Rebasing Nigeria’s tax system to save economy

Indications from revised calculations of the nation’s tax revenue to Gross Domestic Product (GDP) after the rebasing of the economy last year by an independent source showed that it is far below 10 per cent, contrary to the 12 per cent presented by government.

However, the rebasing exercise had one prominent opportunity with huge potential for the country, which is all about the increasing of revenue base through expanded tax net that would only be facilitated by clear commitment by the government to enable entrepreneurial environment, as well as review of obsolete rules, particularly, tax laws.

From the Presidency to tax professionals, there was a unanimous agreement that it has now become expedient to rebase the nation’s tax system alongside the economy, given the dwindling revenue profile, dominated by the lone commodity offering that is subjected to international vagaries.

President Dr. Goodluck Ebele Jonathan, who made the observation in Abuja, while declaring open the 17th yearly conference of the Chartered Institute of Taxation of Nigeria (CITN), in Abuja, said this is the best time to improve the revenue base through increased non-oil sector contributions.

The President, who was represented by the Minister of State, Finance, Ambassador Bashir Yuguda, however, admitted that the process of improving the revenue base would raise the need to consider the small businesses, which currently contribute 45 per cent to the GDP.

According to him, the small businesses, which operate in the non-oil sector, are major contributors to the real sector of the economy and would not need to be put out of existence through charges.

Already, he pointed out that the harmonization of levies and taxes, aimed at eliminating multiple taxations, as well as address inadequate tax policy in some states has been approved by the Federal Executive Council at the last council meeting.

“But the questions remain how we can raise it to at least 20 per cent of the GDP, how can we can take advantage of our rebased GDP to raise the tax profile, since the potentials have been identified in the country’s new status as the biggest economy in Africa.

“We all know that where oil is today, is not where it was yesterday. The only way forward for us to sustain our activities is to rebase our tax system through improvement in the non-oil sector, while mining should be given adequate attention too.

“The administration has laid a foundation for meaningful participation of the private sector in the nation’s development efforts, which is the essence of the Economic Management Team constituted,” he said.

He also pointed out that the administration has developed an infrastructure masterplan, with a five-year plan and tasked Ministries, Department and Agencies to incorporate it in the 2014-2016 yearly budgets.

We have improved road infrastructure across the country, plugged in revenues leakages and saved over N60 billion from the ‘ghost worker’ syndrome. We have attacked corruption through institutionalized approach, which is more about closing the various avenues of the crime in the system,” he added.

Meanwhile, the President of CITN, Chief Mark Chidolue Dike, in his welcome address, said the yearly early conference of the institute has over the years become a tax festival of sorts, given the number of tax professionals, who congregate to discuss taxation and fiscal issues in one place.

According to him, the conference provides an avenue for tax professionals to come together to update their knowledge, aggregate ideas on better ways of handling tax issues and to examine tax policies of government with a view to offering their professional advice.

Dike, who said the theme of this year’s conference titled “Inclusive Economic Growth and Sustainable Development: Fiscal Imperatives, Prospects and Challenges” was chosen after careful inquisition on the kernels upon which activities in Nigeria’s economy has sprouted over the years.

Distinguishing between growth and development, the tax chief said that economic growth is a narrower concept than economic development, as growth is quantitative and measured by an increase in a country’s GDP, while economic development is qualitative, and is measured by an increase in the per capita income of the citizens- the standard of living.

“Government trumpets its growth achievements year-on-year ostensibly to underscore progress in terms of growth for the national economy.

Many pundits have however argued about what manner of growth this translates to as millions of unemployed youths throng recruitment centres in search of jobs which ought to be readily available in the midst of the readily trumpeted economic growth recorded year on year.

“For the taxman also, he is happier for a growth-with-jobs regime as he collects more revenue for government with the expansion of the tax base as more and more people are gainfully employed and contribute their fair share in form of taxes to the government revenue pool.

It is against this backdrop that we seek to hinge progress of the nation’s tax system on the government’s inclusive growth,” he said.

He pointed out that the institute had deliberately put together various topical issues about taxation to ensure that the conference generates insightful and robust ideas that would be beneficial to the incoming administration, particularly in tax administration, revenue generation and fiscal policy initiatives.

“Nigeria has for decades, been over-relying on oil to drive its economy. Following the massive decline in global oil prices and the damage it has done to the Nigerian economy and the 2015 budget in particular, it is imperative now for the incoming administration to seriously explore other viable means of saving the economy from total collapse.

“For the Nigerian economy that is largely import-driven and oil-dependent, this implies a serious revenue gap, increase in prices of goods and services and inflation, if nothing drastic is done to cushion the effect,” Dike said.

The tax chief reiterated the institute’s opposition to multiplicity of taxes as it is the bane of a good tax system, noting that it had already combined a charter of tax demands for the attention of the incoming administration and apparent challenges facing the Nigerian tax system, with recommendations.

He noted that rewriting of tax laws, which would remove obsolete provisions and making them relevant to the present day realities, easy to read and understand, engender voluntary tax compliance and thus make for easy and cost effective administration has become imperative.

An Associate Professor at the Faculty of Law, University of Lagos, Abiola Sanni, in a paper titled “Recent Developments in the Nigerian Tax System”, noted that stakeholders have long called for the institution of a yearly review of tax laws to assess performance, which has not gone down well with the political class.

According to him, in the last three years, there has been the need to expand tax net and improve on the collection strategy, but the combination of non and inadequate legislative backing have impeded the move.

He cited the currently proposed tax on various luxury items as part of the palliative measures to government’s revenue shortfall, which is yet to receive necessary tax law amendments.   Sanni also flayed alleged disregard for local content policy, which pushed the country’s tax authorities to second fiddle, as their legitimate duties are being contracted out to foreign firms, saying the nation has grown beyond that and called for definite legislative intervention.

He lamented that since 2011, there have not been any legislative intervention in form of amendments or instituting tax laws to incorporate various changes taking place on the country.

However, the Tax Manager, Oando Plc, Mrs. Titilayo Fowokan, corroborated the need for a review of tax laws, but said it should be made a regular feature for at least once in every five years.   She said that tax, as fiscal tool of government to raise revenue for development, would also need to be harmonized, with proper attention given to some strategic sectors to boost economic activities, as well as create employment.

To her, tax incentives in the country now should be revisited for effective result, while policy makers and tax administrators must parley to evolve tax analytical tools that would assess benefits and effects of policies and avoid giving away incentives to those who do not deserve them.