#AFDB President Proffers Options to Widen #Nigeria’s Tax Base
The President of African Development Bank, Dr Akinwumi Adesina has listed measures and policy options to widen Nigerian Tax base and cushion the effect of increasing revenue shortfall.
He was speaking today at the Presidential Tax Discourse held at the Banquet Hall of the Presidential Villa.
Adesina who commended President Muhammadu Buhari and the management of the Federal Inland Revenue Service under Muhammed Nami said “It is crucial to ensure that the tax base expands. Given that over 60% of Nigerians are in the informal sector, priority should be to support measures to move a large part of this from informal to formal sectors.
Adesina speaks further: “Making tax codes simpler and reducing administrative burdens and formalities are important to move from informality to formality. Doing so will allow people to be able to better assess their tax obligations.
“Digitalization of tax collection and tax administration is critical to ensure greater transparency of the tax system, widening of the tax base, while mitigating compliance risks and encouraging voluntary tax compliance.
“The Government should focus a lot on corporate taxes, and ensure full compliance. But it is important to ensure that such taxes do not discourage investments.
“Nigeria can learn from the case of Estonia, which taxes corporate incomes, but based on distributed profits. This allows corporations to re-invest their profits in expanding their businesses.
“Taxing corporate revenue, instead of profits will discourage investments needed to grow businesses and create jobs.
“Natural resources tax can play a major role for Nigeria. Given Nigeria’s high reliance on oil and gas, and minerals, the government should ensure that these sectors pay taxes and royalties that are fair and transparent.
“Profit shifting, base erosion and tax avoidance by multinational corporations form a huge part of “Africa’s missing taxes”; and account for a large share of the over $60 billion illicit capital flows that Africa loses annually.
“If companies invest in Africa they should pay taxes in Africa. Governments should use Business Investment Treaties and Avoidance of Double Taxation to strengthen these incentives. If a company works in Nigeria, benefits from Nigeria, it should pay taxes in Nigeria.
“Tax policy can be used to incentivize the closing of the massive infrastructure gap that Africa faces. Nigeria is showing good example.
“The new initiative between the Federal government and selected private sector businesses to provide road infrastructure in return for tax rebates is an excellent idea.
“It is conditional; and it can be assessed and measured for delivery. That is the kind of accountability needed, so tax rebates or exemptions are not abused.
“Today, the Dangote Group is constructing 19 key economic federal roads, stretching for 800 kilometers across the six geo-political zones, due to company tax credits from the Executive Order 007 of 2019.
“However, Governments should avoid overly generous tax holidays and tax reliefs. While there should be fiscal incentives to attract and support the private sector, governments should avoid losing too much tax earnings.
“Given the size of Nigeria’s economy, the population, urbanization and consumer spending, it is a market with huge opportunities to attract investors. Yes, it has infrastructure deficits. Yes, it has a high cost of doing business. Yet, Nigeria is not a market that can be ignored.
“Government efforts to secure investments should not be based on giving too much “fiscal sugar” to the companies, so they do not suffer from “fiscal diabetes”.
“Small and medium sized enterprises should be further encouraged and supported, as they are the lifelines of earnings and the creators of jobs. Tax exemptions or tax deferments can be used to support their growth.
“Nigeria’s bubbling youth are creative. While their businesses may be small, they should be incentivized to grow.
“Over time, they will become bigger businesses that can provide much higher taxes. There is an urgent need for a fiscal policy regime that strongly supports businesses of young people in Nigeria.
“Given Nigeria’s high level of poverty and huge income inequality, taxes should not be regressive, where taxes paid on goods or services are the same regardless of income.
“But one thing we cannot ignore is good governance. Good governance is the “speed dial” for greater tax payments. The role of the government is not just to collect taxes; its role is to ensure that the taxes are collected transparently, used transparently and responsibly; and that citizens see what their taxes are being used for.
“While there should be tax obligations for citizens, there must also be tax accountability to citizens from governments. Participatory tax-based financing systems demand participatory governance.
“While tax rates are low in Nigeria compared to a number of African and non-African countries, that is not a justification to keep increasing taxes.
“We must also distinguish between nominal taxes and implicit taxes — Taxes that are borne but are not seen nor recorded.
“We should not simply compare tax-to-GDP ratios. We must not compare apples and oranges.
“Truth be told, Nigerians pay one of the highest implicit tax rates in the world — way higher than developed countries.
T”hink of it: they provide electricity for themselves via generators; they repair roads to their neighborhoods, if they can afford to; there are no social security systems; they provide security for their own safety; and they provide boreholes for drinking water with their own monies. That in incredulous in itself. Boreholes are not the way to provide water in the 21st century. Every household should have pipe borne water!
“Take for example that 86% of small and medium sized enterprises in Nigeria spend $ 14 billion annually on diesel for generators. Nigeria’s companies lose on average 10% of sales because they do not have access to reliable and affordable electricity.
“Governments, over time, have simply transferred their responsibility to citizens. When governments or institutions fail to provide basic services, the people bear the burden — a heavy implicit tax on the population.
“Taxation is a social contract between governments and citizens. Tax compliance are higher when citizens are provided the needed public goods in exchange for tax payments.
“Accountability and transparency builds trust; and trust powers higher tax compliance. When citizens see the benefits of taxes they will have incentives to pay taxes.
“Efforts should be made to improve overall tax administration and compliance. Weaknesses in tax administration with complex tax codes causes leakages, costing governments to lose much needed resources for development.
“Tax legislations should also be stable and predictable. Given Nigeria’s structure, with three tiers of government with varying powers, efforts should be made to harmonize tax regimes and avoid multiplicity of taxes.
“To succeed, efforts must be made to reform domestic tax laws and institutional frameworks. There is much scope to further improve the institutional capacity for tax audits, data management and business intelligence, at all levels, to improve tax revenue collection”, Adesina affirmed.