Expert identifies challenges facing current tax structure

Some of the key challenges facing the realisation of a truly diversified economy capable of generating revenue beyond oil include the difficulty in collecting taxes from the informal sector, which makes up about 76 percent of the Nigerian economy, according to Taiwo Oyedele, head of tax and regulatory service, PwC Nigeria.

Oyedele, who is also the dean of direct tax faculty, Chartered Institute of Taxation of Nigeria (CITN), said this in a paper titled “rebasing the tax system for revenue generation beyond oil,” he presented at the just concluded 17^th annual tax conference of the CITN held last week in Abuja.

According to him, the tax authorities seem to focus a lot of their energy on taxing a small number of visible companies and individuals.

Another challenge facing the realisation of a truly diversified economy is multiplicity of taxes and unclear fiscal federalism.

“The Second Schedule of the Nigerian Constitution 1999 grants the federal and state governments the power to legislate on tax matters based on the concept of federalism and the devolution of fiscal powers. Both the federal and state governments have been assigned specific areas of tax in which they can legislate, but they have some common areas as well. There are sometimes overlaps of tax collection in these common areas, which leads to multiplicity of taxes. This deters tax compliance among citizens as it means that a single source of income is being taxed multiple times by the federal and state government,” he said.

According to Oyedele, taxes generated from oil revenues seem to have served as a distraction and hindered the progress of overall tax administration and governance.

“Compliance level from citizens is low and authorities have failed to push further, which may also be due to the fact that tax authorities currently lack the capacity to effectively manage the tax system,” he said.

He further noted that another hindrance to the advancement of the tax system include government non-reliance on citizen taxes to finance public spending, “so there is less of an incentive to pursue effective tax compliance measures.

“This sets a vicious cycle in motion: If citizens do not pay taxes, they do not demand accountability from the government, which may lead to poor governance and will ultimately lead to citizens not wanting to ‘invest’ their taxes in the government,” the expert said.

He further stated: “Nigeria’s tax to pre-rebased GDP ratio was 12 percent while post-rebased ratio is 8 percent (about 5% from oil and 3% from non-oil). This ratio is one of the lowest in the world compared to 23 percent in Ghana, 25 percent in South Africa and 39 percent in Brazil, to mention a few. Another interesting benchmark (though not commonly cited) is the tax revenue per capita. This is about N38,000 for Nigeria compared to over N450,000 for South Africa; N200,000 for Ghana and N1.8 million in the United States.

“The low level of tax revenue can be attributed to a number of factors including the cumbersome and inefficient tax administration system, high level of tax evasion, ambiguities in the tax laws and insufficient utilisation of tax revenue for social services and visible development.”

 

Iheanyi Nwachukwu