Nigeria Says It Loses $26bn Annually  To Tax System Gaps

Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr Taiwo Oyedele, has disclosed that Nigeria is losing about N20 trillion (about $26 billion) annually to gaps existing within its tax system, including evasion and certain inefficiencies in collection modes.

Oyedele spoke with newsmen Tuesday in the company of the Special Adviser to the President on Revenue, Mr Zaccheus Adedeji; World Bank Country Director in Nigeria, Shubham Chaudhuri and President of the Manufacturers Association of Nigeria (MAN), Otunba Francis Meshioye, after the inauguration of his committee by President Bola Tinubu at the State House, Abuja.

He, however, lamented that those who evade tax get away with little or no consequences, stressing that this needs to change, adding that data had shown that Nigerians are willing to pay taxes if they see what it translates to. 

Oyedele also disclosed that the task of the Committee is to get rid of multiplicity of taxes that have impeded the prosperity of Nigerians, explaining that this would be achieved by harmonizing taxes and provide the country with a fewer number of taxes.

According to him, the mandate of the committee “is to get rid of so many taxes that come in the way of prosperity for our people. So Nigerians should look forward to a more harmonized, fewer number of taxes.

“But then it seems like it’s a contradiction. How do you then raise the revenue? Now, we know where we’re going to get the revenue from – there’s a huge tax-gap. What that means is as of today, without introducing any new taxes, if you get everyone that needs to pay their taxes to pay, we will not be where we are. So we think that the gap is somewhere in the region of N20 trillion.

“In addition to that, you would also imagine that we have inefficiencies in the way we collect the little that we collect. And that inefficiency is coming from, you know, sometimes, I think in the 2023 budget, we have like 63 MDAs that were given revenue targets. Those MDAs want to be able to focus on their primary duties of why they were established, the revenue mandate is a distraction for them.

“So imagine that we asked the FIRS to collect those revenues on their behalf so those agencies, by focusing on their primary mandates, they’ll facilitate the economic development we’re looking for. FIRS will collect the revenues efficiently, which means not only is the top line growing because of collecting it is reducing. And that gives you a much bigger margin to take care of of the people.

“So these are some of the areas where we expect that the increase (18% tax-to-GDP) would come from. If we get to a point where it becomes necessary to look at existing tax rates, and all of that, it will be maybe as a result of harmonization of taxes that we have repealed from the current legislation”, he said.

Shedding more light on the targets, Oyedele said “we don’t want to tax investment because it seems counter-intuitive. If you need more investment for economy to grow, why do you make it more expensive to invest? Why don’t I allow you invest and when you’re making the returns of your investment, we can talk about the taxes at that point? Why am I taxiing production when I need more productions to even create the employment for our people, when I can wait for you to produce and tax the consumption?

“How do I ensure that while I’m taxing consumption, it does not come in the way of, you know, the quality of life and so on and so forth?  And that’s where the policy design comes in. So in designing your policy and part of the mandates of this committee is to get a lot of data about our people. So when we are collecting data about our people, it is not because we want to tax everyone.

“So when you have that data, you use it to design the fiscal policy such that the poor and vulnerable do not carry the burden of tax. So that’s why you see – and we have a bit of that already – you see basic food item is exempted from VAT, right? So that’s the plan.

“The plan is to ensure that there are some of us who can afford those things. Some of us will go to a five star hotel today and have lunch and is 25,000 naira. For some people that is their monthly income. So the person that can pay 20,000, 25,000 to buy a meal, they can afford a little bit more to take care of society as the way of a contributing to our economy”.

Also speaking, World Bank Country Director, Chaudhuri, said Nigeria needs to significantly increase its tax-to-GDP ratio, lauding President Tinubu for eliminating fuel subsidy, which he said added close to two percentage points of GDP to government revenues. 

 He emphasised that for a government to provide basic services such as healthcare, education, and infrastructure, it typically needs to spend between 15 to 20% of GDP. 

However, Nigeria has been spending only 10 to 12% of GDP while its revenues have been about 7 to 8% of GDP. Therefore, there is a large deficit that needs to be addressed. Improving the tax administration and reducing the tax gap are crucial steps to narrowing this deficit.

The World Bank country representative, said to raise revenues, Nigeria must address several areas addng that the elimination of fuel subsidies has been a significant step in the right direction, as they have been draining government resources. 

According to him, a key concern is the low number of personal income taxpayers compared to the number of individuals earning significant income in Nigeria. 

He added that the country needs to examine tax expenditures and assess whether collection costs are excessive. Harmonization and fine-tuning of the tax policy regime may also be necessary, with certain taxes being increased while others are eliminated. Ultimately, the biggest gains will come from improving tax administration and reducing the tax gap.

Another important aspect to consider is the quality of government spending, Chaudhuri said, redirecting funds to areas that Nigeria truly needs and ensuring that they are not spent in the wrong places can help bridge the gap between revenues and necessary expenditure. 

He said the focus should be on investing in areas such as human capital development and youth skills, as articulated by President Tinubu. 

Chaudhuri said he believes that Nigeria should strive to achieve a target tax-to-GDP ratio of 18% over time, which would align with other middle-income countries like India and Indonesia.

On his part,  President of the Manufacturers Association of Nigeria (MAN), Francis Meshioye, emphasized the significance of the Committee’s inauguration, stating that it represented a landmark step for the country. He emphasised the importance of levying fair taxes and ensuring that they are deployed appropriately to enhance the business environment.

Meshioye expressed his belief that there should be a strong link between the government’s fiscal policy, taxation, and the well-being of the people. 

He emphasized that businesses should not refrain from paying tax but instead focus on the fair assessment of taxes and further highlighted the importance of government revenue being utilized to improve the business environment and enhance the well-being of the people.

The MAN boss expressed optimism about the President’s address, stating that it instilled hope in Nigerians that taxes would be fairly charged and that the revenue generated would be invested in enhancing the business environment, fostering competitiveness, and attracting foreign investments.

According to him: “One thing that is of significant importance is that there’s a realization that there has to be a link between the government’s fiscal policy and taxation and the well being of the people. Our businesses have no business refraining from paying tax, the only issue that we’ve had has always been ensuring that a fare tax is paid and that the income tax is used by the government to improve business environment and the wellbeing of the people.

“The address that Mr. President gave today has significantly raised the hope of Nigerians that taxes will be fairly taxed and that it will be deployed to improve business environment, make us more competitive and make us more attractive to foreign investment. The composition of the committee has given a wide range of opportunity for all Nigerians – business interest, government interest to be able to work together in a sustainable manner”.

Deji Elumoye in Abuja 

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