Will change come to Tax? (2)

Action #6 – Declare tax amnesty and embark on taxpayer awareness campaign

Taxpayer education is key to increasing tax compliance which is currently embarrassingly low as shown by our ratio of tax to GDP. Tax awareness should not be one-off or only when there is a new tax project like transfer pricing. There should be continuous taxpayer engagement, education and awareness. This should go beyond the traditional targets in cities to villages and remote areas. We should also get creative; use social media, introduce raffle draws, annual taxpayer awards etc. Tax authorities should start gathering reliable data for taxpayers profiling and compliance monitoring. There should be collaboration among government agencies – FIRS, State Internal Revenue Services, Joint Tax Board, Corporate Affairs Commission, Nigeria Customs Service, Land Registry, etc.

Declare tax amnesty under which taxpayers will be given the opportunity to carry out self-reviews with part or full waiver of penalty and interest. The review period may be limited to 6 years for large companies and one or two years for small companies and the informal sector players. Any liability beyond these periods can be fully waived. This gesture will significantly improve the level of voluntary compliance after which the tax authorities will commence full enforcement with appropriate sanctions.

Actions #7 – Block tax leakages and streamline tax incentives

Create structures to stamp out corruption in tax administration especially through the use of technology and introduce a framework for whistle blowing.

Also, incentives and waivers should be streamlined and should be sector based to provide a level playing field and avoid economic distortion. This should include renegotiating existing tax treaties to limit tax give-aways. The existing tax treaties grant reduced withholding tax rates of 7.5% on investment income compared to 10% without treaty advantage. In many cases this is not reciprocated by the contracting state and given that Nigeria is predominantly a net importer of capital, we are giving away far too much than we are getting in return.

Action #8 – Set key performance indicators, improve tax revenue reporting and put taxpayers’ money to work

If you don’t have a predetermined destination, how do you know if and when you get there? It is not enough to simply set revenue collection targets and celebrate when they are met or exceeded. Taxation is not a game where the end justifies the means. On the contrary, it is the means that determines the end.

Government should set key performance measurements for the tax authority (and tax officers), and develop a framework for a robust reporting by the tax authorities. This should include analysis of value of tax relief granted, cost of collection, refunds paid to taxpayers and amounts outstanding. It should also highlight key success factors like tax to GDP ratio, ease of paying taxes ranking and duration of tax audit completion.

And more importantly, government must utilise tax money for social services and visible development and be accountable to the people for the taxes they have paid.

Action #9 – Remove prohibitive practices and legal barriers to investments

To encourage businesses and reduce unemployment, we must address various provisions of the law and tax practice that discourage investments.

Notable among these are (1) excess dividend tax (2) minimum tax provisions and (3) commencement rules.

Excess dividend tax imposes double taxation on companies especially those that reinvest their profits and holding companies when they redistributes their dividends. This is a huge disincentive to economic growth and the use of Nigeria as headquarters location for group entities. The minimum tax provisions force companies to pay tax out of their capital if they make losses or small profits. This does not promote investment and growth. Commencement rules impose double taxation on start-up companies at the time they are most vulnerable and struggling to survive. Taxes should be paid only once on actual profit made, not twice given that such start-up companies are often fragile and therefore unable to bear the extra burden.

To reduce uncertainty in the economy, government budgets should be passed on time and include annual changes to tax policy. There should be consistency in policies with sufficient time for businesses to prepare for changes. Tax refunds should be paid on time and it should be possible to offset overpayment in one tax head against another. This is simple accounting!

Action #10 – Getting tax justice should not be rocket science

It is inevitable that there will be disputes between taxpayers and tax authorities. At the moment, tax dispute resolution takes about 10 years thereby making tax justice extremely expensive for taxpayers.

Getting tax justice should be less painful, less time consuming and inexpensive. To ensure a quick dispensation of tax justice, the Tax Appeal Tribunal should be given constitutional backing or better still establish a tax court. The tax appeal process should be simplified and less legalistic focusing on substance rather than strictly ticking boxes of legal form.

Conclusion

It is unrealistic to expect that a single administration will solve all our tax problems within four years or so but it is reasonable to expect good progress in key areas that is not only worth the elapse time but also help recover lost time and missed opportunities. The magic formula is to close the tap of tax corruption and raise compliance level. This is the only sustainable way to keep the lifeblood of our nationhood flowing and secure our future devoid of over dependence on resources that we can barely control.
Taiwo Oyedele is a Partner and Head of Tax and Regulatory Services at PwC Nigeria. He is a regular writer and public speaker on accounting and tax matters.

Blog with Taiwo for in-depth analyses, unique insight and superlative perspective on tax matters: www.pwc.com/nigeriataxblog. Subscription is free!