The introduction of Corporate Income Tax (CIT) on companies that engage in educational activities may trigger a hike in tuition and may have an adverse effect on human development, analysts say.
The 2021 Finance Act provides that companies engaged in educational activities are now subject to corporate income tax regardless of whether such activities are of a public character.
Professional services firm, PwC Nigeria says the provision is one of the key changes in the 2021 Finance Act, in a blog post. The new tax rules take effect on January 1.
The current Finance Act also increased the education tax payable by Nigerian companies from 2 percent of assessable profits to 2.5 percent.
“I struggle to know why we are taxing the education system because everything points to the fact that we need more education not just in terms of the quantity but the quality and depth of education for us to lead in this new age,” Taiwo Oyedele, a West Africa Tax Leader at PwC Nigeria said at the Nigerian Economic Outlook 2022 organised by the King’s Court, Redeemed Christian Church of God on Saturday.
Read also: Nigeria approves COVID-19 vaccines for 16-year olds on educational grounds
Oyedele said tuition fees are likely to go up making education less affordable and this could have a long-term impact on human development.
“We need to find other safeguards to ensure that this does not create a bigger problem than the solution we want to address,” he counselled.
Commenting in the same vein, Ayodeji Ebo, Head, Retail Investment, Chapel Hill Denham noted that the tax will create an additional burden on parents.
“Nigerians are still struggling to cope with the current school fees. It may lead to more school drop-outs because it will become more unaffordable and have more people unable to cater for their children’s education which will lead to more insecurity,” Ebo said.
A corporate tax is a levy which the government imposes on the income of a company. The CIT rate had hitherto been zero percent for companies with gross turnover of N25 million or less, 20 percent for companies with gross turnover greater than N25 million and less than N100 million, and 30 percent for large companies above N100 million.
Nigeria’s economy has witnessed two recessions within the past five years owing to the collapse of oil prices, disruptions caused by the COVID-19 pandemic.
The contractions have weakened consumers’ purchasing power, caused job losses, eventually threw millions into poverty.
According to the World Poverty Clock over 90.1 million Nigerians are now living in extreme poverty, up from 82.9 million three years ago.
Last year, in a report, the World Bank stated that poverty was pushing young Nigerians to quit school early for menial jobs.
“Youth responded to both the 2016 oil recession and Covid-19 crises by leaving school earlier to enter the labor market, thus increasing overall labor supply,” the Bank stated.
It also added that leaving school early to find work could affect the country’s human capital stock, notably through declines in educational attainment.
“The people that will suffer are the most vulnerable and the low-income bracket which will worsen the level of out-of-school children in Nigeria,” Damilola Adewale, a Lagos-based economic analyst said.
Nigeria’s performance in human capital development has not been remarkable. According to the United Nations Development Programme (UNDP), the country dropped three positions, ranking 161 in 2019 from 158 in 2018 among 189 countries in Human Development.
Also, over the past few years, budgetary allocation to education has not been more than seven percent of its total budget. It is no wonder that the United Nations Children’s Fund (UNICEF) said the country has the highest out-of-school children in the world.
