As the incoming government prepares to assume office on May 29, experts have foreseen a paradigm shift in the country’s tax system.
Nigeria’s tax to GDP ratio after rebasing is 8 percent, while total taxes the country collected in 2013 was $38 billion.
This puts tax per capita at $190 as against South Africa’s $1090. South Africa, second largest economy in Africa behind Nigeria, has tax to GDP ratio of 25 percent while total tax collection in fiscal terms in 2013 was $75 billion.
Following this trend, experts predict that unlike what was obtainable pre-May 29, the in-coming government may restructure the tax system in such a way that businesses will be held more responsible to give their own contributions to the country.
Taiwo Oyedele, head, tax and regulatory services, PricewaterhouseCoopers (PwC), said the business and investment implications of key tax regulatory developments in Nigeria include possibilities for increased uncertainties in the tax environment and the fact that there could be more tax payment.
“Companies and individuals will face more tax audits and investigations as well as public scrutiny,” Oyedele said, during the Nigeria-South Africa Chamber of Commerce breakfast meeting held Thursday in Lagos.
“It is no longer going to be business as usual. There will be more focus on tax reporting by companies. Businesses and investors who don’t follow due process in obtaining tax rulings and tax waivers from government are highly exposed,” he said.
Oyedele further enumerated changes in the Nigerian tax environment as transfer pricing policy, value added taxes (VAT) increase on the horizon, more aggressive stance of tax authorities and more emphasis on due process, among others.
The upcoming Common External Tariff (CET) regime could also affect the tax system as it has 35 percent special rate on specific products and supplementary protection measures, he said.
Nigeria’s dwindling revenue means that the incoming administration may be cash-strapped except it finds alternative sources of revenue. Already, exports have declined from $97 billion in 2011 to $57 billion in 2015. External reserves have also dipped to $29.49 billion in 2015 as against $60 billion in 2008.
Experts predict that government revenue will likely decline further by 20 percent while there will be wider fiscal balance decline to 3.5 percent of GDP from 1 percent.
Bismark Rewane, CEO, Financial Derivatives Company, gave the incoming administration blueprints on immediate, short-term and medium-term steps it will navigate to shore up revenue and economy.
According to Rewane, some of the immediate steps are de-prioritisation, building a team of capable and trusted professionals and differentiating between the need to haves and good to haves.
“As short-term steps, there should be some coordination between fiscal, monetary and structural adjustments. Currency must be properly priced,” Rewane recommended, during the DuPont dinner held in collaboration with American Business Council in Lagos.
“There must also be medium-terms steps like trade liberalisation and diversification away from oil. Again, the tax system should be simplified while tax evasion needs to be reduced,” he said.
ODINAKA ANUDU
