By Emma Ujah, Abuja Bureau Chief
Nigeria and other African countries have commenced the process of developing a framework to tax digital businesses and operators in the informal sector of the economy.
Executive Chairman, Federal Inland Revenue Services, Mr. Mohammad Nami disclosed this in Abuja yesterday at a three-day conference of the African Tax Administration Forum (AFTA), where experts in digital and informal sector taxation have been assembled to develop the framework.
Speaking on the importance of the conference, Nami, who is also the Chairman of AFTA, said that the large size of global digital economy and its huge profit base has made it imperative for Nigeria and other African countries to seek innovative ways of bringing the sector into the tax net.
He said, “The objective of the meeting is to assist the ATAF Secretariat to develop, among other products, a comprehensive handbook with practical guidelines to ATAF member countries on how to tax the informal sector.
“If Africa is to reduce its budget deficits and increase revenue mobilization, it must widen its tax base and the informal sector provides an opportunity to do so.”
The FIRS boss described the informal sector as one of the most difficult to tax because operators in the sector hardly have record, with very fragmented businesses.
According to him, “It is estimated that the informal sector in Africa constitutes between 21% to 70% of the Gross Domestic Product (GDP) of African countries and accounts for between 30% to 90% of employment in the region.
“Yet despite its large size, the sector remains one of the most difficult sectors to tax, with most of the businesses operating in the sector concealing their activities from the tax authorities. Such businesses also operate on a cash basis and maintain poor or no accounting records.
In his remarks, the Executive Secretary (ES) of ATAF Mr. Logan Wort, noted that the e-Commerce and social media had become a large part of the Nigerian economy, as well as, other African countries and should be taxed, appropriately.
“How can we tax them without their being established here but they are doing business here and making huge profits; this is the challenge that confronts us. ATAF is trying to negotiate the best tax deal with the global digital businesses,” he said.
Africa, the ES said, has been characterized by low Tax/GDP (Gross Domestic Product) ratio, due to tax evasion, tax avoidance and failure to tax the informal sector, leading to high budgetary deficits.
According to Mr. Wort, to address the deficits challenge, all taxable individuals should be brought into the tax net, with a view to raising public revenue on the continent.