Role of the National Tax Policy in Evolving a Robust Tax System

Proshare

Monday, April 09, 2018 /12:10 PM / Prof. Teju Somorin  

Introduction
• Tax Systems: useful instruments in the hands of governments all over the world in achieving a variety of objectives (Musgrave and Musgrave, (1989)

• Such objectives may include:

Proshare Nigeria Pvt. Ltd. 

The promotion of economic development. 

Improvement of tax yield is a function of review of the tax system from time to time.

Nigeria:
• A Leading Emerging Economies In The World,

• Still rely heavily on revenue from oil and gas

• Taxes contributes very little to the revenue pool.

In effect, government’s ability to provide social services and public infrastructure is significantly limited.

Why?
Businesses and individuals are reluctant to pay taxes due to poor accountability and inadequate social services.

To address this, an
effective tax system is required supported by robust tax legislation, proper tax policy and modern tax administration. We all have our roles to play.

Tax Policy trend since the ‘90s
 
Proshare Nigeria Pvt. Ltd.

Tax Legislation trend
 
• Move towards simplifying tax laws;

• Removal of ambiguities;

• Removal of obsolete provisions; or

• Entire repeal

Tax Administration Trend
• Collaboration among the Tax Revenue Authorities,

• Use of aggressive posture and application of a process referred to globally as “Distraint” which involves enforcement and sealing of office premises.

• Attaining an increase in tax to Gross Domestic Product (GDP) ratio requires an overhaul of the nation’s tax policy which is a key function of the Ministry of Finance


Tax policy review should be a continuous exercise, to be on the same page with global best practices
 

Tax Policy V National Tax Policy
• Tax Policy: A foundation of the work Tax Authorities do.

• Tax Policy defines what would be taxed, at what rates and subject to what exemptions and deductions. It defines the persons and legal entities who would pay taxes.

• Prof. Dotun Philips Study Group (2002): Noted that Nigeria lacks a formal, well-articulated and documented National Tax Policy. Following from this observation, Nigeria was encouraged to have a formal National Tax Policy.

National Tax Policy
• A document that provides a set of fundamental principles, which all taxes in Nigeria should comply with at all times 

• Government approved the recommendation and an NTP document was produced in 2012 

The Prof. Abiola Sanni Committee and What They Achieved
• The National Tax Policy was not implemented.

• Honourable Minister of Finance, Mrs. Kemi Adeosun inaugurated the Professor Abiola Sanni-led National Tax policy Review Committee to review the 2012 National Tax Policy document

• The outcome is a comprehensive Tax Policy in 13 pages with far reaching changes. The revised National Tax Policy was approved by the Federal Executive Council in February 2017 and a committee to drive implementation was setup

Their achievement
• They produced a slim, simple and concise revised document with clear implementation and monitoring strategies.

• Revised policy highlights the fundamental objectives of the 1999 Constitution and reinforces the need for tax laws and administrative practices to promote economic development.

• Highlighted the challenges confronting the Nigeria tax system and key policy principles to address them.
 

Proshare Nigeria Pvt. Ltd.

National Tax Policy Implementation – Who is to do what?

Federal Ministry of Finance:
1. Tax Reform;

2. Tax Policy Implementation Committee(TPIC) and Office of Tax Simplification (OTS);

3. Work in concert with National Assembly;

4. Dedicated tax policy website on the way

5. Periodic reports to the National Economic Council (NEC) on tax policy

6. Establishment of a tax court
 

The National and State Houses of Assembly Taxation Committee:
Taxation Committees by National and State Houses in concert with NTPIC

The National Assembly
1. Passage of Bills

2. Establishment Act for JTB

3. Income Tax rate for SMEs
 

National Tax Policy Implementation – Who is to do what?
• Head of MDAs:  Give periodic report(s) to the Ministry of Finance on the level of implementation of the National Tax Policy

• Other Activities: National Tax Day for the promotion of tax awareness and a tax culture in Nigeria;

• Teach Taxation with Government efforts to ensure that taxation is taught at all levels of education.

• Independent National Electoral Commission (INEC) demand of aspiring political office holders
 

Tax laws amendments on the way

Laws and regulations recommended for review and amendment by NASS. Include
• Commencement, Change of Accounting and Cessation Rules (Section 29 of CITA);

• Excess Dividend Tax (Section 19 of CITA);

• Holding Companies;

• Minimum tax (Section 33 of CITA);

• Value Added Tax

• Tax losses carried forward (S.31 (2ii) of CITA);

• Intra-group transactions

• Capital Gains Tax (CGTA)

• Rate of corporate taxation on income under PPTA and/or DOIBPSA. (Section 11 (2)d of PPTA and Section of 3 of DOIBPSCA)

 
Definition of income incidental to petroleum operations. (Section 9 of PPTA)

• Withholding tax on dividend declared by a company engaged in exclusive gas utilization Projects

• Restriction of capital allowances claim

• Real Estate Investment Trusts
 

Journey so far – National Tax Policy Implementation Committee work
 
Constitution of National Tax Policy Implementation Committee; Receipt of progress report of the Implementation Committee (NTPIC or the Committee on Friday, February 2; 2018; 

NTPIC Observations
Seven major tax areas that would have the highest impact:

• Company Income Tax,
• Value Added Tax,
• Customs & Excise Tariff,
• Personal Income Tax,
• Pension Contributions,
• Industrial Development Income Tax Relief (IDITR); and
• Tertiary Education TaxTrust Fund
 

Recommendations

Companies Income Tax Act (CITA)
• Carry Forward Of Losses
• Excess Dividend Tax
• Commencement Rule Provisions
• Indefinite Carry Forward Of Losses
• Loan Obtained For Gas Projects 

Value Added Tax Act (VATA)
• Amendment of Section 2 and 46 of VATA in order to include “intangible property” as a chargeable item and define ‘taxable supplies”, respectively

• Inclusion of guidelines on turnover thresholds for VAT registration and giving the MoF power to amend the threshold
 

Journey so far – National Tax Policy Implementation Committee work
 
• Inclusion of Section imposing obligation to self-account for VAT on recipients of taxable supplies by non-resident companies (NRCs) regardless of whether the NRC charged VAT on its invoice or not

• Deletion of other overlapping and obsolete provisions

• Modification of Part 1 and 2 of the First schedule to VATA 

Personal Income Tax Act (PITA)/ Pension Contribution
• Modification of Section 58 of PITA on mode of delivery of notice of objection to include delivery in person,by courier or via electronic mail, to accommodate developments in the ICT

• Modification of Section 87 to make the different names adopted by State Revenue Authorities admissible by the law; 

• Deletion of overlapping and obsolete provisions
 

Industrial Development (Income Tax Relief) Act (IDITRA) and Tertiary Education Trust Fund (Establishment, Etc.) Act
• Extending the tax relief granted under IDITRA to Tertiary Education Tax;

• 
Restriction of capital allowance claimable on capital expenditure incurred during the tax relief period of a company to annual allowance upon expiration of the tax holiday

Journey so far – National Tax Policy Implementation Committee work
 
Customs Excise and Tariff Act (CETA)
• Introduction of a specific rate system in addition to the existing ad valorem rate system for tobacco and alcoholic products 

• Inclusion of eight additional items to the list of goods manufactured in Nigeria that are subject to excise duties in line with ECOWAS directive

• The recommendations of the Committee have been put together in 2 Executive Orders and 5 Amendment Bills as follows:

Executive Orders
• Executive Orders Value Added Tax Act (Modification) Order Review of Goods Liable to Excise Duties and Applicable Rates Order, 2017

Amendment Bills
• Companies Income Tax Act (Amendment) Bill

• Value Added Tax Act (Amendment Bill)

• Customs, Excise, Tariff etc. (Consolidation) Act (Amendment) Bill

• Personal Income Tax Act (Amendment) Bill

• Industrial Development (Income Tax Relief) Act (Amendment) Bill
 

Next Steps
 
• Expose the draft Executive Orders and Bills to key stakeholders for comments. This is to ensure that all relevant and crucial issues are dealt with before the Bills and Orders are enacted. Companies have been also advised to use the proposed amendments as a guide in planning their business operations in the near future.

• Submit the recommendations to the Economic Management Team and the National Economic Council,

• the Federal Executive Council to consider them, and

• Finally, present them to the National assembly for ratification 

Outcome
It is expected that the proposed changes to the tax laws would achieve the following: 
• Increase & diversity of government revenues

• Simplify paying taxes and

• Ease of doing business

• Promote MSMEs,

• Protect Velnurable persons, &

• Remove obsolete, ambiguous and contradictory provisions in the tax laws 
 

Non Oil Against Oil Tax Revenue Collection Trend 2013 – 2017 (As at 14th December, 2017)
Proshare Nigeria Pvt. Ltd.
Source: FIRS Tax Collection Dashboard
 

Conclusion
• A quick solution to dwindling Internally Generated Revenue (IGR) situation in any state is to make all the BIR autonomous and free from the day to day government control, supervision and monitoring.

• Governors of those states not yet autonomous should grant full autonomy to their tax authorities if the much needed internally generated revenue is to be actualized.

• When the revised National Tax Policy (NTP) is fully implemented, it is expected that it will address key challenges confronting the Nigeria tax system such as “Low Tax to GDP ratio, fragmented database of taxpayers, weak structure for exchange of information and multiplicity of taxes and revenue agencies”

• Beyond oil, TAX REVENUE IS THE ALTERNATIVE!!!

• A good tax system must have the support of its taxpayers and the tax Advisors who assist them.

• This support requires the balance between Taxpayer Rights and Taxpayer Responsibilities as - Michael Cadesky, Ian Hayes and David Russel (Taxpayers’ Rights)
 

Proshare Nigeria Pvt. Ltd.

Related News
 

  1. VAIDS: FG Reviews States, Private Sector’s Pleas for Extension of Deadline
  2. A Case For A More Robust Approach To Boosting Nigeria’s Tax Revenues
  3. Increase in Excise Duty on Tobacco and Alcoholic Beverages
  4. Taxation of Commissions Payable to Insurance Brokers and Agents - an Obligation or a Nightmare
  5. President Buhari Approves Amendment to Excise Duty Rates on Alcohol,Tobacco
  6. Incoming FCA Chair Admits Using Tax Avoidance Scheme
  7. Voluntary Assets and Income Declaration Scheme (VAIDS) and Responsible Tax Practice
  8. Achieving Voluntary Tax Compliance: The VAIDS Option
  9. N254.10bn Generated as VAT in Q4 2017 – NBS
  10. VAIDS: We have collected N20bn out of the target N305bn - Tunde Fowler
  11. Label tax evasion,malpractices by MNCs as foreign corrupt practices, Adeosun tells OEDC, World Bank
  12. Taxes, Jobs key to inclusive growth in Nigeria-Kale
READ MORE:
Related News
SCROLL TO TOP