Economy
Experts advocate tax reform to save economy
By GODWIN DUNIA
The Tax system in Nigeria is yet to come to terms with the reality of the economy and how it has been affecting the average business and Nigerians, despite the fact that it has undergone various policy changes geared at a more effective and efficient way of tax collection and administration in the past.
Currently, average business owner in the country pays as high as 48 different taxes and this is affecting the growth of the economy and also worsening the rate of unemployment. The country’s tax to GDP ratio is only six percent and experts believe that a 10 tax to GDP ratio can generate over $45 billion per annum for the country.
The fact that the country still relies principally on oil revenue, which also accounts for a substantial part of our foreign exchange earnings has also not helped situation. An average countryman lives from hands to mouth, while business owners grapple to survive under an overburdened government taxation policy.
Recently, the issue of taxation resonated again and drew the concerns of many Nigerians sequel to the disclosure by the Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Tunde Fowler, during his appearance before the Senate Committee on Finance. He had said before the committee that the federal government is planning to increase Value Added Tax (VAT).
Fowler said the proposed payable VAT by Nigerians based on the increment would actually be between 35 per cent (6.75%) and 50 percent (7.25%). The government is currently charging five per cent VAT on all products in the country. But FIRS was later to clarified Fowler’s disclosure against what was published in newspapers (not BusinessHallmark) via series of tweets from its Twitter handle, @firsNigeria that the FIRS Chairman had only pushed for an increase in the Value Added Tax (VAT). The tax body said he didn’t request for 50 per cent tax increment.
The VAT increment was proposed as one of means through which the President Muhammadu Buhari administration will fund the new national minimum wage. However, in his reactions to the issue of VAT increase, Chairman, Heirs Holdings and Founder, Tony Elumelu Foundation, Tony O. Elumelu, called for a far reaching Tax reforms and for the National Assembly to urgently pass the Executive Tax bill into law.
He stated this in his keynote address titled, “National Development: Unlocking the Potentials of Taxation”, at the 21st Annual Tax Conference of the Chartered Institute of Taxation of Nigeria (CITN). Earlier, towards the end of March, founding father of the ruling (All Progressives Party) party, Asiwaju Bola Tinubu, had cautioned the Federal Government against any increment in the Value Added Tax.
According to him, “the increase in VAT wouldn’t do the country any good. Instead, the hike will only increase the cost of living in Nigeria while it would also reduce the spending capacity of the people”.
On the challenges that taxes often stifle small businesses, Elumelu was quoted during the CITN programme, to have said of a young entrepreneur beneficiary of the Tony Elumelu Foundation:
“The average business owner in Nigeria is a local government authority on his own, because he caters for his own electricity with generators, he builds his own borehole, handles his own waste disposal, and the government can make his life easier by creating favourable tax policies that support SMEs.”
Elumelu also stated that the plight of SMEs is at the mercy of the tax system: “The average number of taxes businesses pay in Nigeria is 48, compared to 33 in other Sub-Saharan countries. In Hong Kong, it’s just three. Multiple taxation remains a significant burden for SMEs and corporate operating in the country.
“With a population of close to 200 million people in Nigeria, we have only 75,000 registered SMEs in the country. No one needs to tell us that people are avoiding tax or refusing to be a part of the system”.
He explain further that, with high cost of compliance, complex and costly business registration processes, many SMEs are choosing to remain informal, which in turn results in a low tax base and low tax contribution to GDP.
“Nigeria’s tax to GDP ratio is approximately 6%, compared to far smaller populations like Rwanda at 16%. Imagine the economic transformation we can achieve as a country if we can move our Tax to GDP ratio by 10%. We will raise an additional $40billion in government revenue – identical to the sum of our foreign reserves”.
On how to get this right, Elumelu said, it may not be easy. Consequently, he advised on the need for government to educate, inform and raise tax awareness. His position is, government should drive mass mobilisation of citizens and let them know why they need to pay taxes and give them the assurance that their tax would be properly utilised.
In addition, he said government should employ the use of smart tax incentives to attract encourage local and foreign investors.
With reduction in SMEs taxation, there will be no difficulties mobilising SMEs to help create employment that we need so much in this country. And it would no longer be difficult for the citizens to hold leaders accountable.
Also corroborating the concern for the effect of tax increment on the individual tax payers and the SMEs, a Lagos-based tax consultant, Mr. David Nmoyem, in an interview with Business Hallmark frowned at any attempt by the government to tinker with taxation now, going by the pains people have been bearing for quite a while, and it would have severe consequences on the manufacturing sector.
Nmoyem said: “A lots of opinion had been expressed by professionals on the proposal by government to increase VAT. This is not the right time for the government to increase any form of taxation in the country judging from the state of the economy, the standard of living of the average man and well-being.
Apart from these, attempt to increase taxation would affect the manufacturing sector and this would affect already worsening unemployment rate in the country. The proposal portends dire consequences on the people and the SMEs”.
In his response to what could be an alternative way for government to generate revenue to meet up with needs of the people, he said, “I know that government needs increased revenue, but it should be in favour of the people. We know the rate of unemployment which is deteriorating everyday and what are they trying to achieve by the increment is to have more revenue, but what about the concomitant effects?
“In Nigeria, as far as the issue of tax is concern, we have not covered 50% of the potentials of taxation. There are the problems of evasion, avoidance of tax payments and what government should do is to extend the tax net to include these categories of people and when this is done, the government would get more revenue than the proposed means of increasing revenue. This is a more viable alternative to the government against increase in VAT.
Nmoyem also said that, apart from the civil servants in the country, how many businessmen or the rich pay tax? He said “it is when they want to contest one elective post or the other that they would be ready to pay in arrears of three or more years and they won’t even pay correctly. There are others who would bring all manner of technicalities and knock off reasons why they should pay tax”.
He also said the authority should do the right thing as far as the issue of taxation is concern in the country rather than holding on the throat of the civil servants and the overburdened SMEs to ransom.
“Increase in VAT would definitely affect the small business enterprises and that is why it’s not advisable for government to tinker with it now. Otherwise, we would have a worse situation of unemployment and poor investment.
“With due respect, I must say, the current state of our economy is being managed by God, not this present government. Therefore, they should not inflict more injury on the people. Think of the SMEs, how many are they, people are not investing again, that was the reason we have so high unemployment rate in Nigeria.
So, taxation in Nigeria must be considered in much broader perspective than concentrating on those paying taxes already. Let it involved every productive persons and not civil servants and the average employees alone.
Nmoyem also disclosed to BusinessHallmark that, “most of the rich people in this country are either not paying at all or inadequately as they ought to pay in tax. In the corporate world, I’m not sure 10% of our rich men and women pay their taxes as supposed. And if the government or tax authority is serious, these are areas that they can exploit as alternative for revenue”.
He also advised government to focus on those making money from the economy and know how much they pay in terms of tax. If you get to the records you realised what I’m saying and the insincerity of the tax authority.
Speaking in the same vein to BusinessHallmark, Mr. Femi Folorunsho, a tax consultant pointed out that increase in VAT or tax is not the solution to the current problem in the country. He said doing that would inflate costs of the basic goods and services.
Folorunsho said, “Though VAT is an easy way of taxation because you may not have a direct feeling of the payment. And if you don’t consume anything you won’t pay VAT but this also is impossible. In other words, the more you consume the more VAT you pay”.
According to him, attempt to increase VAT would triggered another demand for salary increase because by then the purpose of the yet to be actualised N30,000 minimum wage would have been defeated.
“What government should do is to make use of the available resources to them rather than trying to seek more revenue through increasing VAT.
The road the government wants to tread may not augur well with the small scale investors and the government must consider our employment rate so that it would not be aggravated. The few major companies are relocating to even places like Ghana because of the unfriendly economy we have been running in Nigeria.
“Government should remember that most multinational companies are relocating from Nigeria to Ghana and companies that want to move into the country are discouraged because an average business in Nigeria provides for itself water, electricity, handles waste disposals, security, among others.
“But I am of the opinion that an increase in VAT would affect the rich because they consume more”, he concluded.
