Monday, May 28, 2018

Nigeria plans to get serious on income tax collection

Paying income tax used to be a joke in Nigeria which, no wonder, has the worst tax to GDP ratio in sub-Saharan Africa.

As one banking executive put it: “In Nigeria, the government pretends to tax people and people pretend to pay. That’s the Nigerian social contract.” But these days it’s no laughing matter, as an ambitious government scheme designed to make the executive class pay up draws to a close.

Millions of people for the first time are now coughing up taxes as President Muhammadu Buhari’s government conducts one of the country’s most vigorous collection drives in years. The money is desperately needed. Widening Nigeria’s tax base will help boost non-oil revenue in Africa’s largest economy, which is limping out of its worst recession in 25 years. And Nigeria has a long way to go. Its current tax-to-gross domestic product ratio is just 5.9%, according to the International Monetary Fund.

In Lagos alone, there are 6,800 millionaires and 360 multi-millionaires, according to a 2017 report by AfrAsia Bank. But top earners hardly lead by example.

In 2016, just 241 people paid more than 20 million naira ($55,600, 47,400 euros) in personal income taxes, the Nigerian finance ministry reported.

It’s not hard to see why Nigerians would be reluctant to pay tax to fund public services, when there has been no visible return.

Infrastructure in most cities is disintegrating. Roads between states are crumbling. People pay for their own electricity and water.

Endemic corruption is partly to blame, said the Emir of Kano Muhammadu Sanusi II, one of Nigeria’s leading Islamic figures who served as central bank governor in the previous administration.

“Improving transparency and public financial management is critical to improving revenues,” he said this week at a meeting of the African Development Bank Group in South Korea. “Make sure the taxes actually get into the government’s pockets and you don’t have all these leakages.”

Though difficult, tax reform isn’t impossible in Nigeria.

Lagos state, home to the country’s commercial capital, has successfully mobilised a tax base whose contributions represent over a third of internally generated revenue collected in all Nigeria’s 36 states, said transparency organisation BudgIT. That has allowed it to finance a growing number of projects, including a cable-stayed bridge linking the upmarket neighbourhoods of Ikoyi and Lekki that is now a city landmark.
Buhari, who is seeking re-election at polls next February, wants to double the tax-to-GDP ratio by 2020.

To do that, his finance minister Kemi Adeosun has followed in the footsteps of Turkey and Indonesia and launched a tax amnesty programme.

The Voluntary Assets and Income Declaration Scheme (VAIDS) has a two-part strategy.

First, it offers Nigerians a period of grace to regularise their tax affairs or else face a prison term of up to five years, financial penalties and possible forfeiture of assets.
Second, it uses data to link land registry records and tax receipts to root out defaulters.

The government enlisted the help of international asset recovery firm Kroll to troll bureau de change networks, WikiLeaks and even the Panama Papers to identify negligent high net worth individuals.

The programme was launched in June last year, with the government declaring every Thursday “tax awareness day“.

Tax officers were stationed at airports and a massive digital billboard advertising of the scheme flashed over the Lekki bridge toll gate in Lagos — a not-so-subtle threat to the denizens of the affluent suburb. In May, Adeosun — a former chartered accountant and auditor with PricewaterhouseCoopers in London — said Nigeria’s tax base had risen from 14-million people in 2016 to 19 million in 2018.

But Adeosun’s promise to “name, shame and prosecute” defaulters lost some bite after the government pushed back the closing date by three months, from March 31 to June 30.

Still, those familiar with the programme say that it is well on track to deliver on its target of more than one billion dollars.

That amount may be modest but it’s a step in the right direction, said Yomi Olugbenro, West Africa tax specialist at Deloitte in Lagos. There’s something to be said for launching the scheme, which “definitely has more people talking about taxation“, he said. The key is to make sure the amnesty programme is built upon in the future and isn’t just a once-off windfall. Otherwise Nigerians will revert to old habits.

“It’s a chicken and egg thing,” Olugbenro said. “The government will tell you, ‘We need the money to provide all things that aren’t there’. “Taxpayers are saying, ‘I need to be convinced’.”

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