Survey: 47% of Financial Services’ Organisations Do Not Have Tax Policy
A recent PwC Nigeria survey has revealed that 47 per cent of tax functions in Nigeria’s financial services (FS) sector, either do not have a tax strategy or they are not aware of one.
The respondents to the survey were senior level executives from various sub-sectors in Nigeria’s financial services industry.
The survey polled the major industry players in financial services, including banking, insurance, and pension fund custodians.
It showed that Executive Directors and Chief Finance Officers combined, made up 60 per cent of the respondents; while other respondents which included Tax Managers and Financial Controllers were 33 per cent and seven per cent respectively.
While speaking to the insights from the survey, the Partner, Tax Reporting & Strategy, PwC Nigeria, Kenneth Erikume, noted that: “Organisations are currently operating in highly dynamic local and global tax environments. Locally, we are seeing an aggressive drive from tax authorities to shore-up state and federal government’s revenue generation goals.
“This places greater responsibility on the tax function, like never before. It also constrains the tax function, often reducing it to a compliance-focused unit, rather than a potential strategic partner helping to achieve corporate vision, and to execute business strategy.”
The majority of organisations surveyed, especially in the banking sector, either had a fully-fledged tax function, or were in the process of creating one to be staffed with a minimum of 5 employees.
The report advised organisations going through the journey of creating a fully-fledged tax function to consider how they could be optimised. This will involve identifying possible processes that could be outsourced or insourced. Reorganising the tax function around tasks that refocus the energy of employees towards more strategic processes, would define a successful tax function. Tax as a function should have a documented strategy that aligns with the overall business strategy.
According to Erikume, it isn’t unusual that transaction taxes such as Withholding Tax (WHT) and Value Added Tax (VAT) are high up the list of taxes with a greater probability of leading to additional tax liabilities, or significant exposure to tax audits.
This, he said is because Nigeria’s financial services industry is characterised by high volume of transactions, multiple locations, and is prone to tax risks with manual tax processes.
Another notable finding is that there is low technology adoption for tax compliance in Nigeria’s financial services industry. In spite of widespread technology adoption in managing several aspects of operations in the industry, technology is yet to be leveraged in managing taxes. Only in managing payroll, has technology been widely adopted for tax compliance.
The Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Muhammad Nami, recently said the adoption of electronic taxation (e-Tax) will help minimise revenue leakages, limit tax evasion and significantly improve fiscal position of state governments amidst the current economic challenges.
Nami, who is also the chairman of the JTB, said a lot of people are presently making monies privately without remitting appropriate taxes.
He said the adoption of technology will harness the various taxes by individuals and plug leakages especially for state governments who are presently in dire fiscal challenge.
Noting that gone were the days of brick and mortar tax administration, he said eTax could be a game changer in resource mobilisation going forward.
Nami said: “Your wife could be at home, in the kitchen and with just a telephone and a computer or just an electronic gadget, your wife or a member of your family would be rendering service to a customer right in the kitchen or the comfort of the bedroom, pay for those services, receive money for those services, and spend them without leaving the house.
“So when you carry guns and the police or law enforcement agencies to go and enforce such business entity, how would you get it done? So that’s the need for technology.
“People continue to make money every day….we are not able to generate commensurable taxes from those revenues and until we are able to do something otherwise, those that we serve would continue to borrow money to fund their budgetary requirements.”
He had added: “People do business and we no longer see them physically and so in order for them (revenue agencies) to generate revenue that would be used by their respective governments to fund their budgetary requirements, there is the need for them to deploy technology to exchange and data and to be able to raise assessment that they can enforce for purpose of revenue generation for their respective states.”