Welcome to 2016!
It’s a New Year and time to look forward with hope for better days ahead. Whilst being optimistic about the future one must be mindful that there is bound to be challenges as uncertainties will continue to exist in the world in every human endeavour. This outlook applies also to tax and fiscal policies.
Going by past patterns, current trends, and likely turn of events, one can expect some developments in the tax environment from policy, administration, regulation, and tax justice.
Tax Policy
The 2016 Budget of the Federal Government of Nigeria and the 2016-2018 Medium Term Expenditure Framework (MTEF) have no specific proposals to increase tax rates or impose new taxes in 2016. The budget speech was silent on the proposals to introduce a 5% National Security Tax and the proposed increase in Tertiary Education Tax rate to 4%. There is however a broad proposal to lower the tax rate for smaller companies.
The wide government revenue gap will be funded by non-oil taxes and borrowing. Government will focus on measures such as presumptive tax regime for informal sector to increase the tax base of the economy.
Treasury Single Account (TSA) implementation should impact payments of taxes while rationalisation of tax incentives will see affected entities bear higher tax costs. Potential quantitative easing and likely devaluation of naira will effectively be a de-facto tax on individuals and companies.
I expect the federal government to commission a review of the tax system but it is unlikely that the existing National Tax Policy will receive any greater attention than in the past.
Tax Administration
The pressure for more tax revenue will make tax authorities more aggressive not only in their approach to tax audits but also imposition of stiff penalty and interest. FIRS is expected to issue guidelines for actual rather than deemed profit basis of filing tax return by non-resident companies.
The quest for internally generated revenue will gain prominence especially at states level but there will be only a minimal improvement in revenue collection due to lack of imagination, insufficient political will and the prevailing harsh economic climate. However, there will be a crackdown on tax evaders at the federal level and at some states such as Lagos. Taxation of high net worth individuals including religious leaders will be a hot topic but no marked progress is expected regarding enforcing compliance.
The new FCT Internal Revenue Service will seek full implementation of its mandate. Progress with implementation of electronic tax filing and payment system by the FIRS and Joint Tax Board will continue to be slow with only a few taxpayers signing up.
Tax Regulation
The Petroleum Industry Bill (PIB) which is now being split into Petroleum Industry Governance and Institutional Framework (PIGIF) Bill will receive attention at the National Assembly but not likely to be passed into law. At least one more component of the PIB will be introduced to cater for the fiscal regime in the oil and gas sector.
Despite indications in the MTEF and calls by the International Monetary Fund and a few other stakeholders for an increase in VAT rate, it is not likely that a change in rate will be introduced in 2016 but intense efforts will be made to increase overall VAT compliance.
Luxury tax will still not be implemented or enforced due to lack of appropriate legal framework and resistance by affected persons. There will be discussions on simplifying and revamping the major tax laws.
Tax Justice
With the expected level of tax audits and aggression by tax authorities, tax disputes will be on the rise and so the Tax Appeal Tribunal and the main courts will be quite busy.
Some states will seek to impose new taxes based on the recently published list of approved levies and taxes but I expect this to be challenged by taxpayers to determine its constitutionality or otherwise.
The menace of multiple taxation and earmark taxes will continue and the significant shortfall in revenue at states level will once again bring the question about fiscal federalism to the fore.
The Global Tax Space
The OECD’s Base Erosion and Profit Shifting (BEPS) action plan will be a major area of focus for tax authorities around the world. There will be changes to existing laws, treaty provisions and multilateral arrangements in many countries. Tax authorities will be able to exchange information about multinational enterprises more than ever before and Country by Country Reporting will gain momentum but still face significant implementation hurdles.
In addition to BEPS, the U.S. will continue to focus on improving compliance with her Foreign Accounts Tax Compliance Act (FATCA) and anti-inversion measures while a few countries will seek to introduce similar unilateral anti-avoidance measures.
The level of scrutiny on organisations operating in tax havens will intensify while more tax authorities and taxpayers will embrace cooperative compliance to reduce tax compliance cost. The decline in revenue from commodities will see resource-rich countries cut subsidies (negative tax) and introduce new taxes such as the recent introduction of VAT in Saudi Arabia.
The new Common External Tariff scheme within ECOWAS will continue to experience poor implementation by member countries thereby undermining the regional integration efforts.
Many tax authorities will continue to use social media (Facebook, Twitter, You-Tube and so on) to connect with taxpayers in order to raise tax awareness, expand their tax base and encourage voluntary compliance.
2016 Tax Resolutions
This is a critical time in the history of Nigeria where government has no other choice but to rely on taxation as the main source of sustainable revenue. Individuals and businesses must be up and doing with their taxes and work with government to reform the tax system. “Getting it Right” should be the tax slogan for 2016.
Going forward, aggressive tax avoidance will become the new tax evasion. Tax planning will therefore be tempered with low appetite for risk especially reputational damage while the debate on tax morality will intensify.
The ongoing anti-corruption campaign will spread to tax matters leading to the prosecution of tax evaders and fraudulent tax officers. Overall 2016 will be a tough year but also a unique opportunity to address fundamental and structural issues plaguing the country.
Taiwo Oyedele
Taiwo Oyedele is the Head of Tax and Regulatory Services at PwC Nigeria and Tax Leader for PwC West Africa. He is an author and public speaker on tax, business and economic matters.
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