As businesses struggle to survive in Nigeria’s harsh economic climate, multiple taxation, once merely a side effect of the nation’s amorphous federal structure, is posing a critical risk to economic growth.
In a painful twist of events, taxes applied outside the legal framework established by the Schedule to the Taxes and Levies Act of 1998 which governs how duties are administered to corporate entities is raising the cost for operations and rendering companies broke.
Sharing a personal experience, Fadi Jarmakani, managing partner at African Development Services said: “Because we provide exhibition services, Lagos State demands ‘consumption tax’ from us. People have questioned the motive for charging us 5 percent Value Added Tax (VAT) and an additional 5 percent as Consumption Tax. Plus we also have the local government asking for ‘Entertainment Fee’.
“These are cases of triple taxation and somebody needs to put their foot down and tell them enough is enough”.
Other heavily reported cases include duplicitous regulations and levies enforced by the municipal and state arms of government as statutory
versions of federal taxes. A clear example is found in Lagos and Imo States where the indigenous
Planning Board demands arbitrary levies payable by construction companies and telecom operators to the local government’s bank account as erection permits, installation permits, building permit and other fancy labels unknown to law.
While the imposition of vague levies remain a concern, rather than enforce proper collections of existing duties, the Federal Government,
in a bid to plug the fiscal deficit apparent in $4.49 trillion austerity budget, has chosen to create even newer exotic tariffs.
“Special taxes should be introduced on luxury items,” said Abraham Nwankwo, director-general, the Debt Management Office (DMO).
Nwankwo believes that taxing items like champagne and fancy airplanes will provide more revenue “to cater for those, who are not gainfully employed in terms of making sure that every child in Nigeria attends schools.”
As the DMO proposes to diversify the economy with creative options, stakeholders have questioned the effectiveness of their ideas.
A glaring dilemma
With the devaluation of the naira and biting inflation rates adversely affecting the disposable income of the populace, analysts have tagged
the high amount of funds expected as remit as “unrealistic”.
Opeyemi Agbaje, lead consultant at RTC Advisory said: “The tax rates in this country are unrealistic. We will get better compliance with more
realistic tax rates and higher transparency around what you do with the money collected.”
At present, Corporate Tax rates stand at 30 percent while those for Personal Income and Sales are 24 and 5 percent, respectively.
However, in setting the agenda for the in-coming government, PricewaterhouseCoopers, the audit firm behind the alarming NNPC forensic
report has also drawn attention to the massive rebates given to foreign portfolio investors.
In her defence, Saratu Umar, chief executive officer of the Nigerian Investment Promotion Commission (NIPC), at a forum said: “In terms of foreign direct investments, Nigeria receives an average of $7.5 billion yearly. If we compare this to the infrastructure investment requirement, we still have a huge gap.
“Therefore, a massive FDI inflow is required to service the implementation of the various strategic master plans across critical sectors of the Nigerian economy,” she continued.
This drive to attract foreign portfolio investments, has given the NIPC the grounds to offer tax holiday’s as incentives to new and a few existing FDI’s.
Due to the huge considerations given to this sect of investors, heavy and assorted tariffs are alternatively imposed on indigenous
tax-compliant organisations in a bid to check the shortfall in monthly receivables by the regulatory agencies.
However, both the FIRS and the Nigerian Investment Promotion Council (NIPC) have posited varying points of view to justify the partial or full withdrawal of the tax holidays granted to a select crowd of investors.
Although NIPC, via its website states that it possesses the power to provide services for the grant of “business entry permits, licenses, authorizations and incentives”, its authority to administer pioneer tax holidays to a segment of taxpayers has been called to question.
According to the FIRS, this activity carried out by the agency is in conflict with the provisions of the Industrial Development Income Tax Relief Act (IDITRA).
Arguments as to whether the NIPC should have the right to extend rebates for initial grants beyond a three-year timeline as is witnessed in the nation’s import driven economy sets the Inland Revenue Service at loggerheads with the aforementioned.
They insist that by law this power should be theirs alone.
Fixing the problem
With the FIRS, and by extension the Joint Tax Board, pegging May 31, 2015 as due date for filing tax returns for companies with November
as accounting year end, business owners are on the edge as to how much of their actual profit they will remit to an unproductive government purse.
However, in line with legitimate expectations and a bid to proffer lasting solutions, if a group of corporate entities seek a court injunction with verifiable facts showing the harmful impact on
profitability and general economic growth, the jamboree carried out by both agencies can be curtailed.
Taiwo Oyedele, head of tax and regulatory services at PwC Nigeria, in a recent note further said: “It is inevitable that there will be disputes between taxpayers and tax authorities. Getting tax justice should be less painful, less time-consuming and inexpensive.”
“To ensure a quick dispensation of tax justice, the Tax Appeal Tribunal should be given constitutional backing or better still establish a tax court,” he further said.
Rita Ohai
