Nigeria is not collecting enough tax returns - Governor El-Rufai

Governor Nasir El-Rufai has stated that Nigeria isn't collecting enough tax returns as it should. 

Delivering a keynote speech at the 22nd Annual Tax Conference of the Chartered Institute of Taxation of Nigeria (CITN) in Lagos on Thursday November 5 , the Kaduna state Governor averred that there's still much potential for growing Value Added Tax (VAT) and independent revenues of the federal government than what's being collected presently.

El-Rufai who stressed that the low rate of tax income collection depresses public finances, hampers the power to deliver social goods, services and physical infrastructure, limits competitiveness, shrinks the power to market the type of enabling environment and economic dynamism which will create jobs, expand public revenues and improve public welfare, also noted that there's considerable resistance to the hike in VAT from 5 percent to 7.5 percent albeit Nigeria’s rates are still much less than other neighboring countries.

Pointing out that a minority of Nigerians who pay tax are mostly those whose taxes are deducted at source (including the formal sector employees, public servants and therefore the like). He listed Lagos and Edo as states that have done relatively well in terms of tax income mobilization at the subnational level. 

“With national tax revenues (oil and non-oil) still but 7 percent of GDP, Nigeria is much behind the typical of comparator nations of about 20% of GDP. because the world goes green, and petroleum loses its primacy as a number one source of energy, Nigeria must look inwards and compel every adult to pay tax as a part of our citizenship obligation.

“In light of things that we are, we've only a few options aside from develop our capacity to gather to broaden the tax net, assess and collect taxes from individuals and corporations to levels of our comparator nations – a minimum of 20% of GDP within the shortest possible timeframe. As political leaders and tax professionals, we must put our collective heads together to make sure this national objective is achieved as soon as possible.

“The total internally generated revenues by states are currently but one-hundredth of GDP, despite the very fact that Nigeria’s current fiscal federalism framework allows states (and local governments) to gather many taxes, levies and costs as within the Taxes and Levies (Approved List for Collection) Act, LFN CAP T02.

“We were determined from 2015 to assess and collect enough tax revenues to hide a minimum of our personnel costs, and within the medium term, our entire recurrent budget such we don’t got to await the monthly FAAC ‘handouts’ to stay our governmental operations running.

“To underscore our commitment to the present , the then Deputy Governor and that i resolved to donate 50 percent of our salaries and allowances to the state treasury until we are ready to achieve the primary benchmark.We did so in 2019!

“The positive effects of tax income depend upon prudence. as an example , efficient infrastructure enable firms to be competitive, and inefficient infrastructure harms competitiveness. Excessive taxation are often another business burden that also adversely affects competitiveness. as an example , multiple and high levels of taxation affect supply and output prices, firm revenues, and profits.

“The pace of national development, especially in developing and emerging economies like Africa critically depends on the role government plays in providing both the normal services that are her exclusive reserve like law and order, defense, etc. and non-traditional services like justifiable economic and social interventions in infrastructure, education and basic healthcare. Recent literature and country experiences suggest that ‘developmental states’ – that always intervene significantly in social and economic sectors – are better ready to achieve faster economic process and diversification than the regulatory states promoted by the now-discredited Washington Consensus which pushed for lesser government involvement within the economic arena.

“From the foregoing, it's clear that four key points have emerged because the guiding principles for achieving development with taxation:

“Forming and running efficient and effective governments with strong policies, institutions and executive capacity;

“Performance-based budgeting to reinforce efficiency and effectiveness within the utilization of state revenues;

“Prioritizing expenditure to intervene in sectors that accelerate national economic process and performance;

“Building autonomous institutions that reduce uncertainties and transaction costs, influence socially responsible choices, and compel rational actions.

“Taxation, Development and Competitiveness:

“Competitiveness is decided by an environment that promotes investment and innovation by businesses, which enables them to compete globally and reciprocally attract investment from international companies.

“It is therefore obvious that a lot of factors besides tax program determine where a corporation locates its investment.

“These factors include availability of strong institutions, product/service markets, good infrastructure, educated and skilled labor and a strong economic system , amongst many others.

“Organizations appear to be more competitive when the tax burden on them is reduced. The reduction of the company rate from 30% to twenty and 0% for companies with turnover of N100M and N25m, respectively, was expected to spice up the competitiveness of Nigeria’s economy.

"This incentive is predicted to encourage businesses to innovate, expand their productive base, increase employment of skilled and unskilled labour, improve supply chain efficiencies, and attract foreign direct investment.

“Tax policy is one among the veritable tools available to countries to enhance and promote national competitiveness. No wonder in recent times, many countries have focused on reducing their corporate income taxes so as to draw in investment and businesses, and make jobs and wider tax net.

“In Europe, for instance, Belgium considered reducing its corporate rate from 33.99% to 25%, Luxembourg cut its corporate tax rate from 26% to twenty , while the general EU rate fell from 45% to 24%. The US also considered reducing corporate taxes from 35% to 21% to reinforce its competitiveness globally.

“What We do about Tax in Kaduna State:

“There has been steady rise in revenue collection in Kaduna State within the last four years. we've increased our revenues from N23bn in 2016 to N44.9b in 2019, a rise of N21.9bn.

“To appreciate this journey, it's important to recall that revenue collection in 2015 was N13.55bn. Our government had nearly doubled this by 2017, before the good breakthrough in 2019, all this without hiking tax rates.

“This achievement was made possible through the deliberate implementation of a carefully designed plan. the most focus has been on critical reforms, broadening the tax net and automation of processes to support our simple doing business charter.

“One of such reforms was the enactment of the Kaduna State Tax (Codification and Consolidation) Law in 2016.

“The law established the Kaduna State tax income Service (KADIRS), in situ of the defunct Kaduna State Board of tax income (KDBIR), so as to holistically rotate the institution into a more efficient, service delivery agency, with a personal sector, business-like orientation.

“The main thrust of the law is to eliminate multiple taxation, provide a clearer understanding of taxes and reduce the value of compliance.

“Other important features of the Tax Code include the following:

“Empowering KADIRS because the sole revenue collection agency within the State

Prohibiting cash collection which helped to dam revenue leakages.

“Providing multiple payment channels to ease compliance encumbrances.

Reducing the amount of levies, fees and other charges, especially at the government level.

“Established a tax information and complaint office altogether MDAs

Simplifying assessment for the informal sector

“To implement the provisions of the law effectively, the organisation had to be restructured. KADIRS features a flat structure, with functions-based departments, for easier co-ordination and synergy. we've prioritised the expansion of the tax net to extend the amount of taxpayers and potential taxpayers, and that we are scaling up advocacy and public private dialogue”.

“From 2015, we reformed or created new institutions to anchor the execution of our governance agenda. Amongst other measures, we enacted legislation to determine a replacement revenue agency, and a replacement body to digitize the land registry and to manage land administration within the state.

“We created a one-stop buy investors and passed laws to reform the management of public finances, including a Fiscal Responsibility Commission. We enacted a Contributory Pension Law and made the scheme effective from 1st January 2017. This mixture of legislation and new agencies provide the platform for a coherent approach to supporting private investment and business growth.

“Within the limited scope of the taxing powers available to a sub-national government, the Kaduna government supports new business start-ups and investors with tax holidays to assist them found out and stabilize. We waive a number of the taxes, levies and costs payable to the government to form our state more attractive to investors”

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