Nigeria’s new tax regime, its implication on citizens and economy

Tax revenue has been one of the major sources of revenue of many developing nations, a sit is utilized to boost development. 

In Nigeria, there has been outcry by the poor and middle class with regards to huge tax payments which the rich and well to do hardly pay. 

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Only recently, the Federal Inland Revenue has alleged that Nigeria loses about N100bn to tax evasion annually. 

In a bid to bring more Nigerians into the tax net,  Minister of Finance, Budget and National Planning, Zainab Shamsuna Ahmed, recently at Pricewater house Cooper’s (PWC’s) executive on the Nigerian Finance Bill, 2019 has assured that the new tax regime is only targeted at boosting Nigeria’s economic development and not to increase hardship. 

She said  the bedrock of the bill solely lies on diversifying revenues in line with economic diversification drive; fiscal sufficiency and buoyancy for sustainable development as well as reforms for fiscal sustainability “Nigerian economy is characterised by structural challenges that limit the country’s ability to sustain economic growth, create more jobs and achieve significant poverty reduction.

One of the biggest challenges of Nigeria is the high dependence on oil for economic activities, fiscal revenues and foreign exchange earnings, hence the need to diversify. “In 2016, Nigeria fell into recession due to its vulnerability to oil.

Although the oil and gas sector accounted for just about 10 percent of Gross Domestic Product (GDP), it represented 94 percent of export earnings and 62 percent of government revenues (Federal and States) in 2011-2015. 

This narrative, given obvious indices and efforts, is changing “but we still have much more to do to get to our desired revenue to GDP ratio of 15 percent by 2023, which we anticipate to come from non-oil revenues.

We must grow our tax to GDP ratio from the current six percent as at 2018.” 

“In the same vein, the oil revenue accounted for about 63 percent of total Federal Government’s revenue in 2014, which informed the concerted effort to diversify the earnings along with the economic diversification drive as outlined in the Economic Recovery and Growth Plan (ERGP).

The performance for 2018 has revealed a lot of improvement with a recorded 45 percent non-oil revenues to the total revenue (up from 37 percent in 2014). 

“Based on the non-oil revenue performance as at June 2019, we are on track to further improve our tax to GDP ratio. Although we are improving, we are way below the Sub-Sahara Africa (SSA) average of about 19 percent.

Ghana, for example, has revenue to GDP ratio of about 14 percent (2018), whereas other African Peers, including Cameroon and Kenya, recorded 16 percent and 18 percent (2018) respectively.”

She said Recounting the need fiscal sufficiency and buoyancy for sustainable development, like any other developing nation, the minister added that Nigeria needs a lot of resources to actualise the ERGP and other development plans, which are at risk of being underfunded.. 

She said revenue shortfalls have been experienced since 2017, however which resulted in serious deviations from our targeted revenue and expenditure projections as infrastructure master plan alone requires about $3triillion over the next 30 years to sufficiently address our infrastructure deficit She added that to tackle infrastructure deficit and get the needed reforms for fiscal sustainability “Nigeria needs fiscal sufficiency and buoyancy, which must come through Domestic Revenue Mobilization (DRM) for it to be sustainable.

This brings up very important questions: Why do we keep punching below our weight? Why is it difficult to mobilise domestic resources from our large economy to adequately invest in key developmental levers in social and physical assets such as human capital and infrastructure?” She argues that Nigeria has  very low tax collection efficiency which must be reversed.

 “Archaic tax laws that are not evolving at commensurate pace with businesses. There are other challenges such as leakages in the revenue generation, low tax compliance rates, high level of evasion and poor tax morale, to mention a few. Fixing these issues require robust, tough, well-coordinated and multi-faceted reforms. 

 “One of the reforms is to update our archaic tax laws which have not been reviewed in over a decade, with the most recent amendments being the amendment of CITA in 2007 and PITA in 2011.

Whereas businesses and the commercial environment continue to evolve, our tax laws remained static.”  “The Nigerian tax system was built on a progressive tax system.

But, over the years, some of the laws have become regressive at some instances. More so, it is best practice to accompany budgets with a finance bill that outlines how the budget will be funded, and the reality is, Nigeria must move away from relying on financing budgets from oil revenues,” she added.  

To break away from static laws, Ahmed stated: “The finance bill will henceforth be an annual exercise, with a window to consider feedbacks from ongoing dialogue with key stakeholders, including the private sector.

I encourage each and everyone of you to engage in the dialogue process to provide constructive feedback that will enable us to build a tax regime that stabilizes the economy, promotes equity, drive economic growth and protects our vulnerable citizens and businesses.” 

Although the new tax regime is expected to kick start in January 2020, Nigerians may need time to adopt to the new tax regime which experts have described as “harsh” on citizens especially at a time Nigeria is experiencing high inflationary rates.