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Economy

Tackling Fiscal Deficit Through Tax System

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  • Tackling Fiscal Deficit Through Effective Tax System

Despite the potential of taxation as a dynamic tool for sustainable national development, the Nigerian economy, over the years, has not derived the maximum benefits of its tax system in terms of revenue generation.

This is because the tax system has been plagued by numerous challenges such as lack of robust framework for the taxation of informal sector and high network individuals, thus limiting the revenue base and creating inequity; fragmented database of taxpayers and weak structure for exchange of information by tax authorities, resulting in revenue leakages.

There are also the problems of inordinate drive by all tiers of government to grow internally generated revenue which has led to the arbitrary exercise of regulatory powers for revenue purpose; lack of clarity on taxation powers of each level of government; encroachment on the powers of one level of government by another; and insufficient information available to taxpayers on tax compliance requirements, thus creating uncertainty and non-compliance.

In the same vein, the country’s tax system is affected by poor accountability for tax revenue; insufficient capacity, which has led to the delegation of powers of revenue officials to third parties, thereby creating complications in the tax system; use of aggressive and unorthodox methods for tax collection; failure by tax authorities to honour refund obligations to taxpayers; and the non-regular review of tax legislation, which has led to obsolete laws that do not reflect current economic realities.

Worried by these developments as well as the lack of strict adherence to tax policy direction and procedural guidelines for the operation of the various tax authorities, the Minister of Finance, Mrs. Kemi Adeosun, last year inaugurated a committee to review the National Tax Policy.

The committee headed by Prof. Abiola Sanni of the University of Lagos was given the assignment on August 10, 2016 and submitted its report to the minister in October 2016.

The report of the committee which was submitted to the Federal Executive Council by the finance minister was approved by the council last Wednesday.

A copy of the report which was obtained by our correspondent on Friday revealed that the committee recommended that the Stamp Duties Act be repealed and a new one enacted.

It stated that the Stamp Duties Act in its current firm does not support the current economic realities.

Apart from not supporting the current economic realities, the report was of the view that currently, the cost of administering the Act was higher than the benefit, adding that a more efficient mechanism for taxing consumption is through Value Added Tax.

In reviewing the VAT legislation, the report of the committee said, “The current VAT Act should be repealed and replaced with an entirely new VAT Act immediately as a matter of urgency.

“The VAT Act should be aligned with global best practices. Considerations should include definition of ‘VATable’ persons, definition of goods and services and destination principle should be adopted to give clarity on the point at which VAT is applicable on a particular supply.”

It added, “There should be a workable refund mechanism. Financial services should be treated as exempt, reverse charge should apply on e-commerce transactions and Customs legislation should be aligned with the VAT.”

Another recommendation of the committee, according to the report, is that VAT should be on a cash basis rather than accrual basis to align with how most businesses in Nigeria operate.

It also stated that VAT of bad debt should be reclaimable without unnecessary bottlenecks, adding that deductions of VAT at source by government and companies in the oil and gas sector should be scrapped as it leaves vendors with claimable input VAT without adequate output VAT.

The report added that considerations should be given to a progressive VAT system, noting that higher VAT rate on luxury items such as cars, planes, jewellery should be charged.

It also said the exemption on basic food and other items considered to be essential to the poor should be expanded.

Commenting in the recommendation of the committee on the new tax policy, analysts who spoke to our correspondent called for an increase in the VAT on luxurious items from the current rate of five per cent to between 15 per cent and 20 per cent.

The analysts who spoke to our correspondent during separate telephone interviews described the planned increase in VAT for luxury items as a policy that was long overdue.

They argued that while the policy was vital at a time when the country was battling the negative impact of economic recession on government revenue, the move would assist to redistribute income and ensure inclusive growth.

Those who spoke on the new tax policy were the Head, Banking and Finance Department, Nasarawa State University, Keffi, Uche Uwaleke; Registrar, Chartered Institute of Finance and Control of Nigeria, Mr. Godwin Eohoi, and a former Managing Director of Unity Bank Plc, Mr. Rislanudeen Muhammed.

Uwaleke said that at five per cent Nigeria, has one of the lowest VAT rates in the world with countries like Cameroon, Benin, Chad and Niger having an average VAT rate of 18 per cent. He said there was therefore need for government to come up with a VAT rate of 15 per cent on luxury items.

He said that the country’s tax system should be designed to promote employment, export promotion, and local production, adding that any incentive to be granted should be broad, sector-based, tenured and transparent.

Uwalaka said, “The tax on luxury items is long overdue for review especially now that we are looking for ways to shore up our revenue. It is not by increasing the standard VAT because that is what is going to have negative effect on the economy.

“Standard VAT of five per cent should remain but just as we have in other countries, VAT rate can be discriminatory against the consumption of luxury items. This will help to redistribute income and have inclusive growth. We can tax champagne, jewellery, Sport Utility Vehicles and others.

“In addition to widening the tax rate, government should increase consumption tax on luxury items. We have a VAT of five over cent which is one of the lowest in the world and a rate of 15 per cent tax on luxury items can be charged.”

Eohoi supports Uwaleke view on raising VAT on luxury items to 15 per cent.

He said the need to increase the rate was borne out of the conviction that the nation could not continue to rely on oil revenue when it had other sources of raising revenue to finance its operations.

He said the policy should be implemented in a manner that would attract investments in all sectors of the economy with more focus on promoting investment in specific sectors as may be identified by government in the overall interest of the country.

He said the focus of the government when implementing the new national tax policy should be on indirect taxes such as VAT, capital gains tax, and stamp duties, adding that these taxes were easier to collect and administer and more difficult to evade.

He said, “At this time of recession, the increase in tax for luxury items is a good development but it should not affect all other items that are not in that category.

“Owners of private jets should be able to pay higher tax on that because this would help to cushion the impact of the economic recession on the country. That is what is being done in other countries particularly in Europe and I suggest that a rate of 15 per cent should be considered by the government.”

In his comments, Muhammed suggested that an increase in tax on luxury items should be done in an incremental manner up to the point when it would get to 20 per cent

He said, “In a period of recession, one would expect the government not to raise taxes until at least the economy starts picking up while focusing on improving the efficacy of existing tax collections.

“However, for luxury items, government is right to raise VAT on them in the same manner they were denied official foreign exchange for imports of those luxury items.

“That is progressive taxation. You pay more as your earnings and capacity to pay tax increase. I support 20 per cent increase in VAT for luxury items which should be improved on incremental basis over time.”

He urged the Federal Government to support all revenue agencies to enhance collection efficiency, block leakages in revenue collection and strengthen intelligence gathering mechanisms.

This, he added, would free more funds for government to expand the economy, ensure rapid economic development and create employment.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

Once Again The National Grid Collapsed

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Nigeria’s electricity transmission system, also known as the National grid, has suffered another system collapse, plunging Lagos, the country’s commercial capital, Kano and other major cities into a blackout.

The collapse, which occurred about 11.00 am on Tuesday, was confirmed by two of the country’s electricity distribution companies in separate messages to their customers.

“We regret to inform you that the power outage being experienced across our franchise – Kaduna, Sokoto, Kebbi and Zamfara states – is as a result of the collapse of the national grid,” Kaduna Electric said on Twitter.

Eko Electricity Distribution Company Plc, in a text message to its customers, said: “Dear customer, there is a partial system collapse on the national grid. Our TCN partners are working to restore supply immediately. Please bear with us.”

The grid, which is being managed by the government-owned Transmission Company of Nigeria, has continued to suffer system collapse over the years amid a lack of spinning reserve that is meant to forestall such occurrences.

Spinning reserve is the generation capacity that is online but unloaded and that can respond within 10 minutes to compensate for generation or transmission outages.

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Economy

FG Consider Diversification To Generate Revenue

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As revenue from oil nosedives following incessant global price fluctuations, the Federal Government is now channeling efforts to the development of minerals in the mines and steel industry to shore up foreign exchange earnings.

Officials of the Federal Ministry of Mines and Steel Development said on Wednesday that while there had been concerted efforts to develop various minerals in the sector, much emphasis had been placed recently on the development of bitumen, barite and gold.

They told our correspondent in Abuja that the government through the mines and steel ministry was striving to diversify the Nigerian economy away from oil as the major foreign exchange earner for Nigeria.

They also confirmed that large quantities of gold had been discovered in various locations in Zamfara and Osun states.

Asked if the government had initiated programmes to explore the minerals and boost revenues now that the country’s income had plunged, the Special Assistant on Media to the Minister of Mines and Steel Development, Ayodeji Adeyemi, replied in the affirmative.

He said, “Indeed, the ministry has the mandate to generate revenue and diversify the economy through the mines sector.

“And bitumen is one of the key resources which the nation is abundantly endowed with, that has been identified for strategic development.”

To buttress his position, Adeyemi shared some recent presentations of the Minister of Mines and Steel Development, Olamilekan Adegbite, where the minister said his ministry was gathering data on some bitumen fields across the country to attract investors.

“A lot of people are interested in bitumen, which is coming from both local and foreign investors. However, we are still acquiring data in some of the fields,” the minister stated.

On barite, the minister said the mines and steel ministry was working on raising the quality of barite produced in Nigeria to an internationally acceptable standard, as certified by the American Petroleum Institute.

Adegbite said his ministry had contracted a consultant to help raise the standard in the local production of barite to ensure that oil industry players make use of barite produced in Nigeria as against importing the commodity from other countries.

He said, “Barite is a critical weighting material in drilling fluids used in the oil industry. We have a lot of barites but the issue is that it is not produced to API standards. However, we are putting a system in place which would be ready to launch in about July.

“We have got the millers who can produce barite to API standard. Hence we will be able to compete with foreigners and it would save Nigeria a lot of foreign exchange in import substitution.”

On the development of gold, officials at the ministry further stated that the commodity had been aggregated for the production of bullion bars and that this was the first time that such aggregation was happening in Nigeria.

They stated that the gold was sourced from artisanal miners, while the final refining to bullion was done in Turkey.

The sources stated that the ministry had registered two refineries that would now refine to LBMA standard when they come on stream. LBMA is the de facto standard, trusted around the world.

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Economy

Nigeria Sovereign Investment Authority Generates N160.06 Billion in 2020

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Naira Exchange Rates - Investors King

The Nigeria Sovereign Investment Authority (NSIA) generated revenue of N160.06 billion in 2020, according to the latest audited financial reports announced by the Managing Director of NSIA Mr. Uche Orji.

The NSIA income came from devaluation gain of N51 billion, and core income of N109 billion compared to N33.07 billion in 2019.

But Orji lamented: “Covid-19 adversely affected logistics around infrastructure projects, especially the toll road projects and the presidential fertiliser initiative.

Despite the pandemic, the Authority achieved 33 percent growth in Net Assets to N772.75 billion compared to the previous year’s performance of N579.54 billion.

Orji said the NSIA “received additional contribution of $250 million; and provided first stabilisation support to the Federal Government of $150 million withdrawn from Stabilisation Fund last year.”

The same year, the NSIA received $311 million from funds recovered from the late General Abacha from the United States Department of Justice and Island of Jersey for deployment towards the Presidential Infrastructure Development Fund (PIDF) projects of Abuja-Kaduna-Kano Highway, Lagos Ibadan Expressway and Second Niger Bridge.

In response to COVID-19, Orji said: “NSIA partnered the global Citizen, a not-for profit group, to form the Nigeria Solidarity Support Fund. Separately NSIA acquired and distributed oxygen concentrators to the 21-teaching hospital as part of corporate social responsibility; in addition to staffing support to the Presidential taskforce on COVID-19.”

In 2020, the NSIA “invested additional capital into NG Clearing, the first derivative clearing house in Nigeria to maintain NSIA’s shareholding at 16.5 per cent following the company’s rights issue of 2020″ Orji said.

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