The administration of President Bola Tinubu has revealed that the country loses about N26 trillion to tax avoidance, evasion and incentives every year. So, the Federal Government has hinted at plans to review the country tax regime. According to Taiwo Oyedele, the chairman of the presidential fiscal policy and tax reforms committee, who addressed a press conference in Abuja on September 1, 2023, Nigeria loses up to N6 trillion annually to tax incentives adopted by past governments, which did not yield the desired benefits for the country.
Oyedele said that the incentives regime can reach a point where it distorts economic growth because some benefit but do not operate in the same sector, so they cannot compete with each other. “If you look at our tax expenditure reports, over the past three, four years on the average, we’re giving away around N6 trillion per annum,” he said. While that is significant, what the government has not been measuring enough is the benefit that the country gets from it.
Current admin optimizes non-tax revenues while driving fiscal policy.
He said that part of the mandate given to the committee by the president was to look at the incentives regime in Nigeria. So, based on data and evidence, members of the committee can design what is appropriate for the country in terms of what the government wants to drive so that those incentives will be targeted. He said that this administration focuses on driving effective fiscal governance and revenue transformation beyond taxes while optimizing non-tax revenues. The target was to achieve an 18 percent tax-to-GDP ratio over the next three years while ensuring reduced taxes payable by Nigerians.
While recognizing that reducing taxes and collecting more at the same time appears like a contradiction, he said it was easy to explain because the committee knows where the gaps are. The estimated tax gap that the government should collect today, if people should pay the right amount of taxes, is about N20 trillion, he said. So to close that gap, the committee will rely on automation and the efficiency of collection, including harmonizing how those taxes are collected.
Efforts ongoing to facilitate economic growth to grow tax net.
Another perspective to it is that considering the incentive rationalization, maybe the government should have been giving away N2 trillion instead of N6 trillion, which must be targeted at people who most need them. Meanwhile, the government plans to increase tax revenue by growing the economy. According to the committee chairman, if people are prosperous and businesses thrive, the government naturally makes revenue from their revenue. Oyedele said efforts were ongoing to facilitate economic growth and inclusive development by addressing notable impediments to doing business in Nigeria.
This is as corporate tax decline dims the hopes of non-oil revenue. Nigeria projected 2023 non-oil taxes of N2.43 trillion may be under significant threat as the nation’s shaky corporate tax makes businesses gasp for breath amid sinking companies’ income tax and rising production costs. NGX data showed that five major publicly-listed firms – Seplat Energy Plc, MTN Nigeria Plc, Dangote Sugar Refinery Plc, Dangote Cement, and BUA Cement Plc – all recorded a dip in their income tax from N254.15 billion in the first half of 2022 to N150.57 billion in the first half of 2023. These five companies are called “the large cap.” They dictate market trading direction through positive or negative performance with a total capitalization of N15.25 trillion, representing 42 percent of the total market capitalization as of August 28.
Experts advise FG on tax reforms to enhance the economy.
Nigeria economy currently operates at a deficit of over N10 trillion due to lower income generation and debt servicing and recurrent expenditures taking a huge chunk of the annual budget. Because of this, experts have advised the Federal Government to focus on taxing consumption rather than production in order to grow the economy and check inflation. The advice was given by panelists at the Tax Business Series on the theme “Finance Act 2023: Implications on the Tax & Fiscal Outlook for the New Administration and the Economy.”
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