Private sector players are having to contend with a rash of new taxes unleashed by the federal government less than two years after the COVID pandemic shut down businesses, leaving the majority of the companies needing to introduce radical measures to survive.
The taxes being planned are in the areas of stamp duties, companies’ income tax, capital gains tax, excise duties on tobacco, alcohol, carbonated drinks, and luxury items as well as a 7.5 percent charge of value-added tax on social media adverts.
Nigeria’s ease of doing business ranking is far from impressive and the recent corruption index that placed Nigeria as the second most corrupt country in West Africa compels us to question the rationale for imposing new taxes on businesses that are yet to recover from the impact of the pandemic. And given that the proceeds of these taxes have found their way into private pockets via existing revenue leakages, one wonders whether the government is truly placing its priorities in the right direction.
At the moment, businesses in Nigeria provide themselves with nearly all the amenities that governments in other countries with higher tax ratios provide
Zainab Ahmed, Minister of Finance always makes the argument that Nigeria needs to widen taxation because the country has one of the lowest tax to GDP ratios at 6.1 percent compared to the more than 10 percent average rate of many countries in Africa.
It should also be noted that Nigeria’s tax to GDP ratio is disputed by Muhammad Nami, executive chairman of the Federal Inland Revenue Service (FIRS). The FIRS boss noted in December 2021, that what is calculated as tax to GDP ratio is only the federal government’s taxes and excludes the contributions of states and local governments in the country. The implication is that Nigeria could well be doing over 6 percent in tax to GDP ratio but because the administration is not conscientious enough to record the contribution of all the different tiers of governments, the country’s tax profile is being under-reported.
Nonetheless, we believe there is no excuse to overburden the private sector with more taxes. One consequence is that businesses will be adversely affected.
Moreover, at the moment, businesses in Nigeria provide themselves with nearly all the amenities that governments in other countries with higher tax ratios provide. The private sector sinks boreholes to provide their own water, buy different sizes of generators and expend money on fuel and diesel for 24 hours of electricity. They also build and maintain the roads leading to their offices, provide their own healthcare facilities, and importantly pay for their security. Indeed what the government and its agencies do is rent-seek on the private sector in a manner that borders on the predatory.
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This is what Akinwunmi Adesina, President of the African Development of Bank described as implicit taxes, which are levies borne by society due to either inefficient government or government failure. It is therefore important, he said, to make a distinction between nominal taxes and implicit taxes – taxes that are borne by the people but are not seen nor recorded.
“It has become so common that we do not even bother to question it. But the fact is governments can simply transfer their responsibility to citizens without being held accountable for their social contract obligations,” Adesina said.
The private sector remains the only hope of rescuing the Nigerian economy from the myriads of problems it faces on a daily basis. The government needs to incentivise the private sector to create employment. But should it continue to load this critical sector with new taxes, the repercussion would only lead to more job losses.
Thus, while we acknowledge that tax payment is a social obligation that companies must fulfill, the government also must diligently meet its part of the social contract. There must be mutual accountability. Moreover, such taxes must be minimised with a view to giving the sector some breathing space. The government must be careful not to kill the proverbial goose that is responsible for laying the golden eggs.
Also, the government can look to bring more people into the tax net rather than creating new taxes or overburdening the businesses that are tax compliant with additional taxes. It can create more incentives for businesses in the informal sector which constitutes about 70 percent of the economy. This is to ensure it becomes part of the taxpaying community. Thus the overall is to widen the tax net and not to overburden those who are already part of the tax community. Evidently, this is one way in which the Nigerian economy can get out of its current straits.
