• Friday, March 29, 2024
businessday logo

BusinessDay

Stakeholders express worry over new tax regime as Reps hold public hearing on Finance Bill

Vat increase and Nigeria’s GDP: Borrowing a leaf from Djibouti’s strides

Critical stakeholders have expressed worry over the proposed tax regime in Nigeria, which they reasoned could discourage new investments into and harm returns on existing investments in the country.

The stakeholders drawn from public and private sectors of Nigeria’s economy made the reservations on Tuesday at the House of Representatives public hearing on the proposed Financial Bill 2019 presented to the National Assembly by president Muhammadu Buhari.

The Bill which has five objectives seeks to promote Fiscal equity, reform domestic tax laws, introduce tax incentives, support small businesses and raise revenue sources for government proposed an increase of Value Added Tax (VAT) from 5 percent to 7.5 percent.

In a presentation, Chairman, Oil Producers Trade Section (OPTS), Paul McGrath, argued that stiff business environment left Nigeria with only 3% out of the $73 billion of major project investments in Africa from 2015 to 2019.

According to McGrath, OPTS represents 29 independent, indigenous and international E&P companies which operate about 90% of the oil and gas production and have invested on average $15 billion per year in Nigeria over the last five years with significant benefits to the economy.

He however acknowledged that some sections of the composite bill seeking to reform the tax regime by amending several Acts, namely Petroleum Profit Tax Act (PPT), Custom and Excise Tax Act, Company Income Tax Act (CITA), Personal Income Tax Act, Value Added Tax Act, Stamp Duties Tax Act, and Capital Gains Act, are geared toward encouraging small to medium companies flourish and also digitalize communications, especially the exemption of small to medium companies from VAT, as well as a 1-2% bonus for medium-sized and large companies that pay their income tax liability early under the CITA.

The OPTS Chairman observed that certain provisions in the composite bills such as the proposed increase from 7.5 to 10% withholding tax (WHT) on dividends paid out of petroleum profits which he argued “represents another layer of tax on the pre-existing 85% petroleum profit tax rate will erode investment and investors confidence.

He cautioned against policy somersault, while noting that when Section 60 of PPTA was put in place, it was widely understood that Nigeria’s PPT rate of 85% was very high when compared to other countries. Therefore, the exemption of dividend payments from WHT was put in place to reduce the burden caused by the high tax rate.

McGrath maintained that the additional tax will further erode returns on investment and will have a negative impact on Nigeria’s attractiveness as an investment destination, to the advantage of other countries, adding that the proposed hike will in the “short-term increase in revenue from all these provisions puts at risk Nigeria’s ability to sustain its current production through new investments.

He urged that the proposal be removed from the Bill, and instead considered within the wider context of a Petroleum Industry Bill, so that its full implications for all stakeholders can be assessed and decided upon.

On the proposed 7.5% VAT rate as contained in Sections 35 & 38 of the bill, McGrath kicked against the imposition of VAT on invoices and similar transactions which he stressed will “widen the operating expenses base, thus, increasing industry operational costs. Again, OPTS recommends the adoption of globally-accepted industry practice of exempting intra-company atcost services.”

“It is noteworthy that total contributions from our operations have consistently constituted over 70% of government revenue, and 90% of Nigeria’s foreign exchange. This translates to cumulative $425billion contribution to Nigeria’s revenue between 2007-2018,” he observed.

Also, President/Chairman, Chattered Institute of Taxation of Nigeria (CITN) Olateju Somorin observed that most of the provisions that the bills seeks to amend have become obsolete in terms of global practice and have become practically difficult to implement in the Nigerian context.

The Institute also commended the proposed amendment to the Excise duties on goods imported for export oriented activities, just as it called for careful definition of the “range of products so charged as part of strategies targeted at aiding the country’s migration from net-importer to export-oriented nation.”

On his part, Mike Akinfolarin called for exemption of Bureau De Change (BDCs) operators from the new tax regime, stating that VAT are only chargeable on the end users, wherein the present CBN regulatory policy on forex trading does not allow their clients to charge VAT on their customers who are the ultimate end users.

“A close look at the forex operations in the United States of America and the United Kingdom respectively suggest that VAT are not charge on forex operations whatsoever as it is equally obtainable in other international climes, except Nigeria.”

In her address, the Minister of Finance,Budget and National Planning, Zainab Ahmed said the Finance Bill which accompanied the 2020 Appropriation Bill seeks to bring in reforms on existing financial laws and regulations that will provide a better operational framework towards improving Nigeria’s overall economy.

According to her, the bill seeks to support small businesses in line with ease of doing business reforms and raise revenues for government, by various fiscal measures, including a proposed increase in the rate of VAT from 5% to 7.5%, while the Petroleum Profit Tax seeks to improve revenue by removing the tax exemption granted for dividends or income received from companies charged under PPT.

In his submissions, the Chairman, Federal Inland Revenue Service (FIRS), Babatunde Fowler informed lawmakers that over 40,000 registered businesses do not pay requisite taxes.

While declaring the public hearing open, the Speaker of the House of Representatives, Femi Gbajabiamila was optimistic that the funds accruing from the taxes would enable Nigeria to fund the 2020 Appropriation Act when passed into law as well as meet the obligations of government and implement policies to build infrastructure, tackle insecurity, grow the economy, and provide jobs that pay a living wage and lift families out of poverty.

Gbajabiamila who was represented by the Deputy Majority Peter Akpatason said “it is an important piece of legislation, deserving of thorough consideration, and reasoned debate by the parliament of the people, acting in the best interests of the people

“We have a responsibility as legislators to meticulously review and examine every aspect of this Bill to ensure that we produce a legislative document that is clear in its objectives, thoughtful in the mandates it imposes and reflective of the best aspirations of all our citizens

“This public hearing moves us closer to that laudable objective by providing an opportunity for citizens and legislators to jointly consider the contents of the Bill. It is expected that over the course of this public hearing, citizens will advance ideas and make recommendations that will improve the quality of the legislation and ensure the varied interests and considerations of all Nigerians are taken into consideration before final enactment into law of this essential legislation.”

 

James Kwen, Abuja