#NES24: 6 Global Lessons on Tax For The Nigerian Context- Neil McCulloch


Wednesday, October 24, 2018 7.00PM / Proshare WebTV


At the panel session on “Leveraging Domestic Resource Mobilization for Sustainable Development in Nigeria” at the just concluded 24th Nigeria Economic Summit in Abuja, Dr Neil McCulloch, Principal, Policy Practice shared an interesting presentation on 6 Global lessons on tax for the Nigerian context. 

Here are the key features of the presentation;

Lesson 1: Tax Rich People

The first lesson is the need for the rich class to be taxed especially from the personal income tax, as most African countries have been making collections from P.A.Y.E 

From the presentation it was revealed that most rich people don’t pay personal income tax 

These are the  following scenarios identified in Lesson 1;


Most Rich People don’t pay personal income tax

  • Only 35% of lawyers in Uganda paid PIT in Uganda
  • Only 5% of company directors in Uganda paid PIT
  • PIT is 2% of Revenue in Sub-Saharan Africa(10% in OECD)


Effective, well-resourced teams dedicated to High Net Worth Individuals (HNWIs) can yield dramatic returns.

  • E.g Zambia and Tanzania reforms delivered benefit: cost ratios of 10:1 and 100:1


Lesson 2: Minimize Exemptions

  • Exemptions are large and significantly reduce tax take
  •  In 6 African countries, exemptions were 33% of total tax! (OECD, 2013)
  •  84% of investors said that tax exemptions didn’t affect their decision (study of 7 countries)
  • There are legitimate strategic reasons for exemptions – but all exemptions should be: 

1.       clear criteria and agreed,

2.      transparent procedures, through a single channel.

3.      time limits on all exemptions

4.      monitoring their use and effects, ideally transparently as part of annual budget

5.      registered with tax administration (so can be taxed after expiry)


  Lesson 3:Reduce Tax Expenditures

  •  Tax expenditures (i.e. where a revenue collecting authority spends the revenue before remitting to the government) can be very large – sometimes bigger than whole categories
  • of tax
  •  Globally, largest tax expenditures by far are associated with
  •  Fuel subsidies (globally around $ 105 Billion annually)
  •  In Nigeria, fuel subsidies are around two-thirds of CIT
  •  Electricity subsidies (globally $ 107 billion annually)
  •  As with exemptions, tax expenditures should be stated in the budget
  •  Monitored and evaluated for effectiveness and value for money

Lesson 4: Use Property Taxes More

  • Property taxes have the potential to raises significant sums due to rapidly rising value of urban real estate 

1.       1-2% of GDP in OECD 

2.      Probably around 0.1-0.2% of GDP in Sub-Saharan Africa


  • If properly administered, they are progressive
  • Need to simplify and professionalise the valuation of properties 


  Lesson 5: Invest in Better Tax Administration

  •  Improvements in the quality of tax administration can yield big improvements in revenue 

        This needs:

  •  Capacity: Well trained staff, with good databases and tools
  •  Coordination & Cooperation between tax authorities, government departments, and utilities, corporate registries, banks/credit card
  • companies
  •  Cleanliness: Ensuring that staff are not enriching themselves
  • Comparison:Use the Tax Administration Diagnostic Assessment Tool (TADAT) from African Tax Administration Forum (ATAF)


  Lesson 6: Be Fair – and Deliver!

  •  Voluntary compliance closely related to trust and reciprosity
  •  Ensure that tax revenue is used to deliver services that people value
  •  Health, education, water, roads, electricity


    Fairness means

  • Distributional: The rich are taxed more than the poor
  •  Horizontal: different groups should be treated equally
  • Geographical: different regions should be treated equally
  •  Procedural: the rules should apply in the same way to everyone
  • Retributive: penalties must apply equally to all

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