Thursday, March 29, 2018
03.13PM / Opinion by Ade ADEFEKO
No
doubt, Nigeria is blessed with abundance of natural and human resources.
Nigeria has a population of about 186 million people. Of this number, about 77
million were employed as at 2015 according to the National Bureau of Statistics
(NBS). Furthermore, as released by the Joint Tax Board (JTB), only about 10
million people, out of this number, are registered for personal income tax
across the 36 states and the Federal Capital Territory (FCT). These numbers
just do not add up. How does one explain that 10 million people carry the tax
burden that at least 77 million people are expected to share? This is 13 for
the cost of 100. Little wonder oil revenues still account for about 70% of
government income, a reality that leaves the economy very vulnerable to
fluctuations in the oil market. We believe this context above lends credence to
the need for a reassessment of the government’s current approach improving the
country’s tax base through the Voluntary Assets and Income Declaration Scheme
(VAIDS).
VAIDS
was introduced in 2017 by the Nigerian government, to increase Nigeria’s tax to
Gross Domestic Product (GDP) ratio from 6% to 15% by 2020, broaden the Federal
and State tax brackets, curb non-compliance with existing tax laws &
discourage use of tax havens and prevent illicit financial flows and tax
evasion. The scheme, which has been lauded by many as a possible tool of
improving tax compliance and government revenue, will end on 31st January,
2018. For a country with a 6% tax to GDP ratio, it is ordinarily expected that
this scheme would be in place for more than 9 months in order to increase tax
compliance. VAIDS can be compared to the Offshore Voluntary Disclosure Program
(OVDP), a similar scheme in the United States of America (USA), which was
introduced in 2009 and would end in September, 2018. The OVDP was designed to
allow taxpayers with unreported offshore assets to voluntarily resolve past tax
and reporting non-compliance in exchange for amnesty on criminal prosecution
and penalties. Whilst our VAIDS which ends on 31st March, 2018 would
have only been in operation for 9 months; the OVDP program in the USA (with
higher tax to GDP ratio compared to Nigeria) was designed to last for 9 years!
What a contrast in a system with high level of tax evasion and transparency
issues.
In
scoping the scheme, the government has said it will target all individuals
resident in Nigeria as well as companies operating in Nigeria. The scheme also
has as its primary targets, multinational enterprises and high net-worth
individuals (HNIs). We think this focus might be the albatross of the scheme
and the numbers can show this.
The
government had noted that the majority of those who pay personal income tax in
Nigeria are low income earners and salary earners whose taxes are deducted at
source. Furthermore, government at all levels place huge tax burden on
multinational enterprises and HNIs compared to other existing businesses in
order to increase its tax revenue. The logic of the tax authority, which is
perhaps understandable, is that given the limited human resources at their
disposal and paucity of relevant data on other businesses, it is more efficient
to concentrate on a few HNIs and multinational enterprises who are already in
the tax net and who can bring in the expected results than focus on other
businesses without adequate financial information or whose business addresses
may not be known. If this was the justification for the focus on the
multinational enterprises and HNIs, then we advocate for at least a more
balanced approach.
We
see four possible groups within the Nigerian tax bracket; enterprises
(multinational and domestic), HNIs, the formally employed and the informally
employed. We could collapse both the formally and informally employed to have a
more manageable 3-pronged approach to achieving our tax objectives. A balanced
approach to improving the country’s fiscal position will focus on all four, if
we see VAIDS beyond just a short-term revenue mobilization scheme, but a
long-term approach to structuring a framework for effective tax collection.
Note that our submission here is that none of these groups should carry more
tax burden that it ought to, a situation we think is required to create an
efficient and fair tax system.
Multinationals
and HNIs do not need any special attention from the tax authority before
getting them to contribute their quota to the country’s tax base. Most
multinationals and HNIs already pay tax but it must be stressed that some of
them do not pay the correct amount of taxes. This is because some of
these multinationals and HNIs take advantage of the loopholes inherent in the
tax laws and administration of taxes generally. Such loop holes should be
blocked through legislative action.
More
importantly, the government needs to take a long term view and find means to
broaden the composition of each of the components that make up the tax bracket.
Broadening the tax base can be achieved through concerted effort by government
at all levels to bring as many people as possible within the tax bracket. As a
starting point, there is a need to focus on the informal sector of the economy.
The IMF had in 2017, valued Nigeria’s informal enterprises at about 65% of GDP.
This means that the government cannot shy away from evolving a smart strategy
to formalize a lot of these enterprises and bring them under the tax net. This
is a pool of about $263billion of productivity. This is critical to achieving
the tax to GDP objectives, which will see the government more than double taxes
collected within the next 2 years, discounting the rate of GDP growth.
There
is also a need to ensure that the personal income tax bracket is broadened.
There are at least 67 million taxable income types in the formal sector for
starters. At the current minimum wage of N18,000 per month, which comes across
as pessimistic, given the large number of incomes, we have an annual pool of
about N14trillion in taxable income. Averaging personal income tax of 18%, this
adds about N2.5trillion to the current tax base, minimum.
In
a bid to bring more people within the tax net, government across all levels
should undertake significant enlightenment and sensitization campaigns (radio
jingles, talk shows, road walk etc.,) to provide information to the citizenry
on the need to pay their tax. A major constraint, however, is that all our tax
laws are written in English Language, which many of the people in the informal
sector do not understand. There is therefore the need to provide the laws to
the people in their local languages through translation of the tax laws,
particularly the Personal Income Tax Act. A cue can be taken from the Republic
of South Africa, where some of the country’s tax laws have been translated to local
languages to reach a larger percentage of the population.
In
addition, government needs to embrace technology in the administration of taxes
to achieve greater efficiency. Although e-filing of taxes has been introduced,
the system is plagued with a lot of hitches and in some instances, income tax
filing is still done manually. To improve this process, tax authority can
partner with the private sector and other technologically driven organizations
to provide seamless and easy platforms for tax payers to be able to pay their
taxes and file tax returns without stress.
Conclusion
On
the whole, it is important to note that the goal of this piece is neither to
exonerate any category of taxpayer nor over burden any. Rather, the essence is
to show that the numbers may not necessarily support the government’s primary
focus on HNIs and multinationals. Consequently, we believe that the tax system
should show more equity in distributing tax responsibilities and government
should be focused on bringing more people within the tax net.
Whilst
a case is made for a balanced and even tax system and an expansion of the tax
net, the government also has to be responsible, transparent and efficient with
how the taxes are spent. Tax apathy and evasion can be reduced where there is
high level of transparency and visible development.
About Author
Ade
Adefeko is the current Vice President Corporate &
Government Relations and also in charge of External Communication and
Stakeholder Management at OLAM NIGERIA a subsidiary of OLAM international of
Singapore the parent company with a presence in 70 countries and the largest
Agribusiness and Food company in Nigeria. He is also the current Chairman of
the Nigerian Association of Chambers of Commerce, Industry, Mines and
Agriculture Export Action Group (NACCIMA) NEXAG. He can be reached at ade.adefeko@olamnet.com
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