By Bello Idris Opeyemi
The use of digital economy in Nigeria ought not to be problem as it is being used in other countries, but lack of trust and corruption in Nigeria has made people to doubt whether it would improve revenue – but Amended of the Finance Act 2019 resonates international standard as it can increase revenue for the Nigerian government.
In Nigeria, the revenue generated is low compared to other countries and this is affecting our economy growth. According to Nigerian Domestic Revenue Mobilization, a tax to G.D.P. ration to 6% is compared to 17% for other African countries. Moreover, according to FIRS Planning, Research and Statistics Department 2019 Q4 Tax Revenue Statistics – the total tax revenue collection in Oil and Non-Oil for the 4th Quarter 2019 was: the estimation for Oil sector from Petroleum profit tax was at N1075.2959 billion, actual collection was N522.6686 billion equating to 41. 78% which contributed to the total government revenue in taxes compared to Non-oil taxes which the quarterly target was pegged at N1125.3006 billion with actual collection N728.3654 billion equating to 58.22% that contributed to the government revenue.
However, to achieve this, the government needs amendment because tax compliance level remains low and tax collections are below the target set by the government. Looking at the Nigerian Appropriation Bill of 2020, the expected total expenditure of 10.33 trillion against the total expected revenue is 8.15 trillion which will have a deficit of 2.18 trillion and of course, this will add to national debt profile because government do borrow either from internal or external finance budget and borrowed fund are public or foreign debt. Nigerian total public debt as at 31st of December 2019 was #27,401,387.29 and CBN official exchange rate of US$1 was NGN326 as at December 31st 2019. The CBN official exchange rate is use to convert external debt to Naira and as at this year 2020, with new request to approve 5.51 trillion external borrowing to fund its revived 2020 budget, Nigerian’s total debt will be around #41.6 trillion when approved.
In January 2020, President Muhammad Buhari assented the Finance Bill 2019 with the aim of implementing the several fiscal measures proposed in the Bill and to generate more revenue for the Nigerian economy, but with this Finance Act that was passed into law by the President on 13th of January 2020, it contains 57 sections and introduced over 100 different changed to seven tax laws: Company Income Tax Act (CITA), Petroleum Profit Tax Act (PPTA), Personal Income Tax Act ( PITA), Value Added Tax Act (VATA), Custom and Excise Tariff Tax (CETA), Capital Gain Tax Act (CGTA), and Stamp Duty Act (SDA) – these will help to generate more revenue but the question now is: can we still meet up with all these as this current pandemic (Covid-19) has affected all sectors despite the fact that Federal Government announced fiscal stimulus measures on 6th of April 2020? Budget revision and funding are as follows;Revision of the benchmark oil price for 2020 to US$30/barrel and oil production to 1.7mbpd.Concessional funding from World Bank, African development Bank (ADB) and the Islamic Development Bank for the 2020 Budget.Also, funding from international monetary fund (IMF) COVID-19 Rapid Credit Facility. Nigeria does not intend to negotiate or enter into a formal programme with the IMF Downwards adjustment of non-oil revenue projections including various tax and custom receipts, as well as proceeds of privatization exercises.The Budget Office is currently working on a revised 2020 – 2022 Medium Term Expenditure Framework / Fiscal Strategy Paper as well as an amendment to the 2020 Appropriation Act.The amended Budget will provide for the COVID-19 Crisis Intervention Fund.
All these are achievable with effective collection of revenue which is tax. By and large, there are some ways that can improve our tax generation in Nigeria, below these are;
Digital Economy: The use of technology to collect tax has been used in other countries and it had great impact in their revenue generation. India began its digital tax journey in 2012 with the amendment of the term ‘’royalty’’ in the domestic tax law which now captures most technology/digital economy transactions. But in Nigeria, with new amendment Finance Act 2019, Value Added Tax in line with global best practice, this bill proposes to improve the efficiency of the Nigerian VAT system taking into consideration recommendations from various stakeholders’ groups. In addition to simplifying the VAT landscape, the bill also seeks to expand VAT coverage by addressing some critical issues, such as taxation of the digital economy, VAT registration thresholds and intangibles law have been indicated of using technology and for us to achieve our aim, there should be international co-operation to ensure that new technology would be used to make the current rules work more effectively so as to protect the revenue basis of our country.
Enlightening Tax Payers: Nigerian people is full of intellectual people but there is need for enlightenment on important of payment of tax and awareness of the rule. Moreover, media should not only be used for sensitization but community leaders and stakeholders involvement in sensitization and orientation of the citizens will not just benefit the Finance Act 2019 but would also make important of paying tax known.
Training the Tax Collector: Tax collector should be vigilant and in fact, ensure fair and equitable treatment for all tax payers and continue to make effort to improve the process in order to respond to social, economic and demographic change in the population.
In Finance Act 2019, Section 10 of the CIT Act was amended by introducing a new subsection (2) as follows:”(2) Every person engaged in Banking in Nigeria shall require all companies to provide their Tax Identification Number as a precondition for opening a bank account or, in the case of an account already opened prior to the 30 September 2019, the bank shall require such Tax Identification Number (TIN) to be provided by all companies as a precondition for the continued operation of their bank accounts’’ This is in line to monitor everybody that is doing business. In addition, taxpayers should not be complained of that their taxes are low since some people are not paying. In, fact, everybody needs to be implored to pay. This knowledge has increased tax compliance in other countries. According to Graham 1989, an attitude is an individual’s characteristic way of responding to an object or situation. It is based on one’s experience and leads to certain behavior or the expression of certain opinions. Attitudes are related to values, perceptions and group belonging but can be modified by environmental changes and new information.
Based on research, we can also implore the use of theory of planned behavior (TPB). The TPB has its origins in the earlier theory of Expected Utility but introduces a number of additional explanatory variables which, according to Ajzen & Fishbein 1980, “designed to explain virtually any human behavior”. If they are correct in their claims that “behaviors are not really difficult to predict”, then the TPB has the potential to aid tax collector in predicting, supporting and also re-shaping taxpayer behavior. TPB proposes a direct relationship between intention and behavior. This relationship is critical to any significant change in policy. Intention is an essential component of tax compliance as it is only through the willing participation of taxpayers that revenue is collected.
Thus, predicting taxpayer intention to comply is as important as predicting the actual compliance behavior. Determining if behavior is motivated by unwillingness to comply (as opposed to external factors preventing compliance) will shape the treatment to improve performance of the behavior. The tax authority would design interventions that pre-emptively address the cause of the non-compliance rather than administer solutions post hoc which may encourage further non-compliance. In a nutshell, all these can only be achieve by taxpayer identity, perceptions of cooperation by the Tax collector and awareness of the law.
With above strategies, if the Federal Inland Revenue Service (FIRS) can adopt these – there would be improvement in tax compliance in Nigeria. More revenues would be generated for government to execute their project without borrowing from external source. Since the beginning of this year, the oil price has crashed and even made the Federal Government to review the budget three times a year. Introduction of Finance Act 2019 has curbed the problem of multiple tax. Section 19 of the CIT Act was amended by inserting new section (2) (a) – Dividends paid out of the retained earnings of a company. Provided that the dividends are paid out of profits that have been subjected to tax under this Act, the Petroleum Profits Tax Act or the Capital Gains Tax Act. (b) – Dividends paid out of profits that are exempted from income tax by any provision of this Act the industrial development (Income Tax Relief).
In addition, government should let tax payers be aware about their obligations and prove that funds taken from them are put to some good use. They should let the tax payers know what they are using their money for, this is because system of tax is not a tool for revenue generation only but to support social economy and investment. Tax compliance is enhanced when individuals view the paying of taxes as a fair fiscal exchange. In such situation, compliance is likely to increase. In particular, when the services provided by the government are viewed as widely desired and the decisions determining the services provided are transparent and fair, compliance is would be higher.
Albeit, the Finance Act 2019 is the right direction because as amended law, it has captured multi tax pay and encourage small scales. For us to achieve economic growth, there is need to improve tax education for people to understand its concept. In addition, the government should be held responsible and accountable for manners in which tax money is used, this for sure – will make trust bridge to be effectively maintained and there would be a spike in voluntary compliance to pay tax.
Opeyemi is a Business Writer, Researcher and a 300 level Accounting Student from Ahmadu Bello University, Zaria. He can be reached via firstname.lastname@example.org or 07068412138
1.https://pwcnigeria.typepad.com/files/finance-act-2019-official-gazette.pdf Accessed on 3rd of July, 2020 .
2. https://pwcnigeria.typepad.com/tax_matters_nigeria/2020/04/covid-19-federal-government-of-nigeria-announces-fiscal-stimulus-measures.html accessed on the 3rd of July, 2020
3. https://home.kpmg/ng/en/home/insights/2019/1 accessed on the 4th of July 2020.
4. https://www.dmo.gov.ng/news-and-events/dmo-in-the-news/press-release-on-conversion-of-850-billion-new-external-borrowing-in-the-2020-appropration-act-to-domestic-borrowing accessed on the 4th of July 2020
5.https://d1wqtxts1xzle7.cloudfront.net/56214607/How_to_boost_tax_morale_and_tax_compliance_in_Kenya.docx?1522654411=&response-content- disposition=attachment%3B+filename%3DHow_to_boost_tax_morale_and_tax_complian.docx&Expires=1594085276&Signature=PAqoL3SZqBOG7NQNh~42UHvA5YlXTZvtTebvICYTAapVn6CeOSkP7OW Accessed on 05th of July, 2020.
6.https://www.pwc.com/ng/en/assets/pdf/stop-saying-compliance-is-low.pdf Accessed on 6th of July, 2020.
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