Relief for businesses as Nigeria waives tax penalties

…Payment of taxes in dollars to stop before Dec
…Govt proposes Emergency Economic Intervention bill

The Nigerian government plans to waive tax penalties, outstanding penalties, and interest for companies, in a move that is part of changes to make it easier to conduct business and boost revenues.

Investors often cite Nigeria’s many taxes, debatable penalties, and multiple revenue collection agencies as major factors adding to the cost of doing business and discouraging investment.

“We are working on waiving penalties on interest for businesses so that investors can pay the principal amount that is due,” Taiwo Oyedele, chair of the Presidential Committee on Fiscal Policy and Tax Reforms, told BusinessDay on Monday.

“The aim is to reduce and eliminate the complexities in Nigeria’s tax system and bring as many people as we can on board,” he added.

Nigeria has one of the lowest tax collection rates in the world at approximately 10.8 percent of gross domestic product, though tax receipts did rise by 56 percent in 2022 to a record N10 trillion. Still, only 47 percent of this year’s budget will come from revenues and the rest from borrowing.

“We are working hard on harmonising government revenue collection; we can’t continue to have situations where government agencies make more money than states,” Oyedele said.

President Bola Tinubu’s predecessor, Muhammadu Buhari, left a N77 trillion debt to local and foreign creditors. Already, 96 percent of the government’s revenue is being used to service debt and there have been fears that the government’s cash crunch could worsen if additional revenue is not generated.

To change the narrative, the government has set up a committee to reform the tax system, which suffers from high levels of evasion; enhance collection efficiency; and remove barriers impeding business growth as it tries to widen the tax base and achieve the target.

“The tax component of what we are doing is less than 20 percent. We are working on reforms in fiscal governance, revenue transformation, and economic growth facilitation,” Oyedele said.

He said his committee is discussing with state governors and looking at “suspending multiple taxes that frustrate businesses and find money from government agencies where there are surpluses”.

Oyedele was also very critical of government agencies’ collecting taxes and fees in dollars.

“This whole idea of paying levies taxes in foreign currency will stop before the end of this year,” he said. “If you are a Nigerian company or individual who does business in naira, why should we pay taxes in dollars? We shouldn’t be creating demand against our currency.”

He also announced plans to introduce an Emergency Economic Intervention bill that will reach the National Assembly before the middle of November.

“They promised to give it accelerated hearing so we expect by the end of November we should have this bill up and running,” Oyedele said.

Nigeria has over 60 official taxes and levies collected by federal and state governments and local authorities, mandated by law, according to him.

Including unofficial taxes – taxes that agencies legally or illegally levy without the backing of law – the country has more than 200 taxes, he said, adding that the large number was “making life difficult for our people.”

“The more taxes you have, actually, the less revenue you collect because it just creates the opportunity for leakages and some non-state actors collecting money and keeping it to themselves,” he said.

“We have managed to convince the governors at the first meeting. We want to create a national portal for transparent spending for all public spending on projects for all tiers of government,” he added.

Taiwo disclosed plans to introduce new foreign exchange rules, including a crackdown on illegal currency trading before December.

Read also: FX transactions outside official window to attract excise taxes soon

He said the government would expand the official market to include all legitimate transactions, while snuffing out the illicit “black market” for foreign currency.

“We think all of that will happen before December, and maybe in a matter of a couple of weeks, we will begin to see the results, such that before the end of the calendar year, the naira should find its true value, not the one that is being done currently in the parallel market,” Oyedele said.

Naira on Monday gained 2.5 percent as the dollar fell to N1,170 on the parallel market.

Traders attributed the naira appreciation to some government-announced policies, which have put speculators in an uncertain state.

Before strengthening to 1,200 per dollar on Friday, the naira had early last week hit a record low of N1,310/$ following strong demand on the parallel market.