Businesses stressed as oil crash festers aggressive tax chase

The crash in oil prices has forced Nigerian authorities to embark on aggressive tax chase to meet obligations, but this is squeezing the top- and bottom-lines of businesses, particularly micro, small and medium enterprises (MSMEs).

A 2016 report by Pricewaterhousecoopers (PwC) shows that the official list of approved taxes collected by federal, state and local governments have risen from 39 to 61 in this administration.

This is in spite of foreign exchange crisis, poor infrastructure and illiquidity facing Nigerian businesses, which have brought about loss of revenues and profits, job losses and shut-downs.

“It is not easy for businesses now. Apart from official payments, there are also several other payments you are asked to pay which are not on record. Sometimes you are harassed by touts. All these are really disincentives,” Ike Ibeabuchi, CEO of MD Services Limited told BusinessDay.

Oil prices have fallen by over 50 percent, forcing Nigerian authorities to seek revenue and economic diversification. The federal and state governments shared N281 billion in May, from N299 billion in the previous month and over N1 trillion pre-2015 election. This means more stress for over 27 states struggling to pay workers’ salaries and meet other basic obligations.

States see an increase in tax nets as the easier option, but businesses already challenged by economic lull are struggling to pay income taxes and withholding taxes, among others.

Moshood Olajide, associate director at PwC, said at the  Lagos Chamber of Commerce and Industry (LCCI) Taxation Round Table in Lagos on Tuesday, that there are even more taxes that are not on the approved lists.

“New list merely compiles the myriad of taxes at all levels but did nothing to harmonise them. Ironically, if double taxation is eliminated and multiple taxes are harmonised, government will collect more and taxpayers will pay less,” Olajide said.

A number of them in the SME category have resorted to tax evasions or avoidance to remain afloat.

“An estimated 75 percent of SMEs are not in the tax net,” said Theophilus Emuwa, partner at Aelex and Legal Practitioners and Arbitrators.

Mahmud Othman, council member of LCCI and consultant for AG Leventis, recently told BusinesDay that  even local government authorities visit public liability firms, demanding irrelevant charges such as radio and television fees.

“The problem is that once you challenge them, they go to customary court. Decree No 21of 1998 spells out taxes payable to each level of government.   Most of the taxes they collect today are illegal. There is a provision for a local government, because of its peculiarity, to come up with a specific levy. But due to indiscipline, local governments come up with all forms of taxes,” Othman said in an interview with BusinessDay.

The number of taxes collected by the federal government is now between eight and nine, while those of states ranges between 11 and 25. Local governments, on the other hand, collect between 20 and 27 taxes.

Nigeria has a $500 billion economy but its tax to GDP ratio, hovers between 8 and 12 percent, and is dwarfed by China’s 21 percent, South Africa’s 27 percent, Angola’s 35 percent, Ghana’s 22 percent and Brazil’s 35 percent.

Tax revenue collected by the federal and state revenue services in fiscal 2014  was 6.399bn, declining to about 5.327bn in 2015, according to PwC. But tax authorities say they are trying to correct these anomalies while also supporting businesses to grow.

“We recently executed a nationwide registration program wherein we registered over 400,000 new corporate taxpayers. In addition, we are collaborating with State’ Internal Revenue Service (SIRSs) to identify and locate taxpayers through sharing and exchange of information on taxpayers and exchange of taxpayers databases,” said Gabriel Ogunjemilusi, deputy director at the Federal Inland Revenue Service, who represented Babatunde Fowler, Chairman of FIRS.

Olufolarin Ogunsanwo, executive chairman, Lagos Inland Revenue Service (LIRS) said  companies need to be conscious of their obligations and avoid every form of intimidation and exploitation either by tax agents or auditors.

Ogunsanwo while responding to claims that auditors acting on behalf of the government claim a fixed sum is to be paid regardless of liabilities, explained that companies can only pay when an audit has shown they have liabilities (due to incomplete tax payment), and therefore do not have to pay any fixed sum to any other person or agency.

ODINAKA ANUDU & CALEB OJEWALE