PricewaterhouseCoopers Urges Nigeria to Focus on Taxation

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Nevin, Victor Olaiya, GM, Venture Relations, ExxonMobil, Oyedele and Joseph Iruafemi, Lead Developer, Websphere

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Financial experts believe Nigeria could generate enough revenue to stay afloat if only it could broaden its taxation base instead of relying only on the dwindling oil receipts to run its economy

By Anayo Ezugwu  |  Oct 26, 2015 @ 01:00 GMT  |

DESPITE dwindling oil revenue and the fear that Nigeria economy will slide into recession, economic experts believed that the country could generate enough revenue to survive through taxation and diversification of the economy. Taiwo Oyedele, partner, Tax and Regulatory Services, PricewaterhouseCoopers, PwC, told Realnews that the federal government needs to focus on tax matters and develop a tax policy framework to move the country’s economy away from oil and gas.

Oyedele stated this at the second edition of PwC Capability Enhancement workshop for financial journalists in Lagos. He said that successive government in Nigeria did not pay substantial attention to taxation. According to him, the national tax policy was approved in 2010 by both the Federal Executive Council and National Economic Council, five years later it has not been implemented.

“If you look at the tax base of Nigeria as we speak, it’s extremely very small. What happens is that people are not paying tax. We have few people who are paying tax and those few people are overtaxed. Some are taxed to the extent that they can’t survive it that they have to leave the country.  Some of the manufacturing companies are relocating out of the country, so the level of tax compliance if you look at corporate income tax is around 10 percent,” he said.

He noted that 90 percent of companies in the country were not paying tax and that people complain about multiple taxations but even most times what they called taxes were not really taxes that go to government. Oyedele stated that the government need to reform the tax system by making sure that it’s easy for people to pay taxes and that people who want to comply do not find it too complicated.  “According to recent reports we prepared at PwC with the World Bank, Nigeria ranks 179 out of 189 countries in the world in terms of ease of paying taxes. So even the few people who are paying taxes, we don’t make it easy for them and that is not the way to go.”

The tax expert said the government do not necessarily have to increase taxes to sustain the economy, but what it needed to do is get more people to start paying tax by increasing the tax base. With this, he noted the government can generate sufficient revenue to be able to run government, provide infrastructure and the rest of it. “What we found out also was that in countries where they pay taxes and the level of compliances is high there is good governance because people hold government accountable. When you pay money from your purse it’s painful, so when you see figures of money being stolen, if it’s on crude oil you flip to the next page but when it’s your income tax, your corporate income tax, you want to ask questions.

“So we need reforms in tax legislations because some of them are out of date. They are not fit for today’s business and therefore they are not sustainable. We need reform in tax administration and we also need reform in tax policy. We should create more awareness about paying of taxes and when we do collect these taxes, let it be used for the purpose of the people. Many young Nigerians get excited that they are going to America or Europe to work but in those countries they pay high rate of tax but they don’t mind, why because taxation is a fracture of your prosperity. If you are prosperous, you are just giving away a fracture, but when you are struggling to pay even one percent is difficult.

“So, usually the problem we have is not planning but lack of the will to implement. The past governments have not done enough to look at the tax system. In many developed countries, they review their taxes and tax laws every year because things change very fast. In about 30 to 40 years ago nobody was talking about e-commerce, but today people are making a lot of money through technology even more than manufacturing. We don’t have a legal framework of tax and this creates disparity in the system. Government need to start making the tax laws friendlier and write them in simple languages and make it possible for people to see the benefit of taxes they pay. They will not change overnight. It’s a gradual process but overtime things will get better,” he said.

Andrew Nevin, adviser and chief economist, PwC, told Realnews that government must look into other sectors of the economy in order to survive the continued fall in oil price. He said the services sector accounts for roughly half of all employment, with agriculture making up a further third of those employed. Despite its importance to the government and export sector, he said that oil accounts for less than one percent of total employment. However, the majority of Nigerians are likely to be employed in the informal sector.

According to him, Nigeria’s population is expected to exceed the population of the United States by 2045. It is likely to expand by 30 percent in the next decade and to more than double by 2050. Over 163 million Nigerians will enter the working-age population by 2050. Labour productivity levels are around half that seen in South Africa, but may rank the third highest overall in Sub-Saharan Africa, after Sudan.

“The oil sector accounts for 94 percent of all export earnings, crowding-out other export sectors and in 2013 the United States was the biggest buyer of Nigerian oil, but as the shale oil boom continues to bolster domestic supply in the US, other export destinations grow in importance. While Nigeria’s export sector is dominated by oil, imports tend to come from higher up the value-chain, including machinery, manufactured products and oil-based materials which require higher refinery levels than is available domestically.

“The tax base is much lower than other economies at a similar level of development. It is also poorly diversified: 70 percent of government revenue is dependent on the oil sector. The government also has a limited ability to increase revenues through raising taxes on oil companies. The majority of revenue is generated from production of state-owned enterprises, with only a third derived from taxes. Overall, only a limited portion of the oil revenues may filter through to support the real economy.

“The biggest portion of federal government expenditure is the public sector payroll, accounting for 4 percent of overall GDP – equivalent to the total size of the construction sector. There is limited scope to reduce government expenditure without cutting employment or wage levels. Despite high oil revenues, large levels of public expenditure have opened up a fiscal deficit over the last few years, which are projected to continue. Despite this, outstanding government debt is low compared to countries within the region and those at similar levels of development. Of the $13billion of outstanding public debt, the vast majority is denominated in domestic currency. However, a significant portion is due to be rolled over this year.”

On his part, Uyi Akpata, country senior partner, Nigeria and regional senior partner, PwC West Market Area, said the initiative was in recognition of the indispensable role of the media especially in the areas of finance and business reporting. “We recognise that it takes extreme care and skill to get a business story right, and convey it to the public in a manner that is factually accurate, yet comprehensible and easy to understand. We are therefore partnering with the media to demonstrate our commitment to high-quality journalism in Nigeria,” he said.

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