Capital market experts recently enjoined the government to abolish multiple taxes, which have reportedly crippled the operations of many listed companies in the country. The experts also canvassed a downward review of the withholding tax charged on dividend paid by quoted firms. They flayed a situation where companies that recorded losses are made to pay taxes from their turnover.
There is no doubt that multiple taxes by the Federal, States and Local governments have impeded investment for years and stifled growth of businesses. A research by the Nigeria Stock Exchange (NSE) has shown that multiple taxes undermine efforts by capital market regulators to woo more companies to list their shares in the market. The current sluggish business climate in the country calls for the abolition of multiple taxes and a strengthening of the tax system in such a manner that will create enabling environment for the economy to grow.
Even though the government has in recent times moved towards a low tax regime, the current tax rates, both corporate and personal, are too high to promote compliance and attract investment. Besides, multiple taxes levied on firms will lead to high unemployment and affect the nation’s Gross Domestic Product (GDP). Beyond being a disincentive to participation in the capital market, the present tax system has wider economic implications. Tax regime of quoted companies is a vital tool for decision-making by multinationals on whether to list or stay away from the market. That may be the case with one of the frontline GSM providers that has delayed its plans to list in the NSE.
There is no doubt that government derives revenue from taxes. In fact, the Federal Inland Revenue Service (FIRS) has projected to realise over N5trillion this year from taxes. However, this amount should not be realised through multiple taxes on companies and other start-up businesses that are struggling to survive the tough economic environment. It is also true that at present, revenue from taxes represents only 7 per cent of Nigeria’s GDP.
This means that compared with a country like Ghana with 21 per cent revenue from taxes, Nigeria needs to do more to broaden her tax net. But this deficit should not be narrowed by imposing multiple taxes. Rather, the authorities should design measures to deal with tax evaders. About 75 per cent of Micro, Small and Medium Enterprises (MSMEs) are reported not to be in the tax net, while over 25 firms operating under the Pioneer Status Incentive are believed to abuse their tax exemption privilege. It is time to stop such abuse.
A survey by the Manufacturers Association of Nigeria (MAN), a few years ago, indicated that there were about 97 different taxes and levies in many states of the country. This is against the 2017 New Tax Policy as well as the policy of effective and efficient tax administration as stated in Section 2(1) of the Taxes and Levies Act. There is no doubt that tax evasion is a criminal act. In 2013 alone, over 350,000 registered companies failed to file their tax returns to FIRS, but tax system is capable of eroding the confidence of investors in the economy. The economy needs more capital inflow, not multiple taxes on firms.
Government should provide the needed infrastructure and amenities to justify the current tax regime. We say this because most companies lack essential amenities such as power, water and good road network. Government should show evidence of what it has done with revenue from taxes.
Considering the criticisms trailing multiple taxes, we urge states that are yet to automate their tax systems to do so for effectiveness and accountability. Multiple taxes are bad for business, and they deplete the resources of companies. They also shortchange shareholders by reducing the amount available to pay them dividend. Since multiple taxes are inimical to investment, we urge that they be abolished without further delay.