Improving Nigeria’s Ease of Doing Business with Tax Harmonisation

The proposed harmonisation of tax being undertaken by the Presidential Fiscal Policy and Tax Reforms Committee will bring sanity into Nigeria’s tax system and improve the ease of doing business if properly implemented reports Festus Akanbi

For a country yet to find a lasting solution to its myriad of economic challenges over the years, it is easy for political officeholders to dangle all manners of economic policies to woo the electorate in the build-up to elections into various offices.

The promise to revolutionise the ease of doing business usually occupies a preeminent position on the list of other promises to make life meaningful for people.

However, experience has shown that as a result of the prevalence of a multiple tax regime, instead of achieving an improvement in the ease of doing business, the tax chaos in the country not only pushes many Nigerians out of jobs, it also makes many indigenous companies to fold up while some multinationals have to relocate to better climes.

Globally, countries are experiencing rising costs of commodities, inflation, supply chain disruptions, excess demand and reduced supply, protectionism, and increased economic nationalism. The rippling effects of these realities are tangible across the Nigerian economy with more businesses struggling to survive and the government grappling with a revenue shortfall.

The easy option seems to be for governments to make recourse to taxation as an alternative for improving revenue and balancing their budget, however, this raises the risk of increased multiple taxation.

New Taxes

At the federal level, there have been numerous bills in the National Assembly, which seek to introduce new taxes on existing taxpayers and tax bases.

For example, in 2021, a Tertiary Hospital Development Fund Bill, 2021 was considered at the Senate. The bill seeks to establish a Tertiary Hospital Development Fund, which will be partly financed by the introduction of a Tertiary Hospital Development Tax, which will comprise – 1% of petroleum companies tax paid on total barrels of crude oil produced yearly, 1% of mobile phone service providers tax paid on airtime and data sold yearly,  1% of beverages and breweries companies tax paid on profit yearly declared,  1% of cement companies on profit yearly declared,  1% of paint and chemical manufacturing companies tax paid on profit yearly declared and 1% of tobacco companies tax paid on profit declared.

This trend also finds its way into the state and local government levels where new and sometimes unlawful taxes and levies are imposed and collected by state and local governments across Nigeria.

This tax burden, according to the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr. Taiwo Oyedele has impacted negatively on the nation’s economy.

According to him, Nigeria’s socio-economic reality is characterised by slow economic growth with  GDP at two per cent in the past 10 years, below the population growth rate.

“There is also high inflation and unemployment, with inflation at 33.7% at the end of April 2024 (5x global average), unemployment at 5% (working poor); widespread poverty. In Nigeria, people are living in monetary poverty (over 95m), multidimensional poverty (133m) and low revenue, high public debt: Debt (+ Ways& Means, domestic arrears) is growing faster than GDP and debt service much faster than revenue (96% of revenue in 2022, 74% in 2023).”

Other negative indices, according to him, include declining investments: Low forex inflow (less than $500m FDI in 2022), dwindling domestic and capital formation, and an increase in the rate of emigration: Brain drain due to emigration, and corporate divestments and delisting.

Tax Harmonisation

To correct the anomaly, the Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) has therefore recommended the harmonisation of taxes and levies collectable by the three tiers of government into eight headings.

Speaking in Lagos last week, at a workshop for financial analysts and reporters, Oyedele said the proposed streamlining of taxes sought to make tax administration modern, simple, and adaptive, as well as make it become a growth enabler.

He expressed concern over the import duty rate, which constantly changed due to the volatility of the foreign exchange (FX) market, adding that this does not allow for adequate planning by businesses.

The proposed list of harmonised taxes and levies included income tax, property tax, Value Added Tax (VAT), customs duties, excise tax, stamp duties, special levies, and harmonised levies.

Oyedele said: “The principle that we are working with is to do away with nuisance taxes with very low revenue yield, high cost of collection, and ultimate burden on the poor and small businesses.

“We are focusing on high revenue yielding taxes that are broad-based and relatively easy to collect by merging taxes and levies that are imposed on the same or substantially similar tax base and keep the total number of taxes across all levels of government to a single digit.”

He said the committee further recommended the institutionalisation of tax harmonisation reforms to ensure its sustainability.

Oyedele explained that the committee had consolidated the education and police taxes under the special levy, adding that “we introduced the special levy with just one rate and we take out all those other taxes”.

He said the Harmonised Tax Levy (HTL), which comprised road and market taxes, was meant to cater to the local governments.

The PFPTRC chairman said under the proposed new tax regime, income tax should now comprise Company Income Tax (CIT), Withholding Tax (WHT), CPT, and capital gain tax, among others.

He said, “We are hoping that when we are done there will be no consumption tax in any state. We will just agree that it is VAT and it is VAT.

“We will specify who is paying it, who is collecting it, and who owns the tax. Nigerians tend to assume that if the FIRS (Federal Inland Revenue Service) collects taxes it is for the federal government alone. No.

“Even though the number of taxes we propose is eight, the federal government will feel like collecting five taxes; state governments will feel they are collecting seven taxes; local governments collecting six taxes.”

According to him, “All these will be done automatically and when we are done, there will not be need to be sharing FAAC monthly.

“The tiers of government will get their accounts credited daily.”

He stressed that the objective of the committee was to simplify the tax to reduce the burden on businesses, particularly SMEs.

Oyedele said part of the committee’s advocacy was an exemption for withholding taxes for small businesses within the range of N50 million annually as they will lack the capacity to comply.

Sharing Tax Burden

Experts suggest that this rebalancing act could bolster consumer spending on necessities while ensuring that the tax burden is shared more equitably across different income groups.

“The proposed adjustments are designed to protect the poor while asking more from those who can afford to contribute more,” Oyedele explained.

The proposal also includes measures to promote exports by removing VAT on exported services and intellectual properties, a move aimed at boosting Nigeria’s non-oil exports.

Other suggested reforms include enhancing the VAT refund process and introducing electronic invoicing to curb evasion.

The committee’s work will reach a critical stage in Q3 2024 when it is expected to receive approvals for the proposed draft National Fiscal Policy from the National Assembly and the eventual signing of the amendments into law by President Bola Tinubu

In his reaction, the Head of Operations, ALTON, Awonuga, said removing multiple taxes would ensure the smooth operation of the telecom sector.

He was quoted as saying “We don’t know, but we recently submitted a position paper to the Federal Government. Most of these problems of multiple taxes are from the state governments though. However, we believe that the actions of the tax committee will ripple to it and impact us.’’

“Removing the multiple taxes aimed at us will create a free flow of operations and will ensure that we do not implement the variation tariff (different telecom rates across states) we are currently pushing for,” Awonuga explained.