‘Tax duplication is serious disincentive for businesses’

A tax expert, Victor Athe, has described tax duplication as a huge disincentive for businesses in the country, stating that it contributes significantly to the poor ranking of Nigeria on the Ease of Doing Business Index.

The impact, he said, also weighs negatively on the investment climate in Nigeria.

Athe, a Partner, Tax Services, Stransact Chartered Accountants and Audit, said multiplicity of taxes encourages tax touting, the creation of illegal taxes that are enforced and collected through illegal, aggressive and unorthodox means, which are mostly extortionate.

On the kind of policy that should be in place to create harmonisation of taxation in the country, Athe said the National Tax Policy (NTP) document that was first created in 2012, and then revised in 2017, to provide policy direction for tax matters, lacks effectiveness in its implementation, perhaps due to the lack of legal backing.

He said considering the fact the NTP is only a document and not a legal instrument, the intended benefits are yet to be realised.

He said the NTP sought to address fundamental issues relating to multiple taxation, lack of accountability for tax revenue and absence of clarity on the taxation powers of each level of government.

The document, the tax chief said, also serves as a procedural guideline for achieving effective harmonisation between the respective tax authorities of the different tiers of government.

According to him, the NTP was designed to be an instrument for creating awareness of the importance of taxation as a stable flow of revenue for the Nigerian government in the face of dwindling oil revenue.

Further speaking on issues in the country’s taxation system and how Nigeria could leverage the taxes to grow its gross domestic product (GDP), he said one of the challenges the country is currently facing, is that the indices that drive the allocation of revenue accruing to government centrally do not effectively consider and reward contributions to the economy from arms of government that demonstrate effective utilisation of resources, promotion of investments and infrastructural development among others.

On sustainable fiscal management and prudent borrowing practices, he noted that the accumulation of debts above recommended threshold levels could be inimical to economic growth, especially when the debt increase is not aligned with the country’s growth needs.

Athe pointed out that a high public debt-to-GDP ratio could further exacerbate the already deteriorating exchange rate in various ways, including putting pressure on foreign exchange reserves, investor confidence, inflationary pressures and the need for more foreign currency to service debt obligations.

This, he said, underscores the importance of sustainable fiscal management and prudent borrowing practices to maintain exchange rate stability and overall economic health.

Proffering a solution, he said one important thing was for the Federal Government to ramp up the tax revenue in the current context, by widening the tax base.

He said several steps could be taken to achieve this, including the increased formalisation of the current vast informal sector in Nigeria.

“It is certainly important for the Federal Government to work at expanding the tax base to capture a sizable portion of the country’s vast informal sector, which mostly comprises unregistered small-scale businesses. This sector plays a crucial role in the nation’s economy, as it accounts for a significant portion of employment and national GDP, more than 50 per cent.

“Tax collection from the informal sector has remained a complex issue, since a majority of the businesses therein, largely operate without proper regulatory oversight,” he said.

Additionally, he said one of the major challenges bedeviling the country’s revenue system is that a lot of High Networth Individuals (HNIs) are either outrightly evading payment of taxes of some or all sources of their income, or do not pay the appropriate level of taxes commensurate to their income in line with the provisions of our income tax laws.

For instance, “The Personal Income Tax (PIT) Act which governs the taxation of individuals in Nigeria stipulates that every individual that is Nigerian resident should be assessed to PIT on their global income, that is, income earned from both within and outside Nigeria. The proper enforcement of this provision alone can change Nigeria’s revenue fortunes very significantly,” he said.