Nigeria subnationals charged to block revenue leakages

BY CHARLES ABUEDE

Stakeholders and experts alike have called on the the three tiers of government in Nigeria, namely, federal, state and local, to put a wedge to the existing leakages in their revenue coffers and also develop an improved revenue administration structure as a remedy to effectively widen the tax net and increase the internally generated revenues.

The adoption of the best global practices in tax administration and collection hinges on the elimination of the double taxation for businesses and bringing to bear the challenges for effective development of a good tax system operationalisation and administration, just as can be found in advanced climes.

Felicia Olokoyo, a professor of finance at Covenant University, Nigeria, presenting the keynote at a virtual event on driving the IGR Initiative with the theme, “Widening the tax net and blocking revenue leakages at the subnational level” held at the weekend, said transparency and accountability in the use of tax revenue in providing development needs will boost the morale of taxpayers, adding that this will translate to more people willing to come under the tax net.

In her presentation, she noted that, “In a bid to expand the revenue, most states engage in multiple taxations rather than widening the existing narrow tax base and finding ways to plug the loopholes to prevent leakages. Businesses especially in developing economies face challenges with misaligned tax policy. Tax policy affects both the profit and investment opportunities for small businesses, medium-sized businesses and even foreign-owned enterprises. The big question here is why do we have taxes?

“In about a decade now, Nigeria has gradually shifted attention to tax revenue to fund its budget. This was occasioned by dwindling revenue from crude oil export which has been the mainstay of the economy since the early 1970s. The fall in revenue was caused first by the fall in crude oil price on the global market, coupled with the abysmal losses in output attributable to the militancy in the Niger Delta. Government borrowings have been on a geometric rise putting Nigeria’s debt-to-GDP ratio at 34 percent. More worrisome is that Nigeria will be spending 92 percent of 2022 revenue on debt servicing, (IMF, 2022),” she explained.

For the finance scholar, a major step to be taken by the government to block these leakages and capture more citizens into its tax net include the adoption of a data-driven tax system which is key to widening the net. Many states are unable to determine the number of eligible taxpayers they have and their income, she said.. She said this was especially more the case for PAYE, which is easy to collect. Also, providing the enabling environment for investors to come in as more industrialization will lead to a wider tax base, she advised.

“Widening the tax net should be done systematically and asymptomatically: Firstly, in the short term, blocking the leakages should be the priority. This is a more viable option to boost tax revenues, rather than raising the tax rates. This is because increasing the tax rates immediately may provoke further ways of avoiding and evading taxes. Secondly, in the medium term, the government should work towards improving transparency in the tax system as a way of building trust and consequently improving the compliance level of the citizenry. Then and only then, in the long term, will it become more feasible to raise some tax rates,” she said.

Meanwhile, other attendees at the virtual event while commenting on the way forward to improve tax collection by the government harped on the importance of adopting a unionism strategy which can help capture data of individuals within a union, administer taxes at a fixed rate or percentage and remit the appropriate authorities while also seeking means of integrating to the electronic form of tax collection just as can be found in Lagos State, which uses the e-tax collection strategy.

Others called for the existence of the political will of the state to implement tax laws and also the demonstration of professionalism among tax officials as some ways to eliminate the challenges inherent in the adoption of an effective tax canon in Nigeria.