Reviewing Nigeria’s tax policy
Nigeria’s tax policy may be experiencing a shake-up in the coming weeks. The newly inaugurated tax policy review committee set up by Nigeria’s minister of finance plans to review some of the county’s tax policies in a bid to provide clear interpretation and provide economic direction. CNBC Africa’s Onyi Sunday spoke with a member of the committee and Head of Tax and Corporate Advisory Services at PwC Nigeria, Taiwo Oyedele on the objectives of the committee.
Oyedele: In 2010 and of course that was a journey of about eight years from 2002 to 2010 Nigeria put up a study committee on taxation led to the introduction of what they call the national tax policy and this national tax policy is meant to help Nigeria think about tax as a strategic national issue. Unfortunately, six years after nobody had implemented it and in fact sadly, many of our policy makers, politicians and leaders are not even aware of the national tax policy such that most of the steps they take are in direct opposite to the intention of the national tax policy so what the finance minister did a couple of weeks back was to set up a committee to say, help us look at this again let us review it, make it fit for purpose and more importantly tell us how we can implement it because if you have a fantastic white paper and you don’t implement it, it is a waste of time and we have lots of that in Nigeria.
Now generally, in the tax system, there is a tax policy that drives tax legislation then the administrators then administer. Now these three, are the pillars of the tax system which means tax policy is actually the most important as a nation, you would say here is our direction, here is what we want to do, here is where we want to go with our tax system.
Do we want to encourage SMEs? Do you want to promote local industries? Do you want to have national competiveness because now, even nations compete using taxation? Do you want to focus more on indirect taxes rather than direct taxes? That’s an easier way of collecting taxes so we have all of these nicely spelt out in the national tax policy just that we did not implement it.
The question is, what can we do differently? So, this committee has a few weeks to put their work together and I am a member of that committee and some of the things we would be looking at also is triple taxation. It is a big issue in Nigeria. There was a time we did a project for the manufacturers association of Nigeria and in one of the states in Nigeria manufacturers were paying one hundred and ninety-seven different taxes and you’ll imagine it’s not difficult to tell why manufacturers can’t just survive.
When we had the presidential policy dialogue meeting a couple of weeks back, the president of MAN said fifty of their members have closed shop in the past few weeks. I am not saying tax is the only issue in the fact that there is infrastructural deficit, you have rising cost of production and on top of that, you have a hundred and ninety seven taxes to worry about, you can’t survive. It’s impossible to survive and it’s impossible to do business. So what we have started doing now is first to review their sixteen national tax policies and we’ve sent out invitation for memoranda to call stakeholders, taxpayers, administrators, civil society and everyone interested in tax matters and we have a deadline of about two weeks for them to send in their input. We are going to be having two stakeholder engagement forums. One is going to happen within this week and then at the end of it all, we put the draft together and invite stakeholders again to tell them about
what we’ve done. Now, in between we would be looking the areas of; Multiplicity of taxes, fiscal federalism, attracting both foreign and domestic investment, Nigeria’s double taxation treaty network. Let’s have double taxation avoidance treaties with our major trading partners. For many countries around the world as their businesses and indigenes venture out, you follow them to sign agreement with the countries where they are going so they don’t suffer double taxation. On the ease of taxes, Nigeria ranks one hundred and eighty one out of one hundred and eighty-nine economies in the world. One country where people don’t pay tax yet you make it so complicated for the few who are paying. We are going to be looking at how to simplify the whole process on the ease of paying taxes.
As we speak today, some of them were inherited even before we became an independent nation. Look at the stamp duty act that created a lot of stuff in the first quarter of this year because CBN said the banks should enforce it. It’s a law of 1939. From 1969 to 2016, nobody had time to look at it. So, there are lots of tax laws in Nigeria we need a complete overhaul either we just completely replete them and introduced new ones or we amend certain positions on those laws.
Let’s talk on value added taxes in Nigeria. Nigeria’s value added tax net is one of the lowest in West Africa. FIRS at the moment is focusing on shoring up compliance rather than increase the rates. Do you agree that that is the way to go?
At 5% rate and your compliance is 10%, if you increase the rate to 10% for example, you are going to punish the 10% that are compliant you are going to create more incentive for the 90% that are non-compliant not to ever come into the tax net. What you can do if possible is to get everybody to start paying the 5% and you’ll easily discover that you don’t need to increase the rate as your revenue will go up significantly. So, I agree with that mind-set and approach.
VAT is a cost borne by the consumer, it is safe to ask what the consumer stands to gain?
FIRS needs to get very creative about tax matters and this is done in so many places around the world. For example, there could be a raffle draw where after I go into a shop or service provider, I will buy anything and ensure that my receipt has VAT because I know that I can enter into a raffle draw and win a car or a TV from the government, that way awareness is created and also make the people the police for you because they then demand for VAT receipts and as they enter in, they want to win something. They are reporting that the vendor has collected VAT so the FIRS gets real time information on who is collecting VAT and before you know it, you find the compliance rates going up very significantly.