… to ensure fairness and equity of tax incidence and fiscal burden while protecting the most vulnerable persons and small businesses
The Presidential Committee on Fiscal and Tax Reforms said its assignment was not to increase taxes but to expand the tax net so that those already eligible for tax payment could be brought into the tax net.
It stated that it had recommended the harmonisation of taxes and levies collectible by the three tiers of government into eight headings.
According to the chairman of the committee, Taiwo Oyedele, the proposed streamlining of taxes sought to make tax administration modern, simple, and adaptive and become a growth enabler.
He said that one of the committee’s cardinal points is ensuring that Nigeria has single-digit taxes and a modernized fiscal system.
“The government is not introducing more taxes, rather, it is planning to have single-digit taxes”
Taiwo Oyedele, who was speaking at a public consultation workshop for journalists and public analysts with the theme, “Proposed Changes to the National Tax Policy, Tax Laws and Administration,” in Lagos, said the principles the committee is working with is to do away with nuisance taxes with very low revenue yield, high cost of collection and ultimate burden on the poor and small businesses.
“We are focusing on high revenue yielding taxes that are broad-based and relatively easy to collect by merging taxes and levies that are imposed on the same or substantially similar tax base and keep the total number of taxes across all levels of government to a single digit.”
Because of this, the committee has further recommended the institutionalisation of tax harmonisation reforms to ensure its sustainability.
The proposed list of harmonised taxes and levies included income tax, property tax, Value Added Tax (VAT), customs duties, excise tax, stamp duties, special levies, and harmonised levies.
He also hinted at the social security contribution, and said it was “not a tax.”
These include the harmonization of multiple taxes and levies at all levels of government to a few numbers that are broad-based, high revenue yielding and relatively easy to administer
Secondly, the unification of revenue collection functions into a single agency per government as much as possible and thirdly, to improve public financial management with a focus on efficiency and quality of spending, non-tax revenue optimization and sustenance.
Other objectives also include modernisation and simplification of the tax system including the use of technology for revenue administration leveraging on data for intelligence to curb evasion and aggressive tax avoidance, ensuring fairness and equity of tax incidence and fiscal burden while protecting the most vulnerable persons and small businesses
Removal of tax and fiscal impediments to business growth and economic development.
Designing structures and framework to institutionalise reforms for effective policy coordination and collaboration among government agencies and tiers of government, Improved efficiency of revenue collection and transparent reporting and ensuring effective utilisation of tax and other revenues for social good to boost citizens’ tax morale, promote tax culture and drive voluntary compliance.
Transforming revenue generation for sustainable development to achieve at least 18% Tax to GDP ratio within the next 3 years, that is, by 2026 is one of the ultimate goals of the committee.
The broad mandate of the Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) is divided into 3 Pillars with 5 Dimensions and 10 Deliverables.
Oyedele explained that the committee had consolidated the education and police taxes under special levy, adding that “we introduced the special levy with just one rate and we take out all those other taxes”.
He said the Harmonised Tax Levy (HTL), which comprised road and market taxes, was meant to cater for the local governments.
The PFPTRC chairman said under the proposed new tax regime, income tax should now comprise Company Income Tax (CIT), Withholding Tax (WHT), CPT, and capital gain tax, among others.
He said, “We are hoping that when we are done there will be no consumption tax in any state. We will just agree that it is VAT and it is VAT.
“We will specify who is paying it, who is collecting it and who owns the tax. Nigerians tend to assume that if the FIRS (Federal Inland Revenue Service) collects taxes it is for the federal government alone. No.
“Even though the number of taxes we propose is eight, the federal government will feel like collecting five taxes; state governments will feel they are collecting seven taxes; local governments collecting six taxes.”
According to him, “All these will be done automatically and when we are done, there will not be need to be sharing FAAC every month.
“The tiers of government will get their accounts credited on daily basis.”
He stressed that the objective of the committee was to simplify the tax to reduce the burden on businesses, particularly SMEs.
Oyedele said part of the committee’s advocacy was an exemption for withholding taxes for small businesses within the range of N50 million annually as they will lack the capacity to comply.
He also revealed that the committee’s reform of the withholding tax, which he said remained the most difficult and complex tax to comply with in Nigeria, had been approved.
Oyedele said, “The good news is that it has moved from proposal to approval because it has been signed, waiting to be gazetted.
Among our objectives is to simplify the tax to reduce the burden on businesses, particularly SMEs.
“We want to promote competitiveness, prevent tax avoidance, detect tax evasion and close the tax gap that reflects what is happening globally.”
He also said, “We have reduced the rates for businesses producing goods and services because their margins are very small.
“We have created exemptions for manufacturers. So, if you are manufacturing anything, do not worry about withholding tax.
“We have put measures to curb evasion. These are part of the reforms that we have introduced in withholding tax regulation that has just been approved.”
The committee further recommended that any extra revenue incurred by the government should be used to pay down its Ways and Means borrowing from the Central Bank of Nigeria (CBN).
It also urged the federal government to use some portion of banks’ Cash Reserve Ratio (CRR) to provide concessionary interest rates at a single digit for manufacturers.
Oyedele said the overall objective of the reform initiative included the protection of the poor and vulnerable businesses that were merely trying to survive from tax burdens.
He said, “It has been said a million times that our money is in the informal sector, but let me say to you that we have done our analysis, and we have the data and the evidence, and it does not support that assertion.
“Our money is not in the informal sector – 95 percent of them are not going to bear any tax burden in any form.
“The money that we are looking for is in the middle, upper and elite classes.
Oyedele said it was regrettable that the “people paying the taxes in Nigeria are the helpless ones while those with the power and resources do not want to pay and we allowed that to continue