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Private sector frets over FG’s N2.43tr non-oil revenue target

By Joseph Chibueze, Abuja
10 January 2023   |   4:28 am
There is anxiety in the private sector as Federal Government seeks to heap more taxes on businesses through its controversial Finance Bill 2022.

• Experts decry increasing taxes amid widening poverty
• Call for plugging of revenue leakages
• Explore property taxes, Yusuf urges govt

There is anxiety in the private sector as Federal Government seeks to heap more taxes on businesses through its controversial Finance Bill 2022.

The National Assembly hastily passed the bill, alongside the 2023 Appropriation Bill, without subjecting it to a public hearing, an aspect now contested by the organised private sector (OPS).

According to the 2023 Appropriation Act, the total revenue available to fund the budget is estimated at N10.49 trillion. And this includes gross revenues of 63 government-owned enterprises totaling N3.87 trillion.

Of this, the Federal Government’s oil revenue share is projected to be N2.29 trillion; non-oil taxes, N2.43 trillion; and Federal Government’s independent revenues, N2.6 trillion.

While the Senate gave a 24-hour public hearing notice, which some OPS advocacy groups described as unrealistic, the House of Representatives passed the piece of legislation before the advertised public hearing notice was due.

Independent sources that spoke with The Guardian said the OPS, which is seeking a thorough review of the document, would reject it, if passed as treated by the lawmakers.

Members of the private sector are worried that additional tax burden would only push operators to the edge.

According to Minister of Finance, Budget and National Planning, Zainab Ahmed, the document, undergoing a review, would bring to force broad reforms in the tax system and complement ease of doing business.

But industry players argued that some of the provisions would weaken businesses, increase the burden of multiple taxation and make the operating environment more hostile to private investment.

The finance bill seeks the imposition of 0.5 per cent tax on all eligible imports from non-African countries to fund Nigeria’s obligations to international organisations and an increase of Tertiary Education Tax from 2.5 per cent to three per cent of companies’ profits.

These have been criticised by economists who believe the new taxes would have far-reaching implications for investors and citizens, affecting cost of production and undermining investor confidence. They also fear the taxes could increase inflationary implications.

Already, Nigeria’s corporate tax regime, which is currently 30 per cent, is said to be one of the highest globally.

Experts believe the solution to the country’s revenue problem is not in increasing taxes but in plugging leakages in revenue sources, reducing cost of governance, fighting corruption and exploring other sources of revenue currently lying fallow.

They also argued that with a falling standard of living, resulting in low purchasing power, high levels of unemployment and low capacity utilisation by manufacturing companies, imposing more taxes could be counter-productive.

Senior Special Adviser (Industrialisation) to President of the African Development Bank (AfDB), Prof. Oyebanji Oyelaran-Oyeyinka, told The Guardian that Nigeria ought to examine the tax issue from the point of view of both government and citizens.

“There is a strong connection between citizen’s willingness to pay and the wages they earn,” he said. “In a situation where the majority are falling into poverty, there is less desire and ability to pay. So, point number one: taxing poor households will drive them deeper into poverty.”

He said a cursory survey shows that Nigerians’ need for basic items, like food and clothing, exceeds their earnings, and far more than the minimum wage for those in paid employment in most parts of the country.

“Taxing poor families makes it even more difficult to meet these basic needs. When a government experiences a revenue shortfall, it needs to demonstrate leadership by taking drastic measures, including cutting down on the cost of governance and blocking leakages and avenues of corruption,” Oyelaran-Oyeyinka said.

He noted: “For example, Nigerians have been regaled with befuddling stories of leakages through large-scale crude oil theft. Government official trade blames, pointedly accusing each other of being responsible for the oil theft. This public spectacle does little to inspire trust in their government. Tax is a trust issue. People see it as an investment that brings service dividends. We have the opposite situation here.”

He said Nigeria loses a lot as a result of official corruption at ports and other places due to an unsavoury operating environment for businesses.

According to him, the country has the lowest Tax-GDP ratio globally at around six per cent, due largely to poor governance and inefficient collection/administration, among others, that have resulted in low accretion to the nation’s revenue base.

“From the above, poor tax revenue has, in part, been due to poor governance and trust deficit on the part of citizens. Citizens wonder at the absence of sanctions for corrupt officials and probably ask themselves why should I subsidise the lifestyle of politicians and bureaucrats who do not care a hoot how I eat three square meals? So, clearly, there is a need to fix the ineffective tax system. But it must be just and accountable.”

He said, even as it relates to corporate tax, companies are left to spend close to 40 per cent of their capital on services ordinarily provided as public goods, such as power, road, water etc.

“In a way, companies are already implicitly taxed because governments have abandoned their traditional roles as service providers. In the 2022 World Bank ‘Government Effectiveness’ ranking index, Nigeria scores 14 per cent. We have huge gaps to fill in terms of governance capabilities. So, citizens and firms should be treated fairly.”

He restated his call for Nigeria to industrialise through economic diversification.

“We must take urgent action to reduce reliance on crude petroleum export. Diversification also includes state governments. We should take strong action on horizontal diversification, starting with the agricultural sector.

“If you keep shipping away raw materials, you ship your jobs to the producer countries: those who add value. The notion that revenue is dwindling in Nigeria is always about a crash in oil prices. It has been so since the 1970s. So, why don’t we consider our ways and end this pathology of easy money and short-term revenue from crude oil? This should be the message to the leaders coming in 2023. You cannot keep doing the same thing and expect a different outcome?”

The founder/CEO, Centre for Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said Nigeria’s current tax administration and strategy should change.

He said while it is good to explore taxation as a source of increasing government revenue, many other sources have remained unexplored. According to him, right now, the pressure of tax is on those who are in the formal sector of the economy.

“Unlike in South Africa where personal income tax can account for about 60 per cent of revenue, the Nigerian economy is almost 60 per cent informal, operated by artisans whose records we don’t have because we have problems with data, so there isn’t much you can do in that area,” he said.

Yusuf also suggested that property tax is a low-hanging fruit, which the government can explore. “Look at properties in Abuja now, is it a poor man that will put up those kinds of buildings? Do you know how much a plot of land costs in Asokoro? What are they paying in terms of taxes? If you can’t find them, at least, you can find their property?

“Go to the United Kingdom, Nigerians who have properties there will tell you how much they are paying, even though they don’t stay there. So, we can do a lot more in the area of property tax.”

He also said Nigeria can get more revenue from its forex, noting that it was wrong for the government to have put the conversion rate of the naira at just N435 in the 2023 budget.

According to him, “how can you be selling Nigerian currency at N435? If you put it at N650, which will even be generous, on our foreign exchange market, it would be oversubscribed. Why are we leaving our foreign exchange at N435 in the budget? Do you know how many billions you are losing, even from that alone?

“Our forex conversion rate has to change for us to make more money. We can’t be subsidising forex for people to go and be doing round tripping.

“We also need to get rid of this madness called subsidy. From that alone, we can save N6 trillion. There are a lot of leakages in our revenue collection system. Let us consolidate our revenue collection and put everything under the Federal Inland Revenue Service (FIRS).”

Also, Fiscal Policy Partner and Africa Tax Leader at PwC Nigeria, Taiwo Oyedele, said the best way to raise tax revenue, at this time, is not by increasing rates or introducing new taxes.

He said rather, the government should intensify efforts to close the tax compliance gap. According to him, one way to achieve this is through harmonisation of revenue collection function and economic data to prevent leakages and easily track non-compliance.

“Also government must enable businesses and create the environment for individuals to thrive, which will effectively lead to expanding the tax base and widening the tax net.”

He said leveraging technology can also help to raise revenue from property, especially with electronic mapping and other land reforms that promote ease of land transactions, identification, title perfection and so on.

Also speaking, Prof. Jonathan Aremu of ECOWAS Common Investment Market, said there is nothing wrong with the government wanting to raise more revenue through taxation, provided it follows the canons of taxation which include: those who have the propensity to earn more from the economy should pay more.

He noted that tax must be done in a way that will not discourage economic activities.

“If you tax people too much, they can shut down completely and you have nothing to tax anymore. I will say that the government is extremely ambitious to say that N2.43 trillion of the revenue it is expecting would be from taxes outside oil. But they have not told us what kind of sector will bring that kind of money.

“At a time when most of the companies in our industrial estates are relocating to other countries, at a time when other African countries are already engaged in trading opportunities in the African Continental Free Trade Agreement (AfCFTA) and Nigeria has not been able to access the market, yet you want to be taxing people. They need to think twice,” he said.