Tackling perennial obstacles of today’s tax administration

The Nigeria tax system, like any tax system is a three-way structure, which comprises of tax policy, tax legislation and tax administration. While tax policy forms the basis for tax laws, tax administration is the implementation of the tax laws.

This shows that in a bid to establish an effective and efficient tax system that will make taxation the pivot for national development, appropriate tax policies and legislations should be put in place and adequately implemented.

A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer (an individual or other legal entity) by a governmental organization in order to fund various public expenditures. A failure to pay, or evasion of or resistance to taxation, is punishable by law.

A nation’s tax system is often a reflection of its communal values or the values of those in power. To create a system of taxation, a nation must make choices regarding the distribution of the tax burden, which will pay taxes, how much they will pay and how the taxes collected will be spent.

Taxation is undoubtedly a veritable instrument for national development. It has proven to be a major source of revenue for government to provide goods and services needed by the people.

Furthermore, tax policies, can and do stimulate economic growth and job creation through its impact on investment and capital formation in the economy. In this respect, reform of the tax system that ensures effectiveness, equity, and efficiency are necessary conditions for a healthy public finance.

Indeed, the tax system in Nigeria has undergone various policy reforms geared at a more effective and efficient way of tax collection and administration.

Such policy includes the introduction of the taxpayer’s identification number, an automated tax system that enhances the tracking of an individual taxpayer’s positions and challenges, launching of an e-payment system which promotes smooth payment procedures and reduces the incidence of tax tout, introduction of luxury taxes and ongoing process to review incentives such as pioneer status.

The taxation system dates back to 1904 when the colonial masters introduced the personal income tax in Northern Nigeria before the unification of the country.

It was later implemented through the Native Revenue Ordinances to the western and Eastern regions in 1917 and 1928, respectively. Among other amendments in the 1930s, it was later incorporated into Direct Taxation Ordinance No. 4 of 1940. Since then different governments have continued to try to improve on Nigeria’s taxation system.

Regrettably, despite the number of changes Nigeria has made to its tax system in the past, and the fact that tax laws are constantly being reviewed with the aim to revoking obsolete provisions and simplifying the main ones, there are still a number of issues that need to be looked into urgently.

Experts and stakeholders wondered why taxes could not be collected effectively and fairly, both in equitable and monetary terms, to the benefit of the citizenry so as to ensure desired growth and development.

In Nigeria, tax evasion and other related tax offences are very prevalent. Citizens and non-citizens alike evade tax with reckless abandon, owing to the government attitude towards taxation in Nigeria. Whereas, tax evaders are dealt with ruthlessly in advanced countries of Europe, America and Asia, it is regarded as a simple offence, which cannot attract a heavy penalty in Nigeria.

According to them, due to poor implementation of tax policies in Nigeria, the expected revenue mapped out by Federal Inland Revenue Service could not be met. Ironically, what businesses and investors need, as a matter of priority, is the removal of tax disincentives.

Also citing the Panama and Cayman Islands, Nigerian tax experts believed that continuous mispricing by multinationals and the existence of offshore tax havens are some of the avenues to evade taxation.

They suggested that adequate legislation in the continent should be implemented to address mispricing by multinational companies who have caused the economy an untold hardship over the years, as offshore bank accounts are a major source of poverty and inequality in Africa.

Making recommendations for an effective tax regime that would drive a formidable economic growth and development in Nigeria, a tax expert, Tunde Ogunsakin, in his book titled: ‘A Review of Effective Tax Regime in Nigeria’, bemoaned the increasing level of tax evasion in the country, stressing the need to embark on a robust capacity building initiative in the area of tax collection.

According to him, the legislation pertaining to taxation in Nigeria is grossly inadequate with issues of corruption, conspiracy and connivance on the part of the tax administrators.

To this effect, Ogunsakin called for the passage of the draft national policy into law, irrespective of some obvious flaws that exits in some areas of the draft.

He stressed the need for government to improve compliance strategy, tax administration as well as stakeholders’ consultations, noting that it is imperative for government to consider taxpayers and other key stakeholders interest in fiscal policy formulation and implementation.

Furthermore, Ogunsakin argued that unless taxpayers are made to appreciate that government is not unduly confiscating their property, tax evasion, and avoidance is bound to be on the increase.

‘The issue of multiple taxation is at the heart of tax evasion in Nigeria. A taxable person or taxable transaction involving goods and services within the same economy might become subjects to the same kind of tax more than once. The phenomenon constitutes a disincentive to the economic growth and development, and ought to be discouraged.

“Reforms of tax need to be accelerated. There is a problem of identifying the taxpayer. Even companies that are validly registered, and have registered addresses are sometimes difficult to locate. One way of locating the taxpayers is by enlarging the inspectorate division of the board.

“Furthermore, as a matter of policy, tax evasion and avoidance should be statutorily declared illegal in terms of similar to what obtains in New Zealand. The advantage is that the courts will be better placed to deal with schemes that are deliberately scripted to be acted upon for evasion and avoidance purposes.”

The Managing Director of Highcap Securities Limited, Imafidon Adonri explained that multiple taxation has become a big problem in the capital market.

“Save for suspension of Contract Stamp and Value Added Tax (VAT), local government and states still harass market operators with all manner of levies and taxes. It is disincentive for investment in the industry.”

Similarly, a senior stockbroker, who spoke on condition of anonymity pointed out that operators pay company income tax, VAT, withholding tax, among others, while at the state level, there are numerous taxes such as business permit for both radio and television. He added that they also pay income tax at the personal level.

He argued that government has not provided the needed infrastructure and amenities to justify this tax system practiced in Nigeria.

“Multiple taxation has been a hydra- headed monster militating against the growth of our economy and it also affects the stock market. For instance, as corporate organization, we pay company income tax, vat, withholding tax, among others and at the state level, there are numerous of taxation such as business permit, radio and television (whether you have them in your premises or not) and at personal level your income tax among others.

“It is enumerable and yet there are no infrastructure, no schools, no improved healthcare, no constant electricity, no good roads. What has government done for the citizens?”

“Yet aside from the tons of funds raised from taxation, there is money from federation allocation accounts. Where does all this money go? That is why people fight tooth and nail to go into government because once in there, you are made, be it at the legislative level or at the administrative level,” he added.

He pointed out that the huge gap between tax collection and the quantum left uncollected year after year must be addressed if the nation must make meaningful and sustainable progress in the face of parlous infrastructure across the country.

“A review of some of the tax laws has become overdue. Moreover, sustainable economic growth cannot be attained with only tax reform, without the review of the obsolete laws and tax rates in consonance with macroeconomic objectives and efficient tax administration machinery.

The Managing Director of Cowry Asset Management Limited, Johnson Chukwu, explained that the company suffered the problem of multiple taxation in the past.

He, however, explained that there seems to have moderated significantly in the immediate past in some states of the federation, particularly as it relates to direct taxes.

“A few years ago, several government agencies or tiers of government levied the same taxes under different guises. For instance same premises used to be double taxed under ‘Tenement Rent’ and ‘Land Use charge’ but have now been harmonised into a single charge.