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Predictions for Nigeria’s 2018 tax landscape point to mixed results as tax to Gross Domestic Product (GDP) ratio is seen staying low but tax authorities will get more innovative and deploy technology for tax compliance and enforcement.
A marginal increase to 7 percent in Nigeria’s tax to GDP ratio is expected in 2018 up from 6.1 percent in 2017 a recent report on tax predictions for 2018 from PricewaterhouseCoopers (PwC), a multinational professional services network headquartered in London stated.
According to an Organisation for Economic Cooperation Development (OECD) report titled ‘Revenue Statistics in Africa 2017’ South Africa’s tax to GDP ratio was 29.0 percent, Morocco, 26.1 percent, Kenya 18.4 percent and Senegal 20.80 percent, making Nigeria the lowest tax-GDP ratio economy among African peers.
A low tax-GDP ratio means Africa’s most populous nation’s still depends largely on rent from national resources, oil predominantly. This also means that Nigeria’s revenue base is unsustainable and accurate economic predictions would be difficult to make because they are predicated on oil prices in the international market.
“We are still inflicted with the Dutch disease, which is the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil reserves. Now, because oil prices are volatile it means anytime it falls below a certain threshold, government revenue is severely affected, salaries are not paid promptly, with the potential of generating riots and government breakdown” said Chukwuemeka Eze, lecturer on taxation law, Nassarawa State University.
Eze said in such a situation, Nigeria might not attract as much foreign direct investment (FDI) as it should but more of portfolio investors. “Investors prefer economies with economic indicators they could easily build into their investment assumptions. Oil prices do not make for such indicator.”
PwC’s Tax predictions for 2018 report highlighted some reasons why tax to GDP ratio will stay low among which are: tax incentives designed to stimulate economic growth, which would tame government’s tax collection drive. Some of such tax incentives include, road fund tax scheme, the reintroduction of pioneer status and revised export expansion grant.
Other factors that would militate against improvement in tax to GDP ratio in 2018 include revenue administration capacity and low uptake of Voluntary Asset and Income Declaration Scheme (VAIDS).
Statistics from 2016 showed that only 4 percent in the tax net file returns as entrepreneurs or high net worth individuals, 96 percent were employees who paid their taxes via Pay-As-You-Earn tax and this accounted for 75 percent of total internally generated revenue (IGR).
Lack of data and large informal sector are both factors that would continue to limit tax collection. One critical area of revenue increase for the Federal Inland Revenue Service (FIRS) is Value Added Tax (VAT).
“The VAT gap is huge given the estimated compliance rate of 20 percent. At a GDP of N124 trillion, with about 80 percent representing consumption, assuming only 50 percent of the consumption is VATable, the VAT collection should be over N2.5 trillion” the PwC report stated.
Tax authorities in 2018 are expected to get innovative with policies and roll out technology for tax compliance and enforcement. Granted, Nigeria moved up from 182 in 2017 to 171 in 2018 on the paying taxes ranking, according to the World Bank but the road left to travel is still long.
No tax authority in Nigeria has the technology platform that allows taxpayers to do tax transactions online from start to finish. First deployed in 2014, the Integrated Tax Administration System (ITAS) is yet to achieve this.
“A proper technology platform should be able to allow a taxpayer to file their tax returns, upload schedules, make payments, process tax clearance certificates, obtain credit for withholding tax and respond to queries without going to the tax office. This will start to change in 2018” the report affirmed.
At the launch of VAIDS the Federal Government (FG) said it will deploy and heavily rely on technology to increase tax compliance. This is expected to improve in 2018.
