Practicality of The New Nigerian Tax Policy
On the first of February 2017, the Federal Executive Council, the highest decision making body in Nigeria approved a new National Tax policy for the country. The National Tax Policy (NTP) establishes fundamental principles to guide an orderly development of the Nigerian tax system and reinforces the need for tax laws and administrative practices to promote economic development. In this paper I shall address the feasibility of Nigeria’s new tax policy.
The Nigerian Government is good at making policies and enacting laws. However the problem with Nigeria’s economic Sector is not the making of policies but the implementation and enforcement of these policies. According to Tax Practitioners the NNTP when implemented will address key challenges confronting the Nigerian tax system including:
• Low Tax to GDP ratio
• Fragmented database of taxpayers and weak structure for exchange of information
• Multiplicity of taxes and revenue agencies
• Poor accountability for tax revenue
• Use of aggressive and unorthodox methods for tax collection
• Failure by tax authorities to honor refund obligations to tax payers
• The non-regular review of tax legislation
There are several factors responsible for the low tax-compliance rate in Nigeria. Low tax-compliance rate or what I term “tax apathy” is present both in Third World and developed countries. However one major difference is that in developed countries the Government of these countries effectively utilize the taxes paid by the Citizens; this is not seen in most Third World countries. In most developed countries the taxes paid by citizens and other derived revenues are used to improve the standard of living of the citizens. Hence citizens see the need to pay taxes as and when due.
A Tax policy is the choice by the government as to what taxes to levy in what amounts, and on whom. It has both microeconomic and macroeconomic aspects. A tax policy serves as the structure which guides the government and citizens on what taxes to pay, what good or service is to be taxed. Hence, a tax policy must be practicable and achievable. It must not leave the citizens in the dark as to what to expect from the government. In Nigeria, taxes are imposed directly and indirectly on individuals and companies. The Personal Income tax is imposed on the income of all Nigerian citizens or residents who obtain their income in or outside Nigeria. The Companies Income tax is imposed on the profits of all corporate entities who are registered in Nigeria or derive their income from Nigeria, other than those engaged in petroleum operations. The Petroleum Profit Tax is imposed on the profits of all corporate entities that are registered in Nigeria or who get their income from oil and gas operations in Nigeria. The Development Levy is a flat charge imposed on every taxable person within a state. These taxes reveal that the Nigerian government really collects taxes. Other taxes include: Stamp duty, Excise duty, Import duty, Export duty etc. It is disheartening that while Nigeria has a structure for collecting taxes she does not have a platform for the implementation of her tax policy. Section 1 of the Taxies and Levies provides for the responsibility of tax authorities to collect taxes and levies. Section 4 lists the tax authority to include: The Federal Board of Inland Revenue or the Local Government Revenue Commission.
Part I of the Decree provides that the FIRS shall be responsible for the collection of CIT , VAT , Education tax, PPT , stamp duties on bodies corporate and residents of the FCT, Abuja. . Part II of the Decree provides for taxes and levies to be collected by the state government. These include: PAYE, withholding tax (individuals only), road taxes, pools betting and lotteries, Business premises registration fee, Capital gains tax (individuals only). The Local Government on the other hand is entitled to collect shops and kiosks rates, slaughter slab fees, Right of Occupancy fees on lands in rural areas, domestic animal license fees, tenement rates, birth and death registration fees, market taxes and levies etc. Despite the collection of these taxes by the Nigerian government, Nigeria is not ranked among the 27 highest tax-collecting countries of the world.
The NNTP seeks to address the low tax to GDP ratio. Statistics by the International Monetary Fund points to the fact that in about half of all developing countries, tax ratios to GDP are less than 15% compared with an average of 34% in OECD countries. The higher the ratio, the more the countries are increasing in growth and efficiency. A higher ratio also connotes a decrease in their dependence on donors. The tax-to-GDP ratio falls when tax revenues grow at a slower rate than the GDP of a country. The Africa Research Institute has suggested that the African government can solve the problem of fall in tax-to GDP ratio by the creation of equitable tax institutions and tax policies and encourage compliance through establishing a social contract between taxpayers and the state.
Another challenge the NNTP seeks to solve is the fragmented database of taxpayers and weak structure of the exchange of information. The governments of developed countries such as the UK, US, France have a database of their citizens. There is a need for the Nigerian government to have a database of her citizens not for the sole purpose of collecting taxes. Every responsible government collates the database of her citizens for election purposes, to determine unemployment rate, mortality rate etc. Also, tax bodies in Nigeria ought to educate citizens on the need to pay taxes. A proper education of citizens on taxes will enable Nigerians to know the taxes to pay and the appropriate authorities to pay to. This in turn will reduce the problem of multiplicity of taxes. Although, a greater responsibility lies on the government to ensure that these taxes are properly utilized. Where the government fails to do so, this will result in low tax-compliance rate.
In conclusion, it is good to make policies, it is better when such policies are enforced. However the best approach is when these policies culminate into reasonable development which will reflect the intent of the lawmakers. A new tax policy has been made. I appeal that the Nigerian government should walk her talk by implementing this policy.