Taxation is a necessary burden in Nigeria

Abimbola Akosile writes on the need for governments at all levels to revisit the issue of tax incentives and breaks, which are turning to huge drains on Nigeria’s scarce resources

Nobody likes to pay tax; that is the simple truth. It is like pulling a tooth from an unwilling patient. But for development to occur, taxation is a necessary evil, which has been perfected in civilised climes.

However, for citizens to hold any government in power accountable, there must equally be commitment on the part of the former through remittance of equitable taxation, which in turn emboldens the paying public to question any default on government promises on basic and social infrastructure.

Painful Process

That been said, a painful scenario is when government offers huge tax breaks or incentives to potential investors in the name of encouraging foreign direct investment (FDI), and the same investors exploit such tax loopholes to siphon their profits out of the host economy.
Worse still, such foreign investors employ various guises to continue to enjoy tax breaks, sometimes going as far as applying bogus change of investors or brand name to obtain new tax incentives, with largely the same board of directors in place all through the name-change processes.

So Many Questions

This reporter wonders what can possibly happen if government decides to revoke tax incentives or breaks from foreign companies who have for long enjoyed such financial privileges.

What would be the result if government, through the Federal Inland Revenue Service (FIRS) tightens its tax revenue collection process, and goes after the 300,000 companies in Nigeria which have failed to remit any corporate taxes to the public coffers?
Would the rich and privileged be willing to allow greater taxes on luxury goods and items, which are out of the reach of the common man, in a bid to generate more income for a government in need of more revenue streams?

Are the staff members of the tax revenue agencies adequately motivated in remuneration to help prevent self-help to the tax proceeds, or will a greater tax generation drive only serve to further feather the nests of those already bloated with diverted revenue? So many questions…

Implications for Devt

The Tax Justice & Governance (NTJ&G) platform, the Trade Union Congress, and other agencies of the civil society met recently in Abuja and deliberated on tax incentives and implications for development in Nigeria, at a forum facilitated by ActionAid Nigeria.

After deliberations, participants acknowledged the various arguments that have been advanced for the granting of incentives to foreign investors and large corporations, either multinationals or nationals.

They also acknowledged the relevance of the use of incentives as a necessary instrument of attraction of foreign direct investment to the country, technology, development of local capacity, infrastructure and in the face of harsh economic reality, attraction of jobs to the country.

However, while recognising the motives of government in the granting of the incentives, the forum found it difficult to overlook the downside of many of the incentives that have been granted by the government to the companies operating in Nigeria.

Participants’ concerns were borne out of the facts that have emerged from recent studies conducted on the nature of incentives granted, especially The West African Giveaway: Use & abuse of Corporate Tax Incentives in West Africa. To the forum, some of these incentives have since been found to be unnecessary, excessive and unproductive.

Furthermore, the studies have since shown that most of the assumptions on which tax incentives were granted are wrong and are misguided. Contrary to the assumptions that the incentives aid transfer of technology and help in building local capacity, it is evident that the nation in no way has benefitted in comparable measure to justify continued granting of some of these incentives.

Likewise, the assumptions of development of infrastructure through the granting of incentives have not translated to expected benefits. Where there has been some semblance of efforts on the parts of the companies, these have been limited to that which advance the business of such corporates and have never been in consideration of the people.
The ActionAid study has shown that annually, Nigeria forfeits as much as $2.9 billion that is over N577 billion as a result of tax break granted companies. This amount could go towards addressing infrastructural deficit in Nigeria.

The granting of incentives are also known to have more negative impacts on the development of local industry as it gives unnecessary advantage to large multinational corporations and kills small scale industries, especially where such incentives include companies operating in the free trade zones.

Reasonable Demands

Participants called on the federal government to appraise and evaluate current regime of incentives and in addition put in place a monitoring and evaluation mechanism for tax incentives and how they are granted. Government was also called upon to publish all tax incentive policies and practices.

The forum also called on the federal government to systematically count and publish the full cost of tax incentives through published tax expenditure reports and publish all communications with corporations pertinent to tax incentives

Government was urged to put in place an inter-agency framework for engaging tax incentives and policy harmonisation, in view of current duplicity of roles and existence of many locations where incentives are negotiated and recommendations for approval made.

Participants also called on the federal government to design and put in place tax incentives policy that captures the country’s present economic realities (local content promotion, industrialisation, small-scale business protection).

They also called on the national assembly in particular to review existing laws on tax incentives and exercise caution in ratifying tax treaties without the support of progressive tax experts.
Nigeria was also advised to take a lead role in ensuring regional integration and cohesion amongst African countries for a new UN Tax body that gives developing countries more leverage to negotiate the terms of their tax agreements and ensure a proper monitoring of tax practices.