Need for a favorable tax review for businesses
Overtaken by the sharp drop in incomes caused by poor economic choices and the coronavirus pandemic, Nigeria is considering revising its tax regime to capture the global information and communications technology companies doing business in the country. In a blunt public finance admission, Vice President Yemi Osinbajo recently revealed that Twitter, Facebook, Google, Instagram and other global ICT / social media companies with their business presence in Nigeria would be subject to tax. Paying the tax is normal, but the proposed ICT tax coincides with the brazen policy of Major General Muhammadu Buhari’s (retired) regime to restrict Twitter operations in Nigeria after an indefinite suspension order.
With a projected budget deficit of 5.6 trillion naira in the 2021 budget, huge borrowing, a huge import bill, rapidly depleting foreign exchange reserves and a weak currency, Nigeria needs more income. to tame economic ruin. Fortunately, the tax allows it. Unfortunately, Nigeria lacks an effective tax administration. The new trend to tax global tech companies seems to be another of these loosely defined policies. Therefore, the benefit to the economy may only be momentary. Some fear that poorly managed it could even prove to be counterproductive.
In truth, Nigeria has a habit of low collection despite a plethora of tax laws. With 8.8 trillion naira or 6.1% in taxes on GDP, Nigeria shared Africa’s lowest tax collection rate with Equatorial Guinea in 2019, according to the Organization for Economic Co-operation and Development . It is extremely low to grow an economy.
This translates into one of the lowest tax-to-GDP ratios in the world. The OECD assesses the average tax rate in relation to the GDP of the countries under its aegis at 33.8% in 2018. For the countries of Latin America and the Caribbean, it was 23.1%. In Africa, Seychelles leads the pack with 32.4 percent; the rate exceeds 25 percent in Morocco, South Africa and Tunisia.
Concretely, the Federal Inland Revenue Service said Nigeria lost $ 178 billion to corporate tax evasion in the 10 years leading up to 2020. The rich escape tax, according to Osinbajo. In 2017, he said that only 914 people pay taxes of N 10 to 20 million a year in Nigeria despite the opulent lifestyle of many people in the country. In contrast, South Africa had 900,000 people paying the equivalent of N20 million per year in 2017. Instead of devising effective strategies to collect its money, the federal government borrows recklessly. This huge loss corresponds to the figure of 14 to 15 billion dollars per year of tax losses also given by the FIRS in October 2019. But the collection of the value added tax increased from 69.8% in 2019; the government reached 75.4% in 2020, although the rate was raised to 7.5% from 5.0%.
The main problem is that the current tax system is clearly inefficient. Tax evasion is high, perhaps because oil revenues have dominated the economic space for too long. Instead of raising new taxes, the focus should be on reducing taxes in times of stagflation. This has the effect of attracting foreign direct investment, growing the economy and creating jobs. UNCTAD reports that Nigeria generated $ 2.6 billion in foreign direct investment in 2020, up from $ 3.3 billion in 2019. With oil revenues unpredictable, Nigeria’s economic fortunes need a boost. ‘IDE. The catch is that the strident plan to tax global tech companies can boomerang.
At 30 percent of profits, corporate income tax in Nigeria is relatively high. To become the number one investment destination in Asia, Singapore capped the corporate tax rate at 17%; personal income tax starts at zero percent and is capped at 22 percent, making the country competitive. Singapore’s capital gains tax is zero percent. In Nigeria, the CGT is 10 percent. In February 2008, Singapore abolished the inheritance tax; it operates a free port with relatively free excise and import duties. At 7.0%, its VAT is lower than that of Nigeria. The lesson is that in 2020 FDI to Singapore was $ 58 billion.
Thus, Nigeria should not be obsessed with high taxes because taxes are already high which discourages investors. Recently, Twitter bypassed Nigeria when it moved to Ghana as the headquarters of its operations in Africa. He cited a debilitating environment and bad democratic habits for neglecting Nigeria. In 2015, Facebook, a social media giant that reached $ 1 trillion in June, chose South Africa as its African headquarters.
Although VAT is high continent-wide, most European countries deliberately keep many tax items low to attract investment and boost their economies. At 18.6 percent, Norway has a high corporate tax rate, but Germany’s 3.5 percent rate makes it an industry haven in the European Union.
Therefore, Nigeria should strike a delicate balance between raising taxes and using taxes to attract FDI. It should even be more concerned with putting in place an effective tax collection system. At best, tech giants are only moving their offices to tax havens, which abound around the world.
Together with banks, the Asset Management Corporation of Nigeria and FIRS should deploy the technology to their advantage in debt collection and tax matters. Constantly naming and humiliating tax evaders and debtors can force some debtors to pay. As an extreme measure, the National Assembly can pass a law to prohibit defaulting taxpayers from running for political office or being nominated for political appointments.
The voluntary asset and income declaration program, which provided amnesty for taxes owed, generated 33 billion naira in the first six months of operation in March 2018. Having identified around 130,000 individuals and companies High net worth evading taxes, he still fell short of his goal of generating $ 1 billion due to a mix of politics and sentiment. It should be revived, vigorously pursuing defaulters until they pay or receive the maximum penalty.
Corporate tax evasion by multinationals, especially oil companies and digital companies, should also be tackled. The regime should continually balance the desire to provide a competitive tax environment for FDI with the need to ensure that an appropriate share of national tax is collected from multinationals. What is needed, therefore, is a tax system that will promote economic competitiveness. The competitiveness of businesses is based on low tax rates, a generous incentive program, a reliable legal system, a skilled workforce, a solid infrastructure, a high standard of living, trust, reliability and l ‘integrity.
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