Nigerians Await the Tax Men

With significant focus on non-oil revenue in the 2016 budget proposal, Nigerians should expect a plethora of taxes.

When President Muhammed  Buhari presented the 2016 Appropriation Bill before the joint session of the National Assembly, he made it clear that the Nigerian economy is facing a lot of challenges. This, he said, has remained a source of concern for many.
The situation, according to him, was further worsened by the unbridled allegations of corruption and insecurity in some parts of the country.

Similarly, the heavy drop in the price of crude oil, in the past few years, has also affected the nation's earnings significantly. By June 2014, oil prices averaged $112 per barrel. But presently, it is around $37 per barrel and the huge decline is having a painful effect on the economy.

In the same vein, the nation is faced by the issue of naira volatility and declining external reserves as a result of a drop of its dollar inflows. As a result of these, consumption has declined at all levels, just in both the private and public sectors, employers have struggled to meet their salary and other employee related obligations. The small business owners and traders have been particularly hard hit by this state of affairs.

Clearly, the 2016 budget estimates of N6.08 trillion is an indication that individuals and business owners across the city would be made to pay higher taxes as the government seeks to diversify the economy away from oil. Some have even stressed the need for the country to return to its strict tax policy which was applicable before the oil boom of the seventies as a way of getting out of the present crisis.

In the 2016 budget proposal, oil related revenues are expected to contribute N820 billion, while non-oil revenues, comprising Company Income Tax (CIT), Value Added Tax (VAT), Customs and Excise duties, and Federation Account levies, will contribute N1.45 trillion. Finally, by enforcing strict compliance with the Fiscal Responsibility Act, 2007 and public expenditure reforms in all MDAs, we have projected up to N1.51 trillion from independent revenues.

The budget was predicated on an oil benchmark price of $38 per barrel and a production estimate of 2.2 million barrels per day. The budget proposal also allocated N1.8 trillion to capital spending, accounting for 30 per cent of the budget. Also, it has a revenue projection of N3.86 trillion resulting in a deficit of N2.22 trillion.

“This budget proposal, the first by our government, seeks to stimulate the economy, making it more competitive by focusing on infrastructural development; delivering inclusive growth; and prioritising the welfare of Nigerians,” the president had explained.

According to its 2014 report, the Federal Inland Revenue Service (FIRS) generated N4.69 trillion from taxes for the federal government in 2014. But the 2015 figures being awaited might be less than that.

Way Forward
To Governor Adams Oshiomhole of Edo State, there is need for states and federal government to deepen their Internally generated Revenue (IGR) base as it obtains in developed countries of the world. Oshiomhole said central to every debate to every country with mature democracy is the issue of tax payment, adding that there must be the courage to be firm and just on the issue of taxation.

He explained: “When I was growing up, the only thing we had was the Local Government Authority Primary school and everybody who was up to eighteen years and above paid a fixed tax. When villagers met at the village square to discuss and you made a bold statement, another villager would challenge tell to shut up because you had not paid your tax. He would tell you, don’t talk where men are talking because you had not paid your tax, that you are not a man.

“Villagers used to recognize that not to pay tax was not an option. And for you not to pay tax, you must show a certificate or evidence that you are ill or bed-ridden, and therefore you could not work.

“So even villagers were paying tax. So the school in my village, under Awolowo’s Free Education programme, it was free to the people, so it was free to the pupil but funded by adults who paid tax. And when the tax man was coming, if you had not paid your tax, you just found your way into the bush and once once you were arrested , they took you to the barracks and you were charged appropriately.

“Somehow, at the peak of our oil boom, this practice was abolished, and today if you go to my village, they have a very beautiful school, but only few people are paying tax.How far can we continue like that? For me, this is a national issue that government has to address, not just about Edo but the whole nation."

Support for Higher VAT
Also, the  Chief Executive Officer, Economic Associates, Mr. Ayo Teriba, who had criticised the low level of non-oil revenue in the country, advised governments at all levels to increase the non-oil revenue required for economic stabilisation and growth.
Specifically, Teriba, stressed the need for the federal government to raise the value-added tax rate as one of the measures to cushion the effect of the falling oil prices on the economy.

Furthermore, he revealed that while VAT rates in Nigeria currently stand at five per cent, in South Africa it is 14 per cent (standard), 30 per cent (maximum); Egypt 10 per cent (standard) and 25 per cent on luxury goods; Algeria 17 per cent (standard); Angola 10 per cent (standard); and Morocco (20 per cent).

He noted that there is discordant fiscal contraction/austerity in the face of ongoing domestic economic expansion.

"Nigeria's non-oil GDP is bigger than each of South Africa's and Egypt's GDP. Why should each of them have more tax revenue than Nigeria?" he queried.

According to Teriba, ongoing volatilities in global commodity prices and global equity
prices threaten to destabilise the domestic economic and financial activity in 2015.

But a former Chairman of the Asset Management Division of Goldman Sachs Group, Dr. Jim O’Neill, advised policy makers in Nigeria to use the opportunity of the drop in crude oil prices to speedily diversify the economy. According to O’Neill, the falling crude oil prices would test the flexibility of the Nigerian economy.

The renowned economist said: “In my opinion, for all oil producing economies, it is important that as oil prices decline, they should diversify and not just depend on oil prices.

“It is very dangerous for oil producing countries to just depend on oil. In some way, declining oil prices are an important test of Nigeria’s economic resilience.”

On his part, the President of Chartered Institute of Taxation of Nigeria, Mr. M. A. Chidolue Dike, noted that there are only two things that are certain in life. He listed them as death and taxes.

“So, no matter what you do, tax is very critical. Tax is the price we pay to improve our society. It can’t be the other way round that the government has to provide road before we pay tax, no, we have to pay.

“Having paid, we would have the moral justification to demand for performance, accountability and stewardship. It has been found that countries that rely almost completely on taxation are more responsible, more accountable and more responsive,” Dike added.

Also, Senior Consultant/Chief Executive Officer, RTC Advisory Services Limited, Mr. Opeyemi Agbaje, stressed the need for the government to create policies and incentives that could promote non-oil exports by Nigerian firms.

He pointed out that although the current structure of Nigeria’s GDP shows that the country has achieved significant diversification in terms of local production and consumption, there is need for Nigeria to be competitive in the area of non-oil exports of goods and services by the private sector.

Agbaje cited the case of South Africa, whose export revenue is driven largely by private sector firms such as MTN, DSTV and South African Breweries, among others.
“If our export revenue was earned by thousands of Nigerian companies exporting their services, we would not collapse anytime the price of oil falls. We also need to start refining our oil domestically and exporting it. We should be one of the biggest exporters of refined petroleum products in the world.

"There are significant opportunities in Nigeria. If you look at the structure of Nigeria’s GDP, you will see that huge opportunities abound in Nigeria. In terms of the structure of domestic production, we have done a good job of diversification, but the problem is that in terms of the structure of export and government revenue, we have not done enough,” he said.

Clearly, the downturn in the global crude oil market has refocused public and political attention on the importance of defeating illicit tax abuse and improving transparency, especially in oil producing countries.  Therefore, as government seeks to improve tax collections, it must strengthen the country's system of tax administration. Corruption in the tax process must also be eliminated with the tax officials properly trained on how to carry out their task professionally, so as to achieve the government's objective.

On the other hand, members of the public would only be willing to pay their tax when they see their money being effectively used in developing critical infrastructure that would improve their living conditions.

Source- www.thisdaylive.com