By Nse Anthony-Uko, with agency reports
(Sundiata Finance) – The new tax initiative luanched by the Nigerian government has raised estimated tax revenues to N19 trillion annually by 2020.
The scheme targeted at taking Nigeria’s tax to GDP ratio from six per cent to 15 per cent by 2020 could add some N19 trillion to public funds and prove the country’s biggest step yet, along the painstaking road to revenue diversification.
Fifteen percent of Nigeria’s $415 billion GDP (in 2016) equates to $62 billion- N19 trillion, using the Central Bank of Nigeria quoted exchange rate of N305 per US dollar.
That amount is enough to fund the country’s federal and state governments’ budget for a year. The Federal Government’s 2017 budget is worth N7.4 trillion, while the budgets of the 36 states, including that of the Federal Capital Territory, comes to another N7 trillion, according to data compiled by BusinessDay.
This brings the total budget for the states and Federal Government to some N14 trillion, N5 trillion less than the projected N19 trillion to come from raising tax to GDP ratio to 15 percent.
Such revenues would also help lure the country’s decrepit infrastructure from the dark side and stem the tide of government borrowing.
After gorging itself on petrodollars for decades, the plunge in global oil prices and falling production volumes, has forced Nigeria, like other oil producers, to diversify its income sources and tax is considered a low hanging fruit.
The country earned an estimated N6 trillion in tax revenue last year. The amount relative to the size of the country’s Gross Domestic Product (GDP) at six percent, puts Nigeria’s tax to GDP ratio at one of the lowest globally.
Six per cent compares poorly with the country’s continental neighbor Ghana’s 16 per cent and within a third of South-Africa’s 27 per cent.
It is also deplorable, compared to MSCI frontier market peers, Vietnam and Thailand, who boast of 19 per cent and 16.5 per cent respectively.
“The VAID scheme is a good first step towards revenue diversification and boosting the country’s tax to GDP ratio,” said Taiwo Oyedele, a partner and head of tax and regulatory services, at consulting firm, Price Waterhouse Coopers (PWC).
Late last month, the Voluntary Asset and Income Declaration Scheme (VAIDS) – a new scheme that encourages individuals and companies to clear unpaid tax liabilities before the end of 2017- was launched by Yemi Osinbajo, Nigeria’s acting president.
Some of the objectives of the Scheme include: Increasing Nigeria’s tax to GDP ratio from 6% to 15% by 2020 and curb the use of tax havens for illicit fund flow and tax avoidance.
The taxpayer who fails to embrace the voluntary disclosure scheme will be investigated and if found culpable, faces a five-year jail term, in addition to full payment of tax due, including penalty and interest.
PWC estimates that the scheme would generate approximately $1billion in tax revenues.
India toed a similar path itself, with a scheme that sought to address tax evasion, and it resulted in the addition of over 350,000 individuals to the tax net, yielding approximately US$1.2 billion.
Beyond additional public revenue, the new scheme will engender better engagement between tax payers and the government, to ensure taxes are judiciously utilised, according Yomi Olugbenro, a partner and head of tax at Deloitte.
“However, the scheme does not mask the need for legislation to revamp our outdated tax laws,” Olugbenro said. “Obsolete tax laws are a deterrent to tax compliance, which only legislation can solve. An executive fiat giving people tax holidays to improve payment compliance is not enough.”
Nigerian tax payers, 69 million in total, have devised means of beating an opaque tax collection system for so long.
High networth Nigerians are particularly running under the tax radar, with only 214 persons paying taxes of N20 million, according to data from the finance ministry.
At the current “Pay as You Earn” (PAYE) rate, it means only 214 people earn N105 million annually or N9 million monthly.
BusinessDay identified at least 1,000 people in the oil and financial sectors that earn over this amount, as deduced from their company financials.
“Despite having some of Africa’s wealthiest people, our tax revenue is too low and we are prepared to step on big toes to bring an end to that,” Kemi Adeosun, the finance minister said last month.
“The solution to our rising debt service cost is not to stop borrowing but to raise revenue and tax is a low hanging fruit. We will not stop borrowing, because we need to invest in infrastructure,” the minister said.
Although the scope of the scheme encompasses individuals resident in Nigeria and companies operating in Nigeria, “the primary targets are multinational enterprises and high networth individuals,” said Oyedele.
Massive sensitisation and campaigns to educate people on the new scheme is on going, according to Olugbenro.
“We are sending newsletters to our clients to give them the necessary information they need,” Olugbenro said by phone.
Tax evaders, including multinational companies, will have from July 1 to Dec. 31 to “regularise their tax status, in exchange for immunity from prosecution of tax offenses,’’ and “from penalty charges and interest’’ the finance ministry said in an emailed statement.
Vice President Yemi Osinbajo launched the programme on June 29.
Nigeria plans to increase spending this year by 21 percent to N7.4 trillion ($22.8 billion).
The fiscal plan, aimed at spurring economic recovery from its first recession in 25 years, requires funds to help the oil producer plug a deficit the government expects will amount to about 2.2 percent of gross domestic product.
The International Monetary Fund sees 3.7 percent budget deficit this year, from 2.8 percent in 2016, on the back of underperforming revenue targets.