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TAX IN NIGERIA

ICTRD Tax International Center for Tax Research and Develpment

TAXING NIGERIA OUT OF POVERTY

Poverty in Nigeria keeps rising(69%-OXFAM 2019 report) public debt keeps growing(N25 trillion-DMO). Tax collection to GDP ratio is still ridiculously low around 6% and debt service to revenue ratio is accelerating to about 70% leaving just about 30% for infrastructure and governance. Something drastic must be done by government at all levels and all well meaning Nigerians to turnaround these negative statistics to prevent big financial crisis. Going by the GDP report for First quarter of 2019 released by the Nigeria Bureau of Statistics(NBS), I observed a very wide shortfall in VAT collected by FIRS during Quarter 1 of 2019.

A total of N289Billion VAT was collected by FIRS on behalf of the 3 tiers of government when the country’s Gross domestic product(GDP) was N32Trilion. The VAT to GDP ratio in Q1, 2019.

Therefore was less than 1% at 0.91%!!! Although this ratio was better than average VAT to GDP ratio of 0.85% recorded in 2018, this is calls for great concern and quick action from the government if Nigeria is serious about addressing the problem of high ratio of debt servicing to revenue.

Some of the business sectors of the Nigerian economy responsible for the ridiculous low overall VAT to GDP ratio mentioned above are as follows:

1) Banks and other financial institutions remitted VAT of N4.2billion on N1trillion GDP. Expected 5% VAT on its GDP is N51billion leaving an estimated VAT shortfall of N47billion. Collection ratio was 8%.

2) Building and construction remitted VAT of N2.7billion on N2trillion GDP. Expected 5% VAT on its is N103billion leaving an estimated VAT shortfall of N97billion. Collection ratio was 6%.

3) Commercial and trading activities remitted VAT of N15billion on N5trillion GDP. Expected 5% VAT on its GDP is N270billion leaving an estimated VAT shortfall of N253billion. Collection ratio was 6%

4) Properties and investments activities remitted VAT of N940million on N1.8trillion GDP. Expected 5% VAT on its GDP is N92billion leaving an estimated VAT shortfall of N91billion. Collection ratio was 1%

5) VAT collected from Transport and Haulage Services sector was N2.4billion when its GDP was N792billion. Expected 5% VAT on its GDP is N39.6billion which gives an estimated shorfall in VAT at N37billion. Collection rate here was 6%.

6) VAT collected from Textile and Garment industry was N298million when its GDP was N858billion. Expected 5% VAT on its GDP is N42.9billion resulting into an estimated VAT collection shorfall of N42.6billion. Collection rate was less than 1%.

The rich men are the major players in those sectors mentioned above which corroborate the fact that the poor pay more taxes than the wealthy in Nigeria.

Federal Inland revenue though has been expanding the tax net needs to spread its tentacle very wide inorder to tackle loopholes in VAT collection.

Taxing Nigeria out of poverty is the way to go. This involved better use of tax revenue to tackle poverty in the land.

The makers of Nigerian tax laws had wrongly assumed that governments would rightly use tax revenues for infrastructure and human capital development for the benefit of all Nigerians hence all tax legislation’s were narrowly drafted to concentrate only on assessments and collections of taxes by the tax authorities with sanctions for non compliance and distribution of tax revenue among the 3 tiers of government without legislating on how to utilize tax revenue by governments for the benefit of the people with sanctions for misappropriation of tax payers money.

This has created an ugly situation where tax payers just have to comply with tax laws by paying their taxes without any legal framework for enforcing proper utilization of tax revenue for developmental purposes. As a result, achieving the tax objective of wealth redistribution remains a mirage in Nigeria as poverty and inequality continue on the rise with huge gap in infrastructural deficit.

The attention of the 9th National Assembly is urgently required to amend all Nigerian tax laws in-order to remove the above lacuna which has made transparency and accountability of tax payers money a non-issue in Nigeria.

Another area of concern is the need to make all our tax assessments and collections real progressive. Most of our taxes are regressive in nature in that the poor pay a higher percentage of their income as taxes while the rich pay a lower percentage of their income as taxes. This is an anomaly that progressive taxes would correct. Progressive tax system levies taxes on tax payers according to their capacity to pay and would collect more taxes from the rich than from the poor.

This is the standard in progressive nation because it collects more taxes from the wealthy who can easily afford it and collect lower taxes from the poor many of whom are finding it difficult to make ends meet. This is the kind of tax that can really help Nigeria to fight the high poverty in the land.

The legislators should also consider amending the VAT law to introduce extra 2% VAT on luxury items inorder to progressively boost the revenue at the disposal of government.

In closing, I call on all well meaning Nigerians in each of the 109 senatorial districts and 360 Federal constituencies to take this important way-out- of- poverty message to their distinguished Senators and the Honourable members in the Federal House of representatives to make it a priority the amendment of our tax laws to reflect the above proposal as it would help accountability and transparency of tax payers money as well as promoting Voluntary Tax Compliance by tax payers.

I appeal to you to send this message to all your whatsapp contact as well as your representatives at both state and Federal level. This is a clarion call on you towards a better Nigeria for all of us.

Thank you.

Yekini Iskilu, FCA

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