Government has shown determination in improving taxation in the country towards efficient and effective tax administration drawn from appropriate policy framework and rooted in sound legislation. Traditionally, effective culture of taxation is a function of the tripod frontier of tax practice: tax laws, tax policies and tax administration. Countries that have made progress in their tax system have harnessed these elements in a way that it conforms to global best practice.
The downturn in the nation’s revenue stream calls for alternative sources of funding the business of governance beyond oil. Prices of crude oil, Nigeria’s economic mainstay and key revenue earner, have fallen drastically in the international market. In the past 14 months, we have seen oil prices fall to an alltime low of $45 per barrel. Currently, it sells below $50 per barrel – hovering between $47 and $48 per barrel. This is about 56 per cent decline against $110 per barrel the commodity had sold before the June 2014 price crash.
Expectedly, the hit on the revenue profile of government has been severe. Many of the states had gone bankrupt at the end of May when a new administration was inaugurated at the centre and in majority of the states. Federal government had to arrange for a bail-out package for the states as virtually all of them had accumulated backlog of workers’ salaries.
The slide in oil price also impacted negatively on the statutory monthly allocation shared by the three tiers of government through the Federal Allocation Account Committee (FAAC). The allocation has witnessed a sharp drop since June 2014. For instance, the three tiers of government has shared an average of N470 billion in the first half of the year, over 50 per cent less than what was earned in the corresponding period of last year.
Increased attention is therefore being paid to the non-oil sector, with greater emphasis on taxes and levies. Already, government had shown a determination to adopt a shift in revenue base. For instance, it rolled out specific measures in the 2015 budget towards increasing tax revenue, such as surcharges on luxury items which it said was expected to contribute N10.56 billion to the federal till in 2015.
Government, through the Federal Inland Revenue Service, has intensified awareness campaign to sensitize the citizens on the need to expand the revenue base through tax, and has since embarked on a renewed aggressive tax drive. It was on this basis that the immediate past Jonathan-led administration amended the Taxes and Levies (Approved List for Collection) Act of 1998 aimed at achieving harmonization of taxes among the three tiers of government.
Experts have, however, pointed out that the amended law has, instead of achieving the desired harmonization, created room for duplicity of taxes. For instance, it significantly increased taxes and levies to be collected by the states from 11 to 25 while also allowing some taxes on concurrent status. Expectedly, the states will take far-reaching steps to exploit these loopholes to exploit the people. And this is a source of worry. Government is also contemplating an increase in the Value Added Tax (VAT).
We commend government efforts to achieve effective tax reform. This would, among other things, ensure that majority, if not all, taxable citizens, both individuals and corporate, pay their taxes and levies as and when due. However, it is worrisome that while emphasis is on achieving increased tax revenue, government has not given due attention to the cry against unfair tax practice, especially in multiplicity of taxes. For instance, while the 1993 VAT Law abolished Sales Tax, some states still collect sales tax; yet share from the centrally administered VAT proceeds.
Motorists are also forced to pay multiple taxes as they operate across the states. Local governments also indulge in the practice. They mount revenue check-points in defiance of the order of the federal government through the Joint Tax Board outlawing such illegal collection points. States also use the services of tax consultants against the directive of the Joint Tax Board. All these create obstacles to effective tax administration and douses the zeal of the tax payer to fulfill his civic responsibility.
Government should, again, take a look at the amended Tax Law to expunge the problematic areas that makes tax administration tasking. Tax experts, in conjunction with the Chartered Institute of Taxation of Nigeria, CITN, and other stake holders should ensure that the tax reform being canvassed achieve the dual objective of fairness and effectiveness. The system must be efficient and transparent enough that all taxable entities pay their taxes and are seen to be so doing; while government insists on the path of fairness and justice. Allocating targets to government revenue agencies without bothering about the performance factors that impinge upon tax administration and how it affects the citizens will be counter-productive.