Nigerian tax system and Vision 2020
The Nigerian Vision 2020 falls within the 21st century and it is envisioned that by year 2020, Nigeria will be one of the 20 largest economies in the world, able to consolidate its leadership role in Africa and establish itself as a significant player in the global economic and political arena. Nigeria’s tax system has to be well positioned to meet the aspirations of Vision 2020 and with sustained reforms in critical areas it will get there. Other considerations have been identified as being aligned to the attainment of Nigeria’s Vision 2020:
Transfer pricing (sometimes referred to as transfer mis-pricing because of its misapplication by multinational corporations) is a veritable tool for tax planning for entities operating across multiple tax jurisdictions and entities belonging to the same group or parent.
The Organization for Economic Co-operation and Development (OECD) has its own guidelines for transfer pricing and in order to align Nigeria with the 21st century trends, Nigeria, through the Federal Inland Revenue Service (FIRS) has released its own transfer pricing guidelines.
The regulations, which have an effective date of 2 August 2012, aim to prevent tax base erosion, ensure certainty in the treatment of related party transactions and reduce the risk of economic double taxation. The regulations can be seen as the efforts of the Nigerian Government to shift the over-dependence on oil revenue to non-oil tax revenue.
The concept of multiple taxation applies to the subjection of the same income to more than one tax treatment or the imposition of several taxes on the same taxpayer. In effect, tax is paid on similar taxes on the same or substantially similar tax base. Given the fact that Nigeria is a federation, there is a tendency for tax competition amongst the three tiers of government.
This creates a situation of multiple taxation. In order to position the Nigerian tax system appropriately in line with the 21st century trends, there must be a conscious and sustained effort to curtail, if not completely eliminate all the nuances associated with multiple taxation at all the three tiers of government.
Hence, all new tax bills from all the tiers of government, whether federal, state or local government SHOULD be harmonized and benchmarked against the dictates of the National Tax Policy by the central tax agency – the Joint Tax Board – before such bills are presented to the legislatures for debate. This will eliminate conflicts to a great extent after such laws have been passed.
Curtailing Tax Evasion:
This is another bane to economic growth that must be eradicated or at best reduced to a manageable level. There are some forms of tax evasion which Nigeria’s and the United
Kingdom’s tax laws have identified and provided sanctions against in order to prevent them. These include:
i. Making an incorrect return by omitting or understating income;
ii. Outright refusal or neglect to pay tax;
iii. Omission to state income received in or brought into Nigeria from sources outside
iv. False claims of contributions to a pension scheme etc.
Enforcement of legal proceedings against convicted tax evaders will bring some sanity into the tax environment and enhance tax compliance. This should be done with transparency and without regard to social status. However, this will require a reform in the Nigerian legal system.
Improved Revenue Yield:
Tax collection must be greatly enhanced and the tempo of tax collection must be maintained. Since the onset of the current tax reforms arising from the Dotun Philips Study Group report, the Nigerian tax system has actually repositioned itself with an improved revenue yield.
The 2012 financial year closed on a high note of N5.007 trillion as total revenue collection from taxes, including Petroleum Profits Tax ( PPT), the highest cumulative tax collected in the history of the FIRS. The agency realized about N4.628 trillion in 2011. Of this figure, oil taxes accounted for N3.201 trillion, or 63.93 per cent, up from N3.070 trillion in 2011, while N1.806 trillion, or about 36.07 per cent, came from non-oil taxes.
The performances are significantly above a projection of N3.635 trillion in the budget for all its taxes, which grew by N379.4 billion or 8.20 per cent, when compared with the 2011 all-taxes figures.
This positive trend must be sustained in future years in order for the country to actualize the positioning of the tax system in line with the 21st century trends.
Creation of Simplified Tax Systems:
Another way in which changes to the tax system can help economic growth is by easing the administrative burden on businesses – reducing the time which businesses need to spend dealing with tax matters and the complexity of the payment system. This suggests that governments keen to create a more business-friendly tax climate which is more supportive of economic growth need to focus not only on the overall rates and burden of taxation, but also on minimizing the time and effort which businesses need to spend complying with their tax rules and regulations. The fall out of an overly complicated tax system is tax evasion. This is why it is imperative, for instance, that all tax forms both at the federal and state levels should be reviewed and redesigned.
Concise and Simple Tax Laws:
Tax revenues depend on government’s administrative capacity to collect taxes and taxpayers’ willingness to comply. Compliance with tax laws is important to keep the system working for all and to support the programmes and services that improve lives. Keeping the rules concise, simple and as clear as possible will be helpful to taxpayers.
Review of Obnoxious Tax Laws:
There are still some contradictions, gaps and overlaps in some existing tax laws that require urgent amendment. The timeliness of review of tax laws as events unfold should also be addressed expeditiously so that the tax environment can respond positively to the dynamism in the global economy.
Coordinated Approach to Tax Reforms:
There is need for the country to develop a coordinated approach to tax reforms. While many countries have improved their tax systems significantly and still continue to do so, tax reform is very high on governments’ agenda around the world. According to PricewaterhouseCoopers’ publication on ‘Paying Taxes 2012’, during 2010/2011, 33 economies made it easier to pay taxes or reduced tax rates. Introducing electronic systems to make compliance easier was the most common feature of tax reform during the period.
Tax reforms provide the platform for creating a more business-friendly tax system. Tax rates which directly bear on business activity can be brought down by shifting the burden of tax away from wealth-generating activities to consumption activities such as personal expenditures vide VAT and other indirect taxes.
Another way in which tax reform can help create a better climate for business, is by broadening the tax base which enables the same amount of taxation to be raised with a lower overall tax rate. The UK’s current approach to corporate tax reform is an example of this. It should also be noted that this is the position proposed by the NTP. Hence there is need to implement all the reforms proposed in the policy as earlier stated.
In this regard, therefore, Kabir M. Mashi, the Acting Executive Chairman of FIRS had posited that a tax system that will take Nigeria to the year 2020 and beyond should:
· Have an effective linkage of all the revenue collection agencies with an empowered and elevated common policy making organ (JTB).
· Be fully automated for easy information capturing and sharing, such that no transaction with some tax implication will take place without passing through the tax system.
· Have a taxpayer data base that can be updated from time to time, and that can reveal the profile of every taxpayer.
· Stand on the tripod of quality service delivery, effective taxpayer education and an enforcement and compliance strategy that will make tax evasion in any form very unprofitable.