By Tony Ademiluyi
“Until people see the political will in government to effectively tax elites who are perceived as “friends of the government”, it is unlikely that much can be achieved”.
Peculiar Historical Background
The ancient cliché ‘The only sure things in life are death and taxes’ also ring true for Nigeria. The famous Aba Women’s Riot of 1929 was as a result of alleged unfair taxation by a warrant chief against the market women under his domain.
In 1948, radical educationist, women rights activist, and politician, Olufunmilayo Ransome-Kuti led the women of Abeokuta to revolt against the administration of the then Alake of Egbaland, Oba Ladapo Ademola that allegedly imposed harsh anti-taxes on the market women. The rebellion subsequently led to his two-year exile from the throne and the land of his ancestors.
The two aforementioned incidents show how important taxes are in any society and the natural resistance of people to pay what they deem to be unfair taxes insinuating a lack of trust and a breach of the social contract between the rulers and the governed.
The Chairman of the Tax Appeal Tribunal, Lagos Zone, Lanre Lassise-Phillips lent his opinion on how to get more Nigerians to pay taxes. In his words: “At the inauguration of the Presidential Committee on Fiscal Policy and Tax Reforms by President Tinubu, the head, Taiwo Oyedele observed that Nigeria has one of the lowest tax revenue collections to GDP ratio in the world. Nigeria now targets a minimum of 18% tax-to-GDP ratio within the next 3 years from its present 10% tax-to-GDP ratio. The tax-to-GDP ratio measures a country’s tax revenue, relative to the size of its economy (measured by its Gross Domestic Product, or GDP). It was the American justice, Oliver Wendell Holmes Jr. who said that tax is the price we pay for a civilized society. Paying taxes is also said to be based on a notional social contract. A contract documents the rights and obligations of the parties.
To encourage taxpayers, the government must be transparent in tax revenue spending. It is true that tax does not guarantee a return on investment or confer reciprocal benefits but transparency in tax revenue spending (and indeed in the spending of all government receipts) which translates to social infrastructures and amenities relevant to the citizens which surely inspire tax compliance and build a culture of paying taxes. Similarly, the government needs to address the issue of tax revenue leakages. There must be concerted and sustained checks and balances against any form of leakages. Oyedele also made a curious observation that Nigeria has a tax gap of about N20 trillion due to the elite’s propensity to avoid paying the correct taxes. Until people see the political will in the government to effectively tax these elites who are perceived as “friends of the government”, it is unlikely that much can be achieved. Finally, the tax dispute resolution process must be independent, efficient, and effective in order to instill confidence in the tax system.
Many Nigerians especially entrepreneurs have expressed anguish at the injustice of multiple taxation. Mr. Lassise-Phillips reacted to this by saying: “The incidence of multiple taxation must be expected in every federal structure like Nigeria as an expression of sovereignty. Federalism distributes powers between two tiers of government. Each with taxing powers either expressly spelled out like the practice in Ethiopia and Germany or intertwined with legislative competence as is the Nigerian case. The taxing power of each tier of government is deducible from its legislative power. Hence, the Federal Government is said to have enumerated taxing powers in view of the Exclusive Legislative List. On the other hand, the taxing power of the State is residual and plenary.
Zacch Adedeji, the Presidential Adviser on Revenue recently identified multiple taxation as one of the challenges hampering tax collection and has promised to streamline these taxes. First, we need to identify what we classify as taxes. Are we talking about strict tax or concepts analogous to tax? Tax is not the same as levies, penalties, fees, or other charges created under laws enacted to regulate certain activities. Second, the Federal Government cannot dictate the boundaries of taxes for the States. The Taxes and Levies (Approved List for Collection) Act which delineated and defined taxes and levies collectible by the three tiers of government has been declared null and void by the Court of Appeal in Uyo Local Govt & Anor Vs. Akwa Ibom State Govt & Anor. The defunct Act actually owed its existence and limited success to the military incursion into governance.
Thus, to contain the incidence of multiple taxation, there must be some cooperation between the Federal Government and the States as a starter. The revenue-sharing formula needs to be more equitable. The more sustainable solution will however require constitutional amendment. As is the practice in some fiscal jurisdictions, the taxing powers of each level of government in Nigeria should be defined in the Constitution. This will bring certainty, and clarity and obviate the incidence of the multiplicity of taxes. Streamlining the current taxes will not oust the plenary, residual powers of the States to impose taxes. Similarly, as long as the revenue-sharing system is perceived as inequitable, the agitation for internally generated revenue by the States will remain unabated and so will the issue of multiplicity of taxes.
The entire globe – Nigeria inclusive has been greatly disrupted by the creation of a digital economy which has surreptitiously created more taxation opportunities.
The Bola Tinubu-led administration has not hidden its intention to extend its dragnet to this sector.
Lassise-Phillips, also a tax lawyer said: “I believe Nigeria’s extant framework for the taxing of digital business is quite sufficient to capture digital businesses subject to a few observations. In 2019, Nigeria introduced the concept of Significant Economic Presence (SEP). Previously, a non-resident company must have a fixed base or physical address to be liable to Nigerian tax which created a loophole explored by many online businesses to minimize or avoid tax exposure to source jurisdictions like Nigeria. However, in 2019 via the Finance Act of that year which amended section 13 of the Companies Income Tax Act, it is sufficient if the threshold of the significant economic presence (this is defined in the Companies Income Tax (Significant Economic Presence) Order 2020) is crossed to found liability to Nigerian tax.
The SEP Order fails to provide guidance on how the profits attributable to the Nigerian SEP of the affected non-resident company will be determined. The Order also fails to make provision for imposing withholding tax, especially in business-to-business transactions which may be easier to implement.
By far the greatest challenge bedeviling the SEP Order is enforcement seeing that it is a unilateral initiative. Can the FIRS enforce the provisions of the SEP Order where the non-resident company does not comply voluntarily? I might be wrong and it may be that non-resident companies have started registering with the FIRS and filing their returns. I doubt this very much. If they have not, what legal course of action is open to the FIRS for non-compliance?
It is therefore necessary to impose an obligation on the non-resident company to register in Nigeria using the address of the local company otherwise, there is no legal basis to hold any local company accountable. Furthermore, Nigeria needs to create a seamless electronic means for the registration of non-resident companies”.
Some countries especially in the West are tax havens. When asked if this should be extended to Nigeria, he continued: “First, we must understand the term “tax haven” has no universally agreed definition. The term is not clearly defined. Therefore, it is difficult to identify with certainty and finality some absolute measure to determine whether a country is a tax haven or not. The truth is, any country could be a tax haven if the conditions are right. Tax havens guarantee a list of benefits including the lowest available tax income when compared to other countries, little or no taxation on foreign investment, low taxing of patent revenues, financial account privacy, tax holidays, etc. Businesses are also able to avoid withholding tax to a degree and generally have favourable regulations and a general ecosystem that make starting a business easy and profitable.
To make Nigeria a tax haven or not is a policy decision. So, I leave the consideration to the policymakers.
He concluded by suggesting ways for the government to reduce the humongous costs of tax collection. In his view: “From the standpoint of reducing collection costs, the most effective strategy will be a policy shift to indirect taxation or consumption tax. They are cost-effective and easy to administer since they are more difficult to avoid or circumvent and are less visible, allowing the government to collect significantly higher amounts than they would be able through income tax.
Another strategy is to build a culture of tax compliance through beneficial and transparent utilization of tax revenue. Tax authorities would not require aggressive tax collection. Secondly, the deployment of technology underpinned by an integrated and coordinated tax identification numbering scheme with data garnered across government agencies and from the different arms of government will also result in reduced collection costs. Data collection and analysis are especially essential in reducing collection costs. Similarly, ease of tax payment will indirectly impact collection costs. If a taxpayer can pay his tax from the comfort of his home or office using technologies that are user-friendly and interactive, the workload of the tax authorities will be reduced.
Thankfully, the Finance Act 2020 has amended sections 25 and 26 of the Federal Inland Revenue Service (Establishment) Act (FIRS Act) which amongst others grants FIRS powers to deploy proprietary or third-party payment processing companies (PPCs) and or digital platforms as agents to collect taxes due on international transactions in the supply of digital services; deploy technology to automate the tax administration process including assessment, collection and information gathering, provided that it gives the taxpayer a notice of 30 days, section 26 mandate taxpayers to grant the FIRS access to relevant information in the taxpayers’ devices or cloud computing facilities and specifying penalties for non-compliance”.
Another tax expert cum chartered accountant who doubles as the President/CEO of KSM2G, Adekunle Elumaro gave his opinion on how the government can inculcate the value of patriotism and nationalism in Nigerians by getting them to pay taxes. He said: “Government can encourage tax payment from Nigerians doing the following: A. Minimize public abuse of public funds by public officials. Many Nigerians are discouraged to pay taxes when they see high-level corruption and abuse of taxpayers’ money by Govt officials. B. Incentivize individuals/corporates with tax rebates and refunds for compliance as it is done in other civilized climes. C. Educate and retrain tax collection officials in professionalism, civility, and respect for taxpayers. d. Provide additional incentives such as discounts on other government levies for individuals/corporates who are tax compliant. e. Rate and rank taxpayers in line with their compliance level, that is, A, B, and C taxpayers and give them special recognition and rebates for govt transactions. f. FIRS (Minister of Finance/State Commissioner of Finance) should send letters to all taxpayers to appreciate their contribution to economic development through employment and tax payment.
He expressed concern at the ugly reality of multiple taxations which will no doubt greatly discourage foreign investments when he said: “Harmonize with details the items on the exclusive, concurrent, and residual list of the constitution to clarify areas where FGN, states, and LGs can impose the tax.; Enhance the operation of the Joint tax board to ensure regular meetings and ratifications of tax jurisdictions”.
He went further to comment on the impact of taxation on the digital economy when he said: “Nigeria Communication Commission (NCC) can work with all the network providers and banks to identify taxable transactions for individual and corporates. Federal Inland Revenue Services can work with CAC to track all registered companies and businesses and business them to the tax net. NCC can introduce a letter for every transaction where TIN must be provided before any digital transaction is consummated. d. Hold regular collaborative meetings with key stakeholders to identify how to assist them and also expose them to tax payments”.
He is in support of Nigeria becoming a tax haven because, in his opinion, it will lead to more foreign direct investments badly needed to stimulate the ailing economy. “Yes, it is wise to lessen the burden of tax on corporates to encourage more companies to come to Nigeria to increase investments, generate employment and ultimately increase govt revenue and economic development.”
Finally, Mr. Elumaro gave his opinion on how to drastically reduce the cost of tax collection when he opined: “Harmonize and consolidate the tax collection agencies of government. Automate key taxes collection system”.
The Bola Tinubu government has inaugurated a tax reforms committee and the Chairman, Taiwo Oyedele, a renowned tax expert has made known to the public his quest for reforms most notably in the areas of tax reduction, plugging the huge gap in getting the elite to pay more taxes as he revealed a missing 20 trillion naira which will in no minuscule measure bolster the faltering economy and end the massive borrowing spree.
Successive Nigerian governments are fond of setting up committees but the tragic reality is that they end up like Ola Rotimi’s award-winning play ‘Holding Talks’ as it is all jaw-jaw by eggheads with no little or no implementation of their recommendations by the government.
Tinubu’s administration should do things differently by implementing the advice of the Taiwo Oyedele-led committee so that there would not only be less tax resistance by Nigerian taxpayers but also more revenue for the government to deliver the dividends of democracy to the Nigerian people.
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