cursory survey showed that the needs of Nigerians for basic items, such as food and clothing, exceeded their income, and more than the minimum wage for working people in most of the country.
“Taxing poor families makes it more difficult to meet these basic needs. When the government is faced with a lack of revenue, it must show leadership by taking drastic measures, including reducing government expenses and curbing leakages and corruption,” said Oyelaran-Oyeyinka.
He noted: “For example, Nigerians have been told stories of leaks through large-scale theft of crude oil. The official trading government blames each other, clearly accusing each other of responsibility for oil theft. This public spectacle does not inspire confidence in their government. Taxation is a matter of trust. People see it as an investment that brings service dividends.We have the opposite situation here.
He said Nigeria lost a lot due to official corruption in ports and other places due to poor operating environment for business.
According to him, the country has the lowest Tax-GDP ratio in the world at around six percent, mainly due to poor governance and inefficient collection/administration, etc., which has led to low accretion in the country’s revenue base.
“From the above, the low tax revenue is, in part, due to poor governance and the trust deficit of citizens. Citizens wonder about the existence of sanctions for corrupt officials and probably ask themselves if I should subsidize the lifestyle of politicians and bureaucrats who do not care hoot how I eat three boxes of food? So, clearly, there is a need to fix the ineffective tax system. But it needs to be fair and responsible.”
He said that even with regard to corporate tax, companies still spend almost 40 percent of their capital on services that are usually provided as public goods, such as electricity, roads, water, etc.
“In a way, companies have been taxed because the government has abandoned its traditional role as a service provider. In the World Bank’s 2022 ‘Government Effectiveness’ ranking index, Nigeria scores 14 percent. We have a huge gap to fill in terms of government capabilities. So, citizens and companies must considered fair.
He reiterated his call for Nigeria to industrialize through economic diversification.
“We need to act quickly to reduce our dependence on crude oil exports. Diversification also includes state governments. We need to act strongly on horizontal diversification, starting from the agricultural sector.
“If you continue to send raw materials, you send jobs to producer countries: that adds value. The idea that revenue is dwindling in Nigeria is always about the crash in oil prices. It has been like that since the 1970s. So why don’t we consider our way and end the pathology of easy money and short-term income from crude oil? This should be the message to leaders in 2023. You can’t keep doing the same thing and expect different results?
The Founder/CEO, Center for the Promotion of Private Enterprises (CPPE), Dr Muda Yusuf, has said that Nigeria’s current tax administration and strategy needs to change.
He said that while it is better to explore taxes as a source of government revenue, there are many other sources that have not been explored. According to him, now, tax pressure on those in the formal economy sector.
“Unlike in South Africa where personal income tax can be about 60 percent of revenue, Nigeria’s economy is almost 60 percent informal, operated by artisans who do not have records because of problems with data, so there is ‘ Not much that can be done in the area ,” he said.
Yusuf also suggested that property tax is a low-hanging fruit, which the government can explore. “Look at the properties in Abuja today, what poor people will build such buildings? Do you know the value of a piece of land in Asokoro? What do they pay in terms of taxes? If you don’t find them, at least, you can find their properties?
“Going to the UK, Nigerians who own property will tell us about paying, even if they don’t stay there. So we can do more about property tax.
He also said that Nigeria can earn more from forex, noting that the government has set the naira conversion rate at only N435 in the 2023 budget.
According to him, “how can you sell Nigerian currency at N435? If you put it at N650, which is even generous, in our foreign exchange market, it will be oversubscribed. Why do we leave foreign exchange at N435 in the budget? Do you know how many billions have you lost, even just from that?
“Our forex conversion rate needs to be changed so we can make more money. We can’t subsidize forex to people who can walk around.
“We also need to get rid of this madness called subsidies. From that, we can save N6 trillion. There are many leakages in our revenue collection system. Let’s combine the revenue collection and put it all in the Federal Inland Revenue Service (FIRS).
Also, Fiscal Policy Partner and Africa Tax Leader at PwC Nigeria, Taiwo Oyedele, said the best way to raise tax revenue, at this time, is not by increasing rates or introducing new taxes.
He said the government should intensify its efforts to close the tax compliance gap. According to him, one way to achieve this is through the harmonization of revenue collection functions and economic data to prevent leakages and easily track non-compliance.
“Also the government should enable businesses and create an environment for individuals to thrive, which will effectively increase the tax base and widen the tax net.”
He said leveraging technology can also help to raise revenue from property, especially with electronic mapping and other land reforms that promote the ease of land transactions, identification, perfect title and so on.
He also said, Prof. Jonathan Aremu from the ECOWAS Common Investment Market, said there is nothing wrong if the government wants to raise more revenue through taxation, if it follows the canon of taxation that includes: that has a tendency to get more from the economy. have to pay more.
He noted that taxes should be implemented in a way that will not reduce economic activity.
“If you pay too much tax, they can be closed and you don’t have any more taxes. I will say that the government is very ambitious to say that N2.43 trillion of the expected revenue will come from the tax outside of oil. But they have not told us what sector will bring the money.
“At a time when most companies in our industrial area are moving to other countries, when other African countries have participated in trade opportunities in the African Continental Free Trade Agreement (AfCFTA) and Nigeria has not been able to access the market, but you want to be taxing people. should think twice,” he said.