THE Federal Executive Council (FEC) recently approved a revised National Tax Policy for the country. The new policy is one of government’s efforts to widen the nation’s tax net to shore up the revenue accruing to the country. It is the outcome of the recommendations of the committee set up to review the National Tax Policy, by the Minister of Finance, Mrs. Kemi Adeosun, on August 2016. The committee was mandated, among other things, to review and update the policy, which was first published in 2012. Its mandate also included the identification of some luxury items for increased tax rates and the recommendation of a workable implementation strategy.
Explaining the highlights of the new policy, the Finance Minister noted that it provides fundamental guidelines for the orderly development of Nigeria’s tax system. It is also designed to ensure a competitive and robust macroeconomic environment. One aspect of the new policy which appears to have overshadowed all others is the increase in Value Added Tax (VAT) on luxury goods. These items include : champagne, yachts, private jets, luxury cars based on engine capacity, expensive cosmetics and perfumes, topnotch mobile phones such as iPhone and iPad, designer watches, jewelry and retailer clothing.
However, the Federal Government and the National Assembly will work together to amend the relevant tax laws and then determine the actual VAT rates on these items and the actual date for the implementation of the policy.
Ordinarily, we have nothing against the imposition of higher taxes on expensive luxury goods. It makes economic sense that those who long for such items, and can actually afford them, should be ready to pay more to satisfy such cravings. We want to believe the assurances by the Finance Minister that higher taxes will not be imposed on basic consumer items. If government reneges on that promise, it will undermine its objective of enhancing the welfare of the people, as stipulated in the Constitution.
Nevertheless, we must acknowledge that the review of the National Tax Policy is a step in the right direction. It is necessary, if the country is to compete effectively in today’s dynamic business environment. At present, Nigeria’s ranking has declined three places from 124 to 127, out of 138 countries, on the latest Global Competitiveness Index by the World Economic Forum.
If properly implemented, the new tax policy will guide the operation of our tax system, provide the basis for future tax legislation and administration, as well as serve as a point of reference for all stakeholders. It would hopefully provide a benchmark on which stakeholders can be held accountable in the tax system. Under the new system, all existing and future taxes are expected to align based on capacity, fairness and simplicity, among other variables.
It is good that the new policy contains measures that will address the problems of multiplicity of taxes and revenue agencies, reduce income tax rates, increase compliance, expand Nigeria’s tax base and improve the tax to Gross Domestic Product (GDP) ratio. Government has given its word that the policy will lead to a significant improvement in the tax system. We do not expect anything less.
To get out of the current economic recession, government should look beyond VAT, pursue other well thought out programmes and revisit
past agreements entered into with multinationals in the country. Specifically, we urge government to see to the full implementation of Multilateral Authority Agreement that was approved in January 2016, by the Federal Executive Council. The agreement was made to enable automatic sharing of country-by-country reports by multilateral companies in order to check tax evasion and avoidance.
We suggest that government should reduce, forthwith, the bloated technical agreement fees based on turnover given to the foreign firms and the tax rate on dividends that is below the level applicable in their home countries.
We commend the Federal Inland Revenue Service (FIRS), which recently said it has captured about 700,000 new taxable entities. Our expectation is that this will boost tax receipts. Beyond increasing the tax loop and the generation of more revenue from taxation, government should intensify its efforts on the diversification of the economy. The huge potentials of agriculture and solid minerals as veritable revenue sources should not be overlooked. They should be properly harnessed to boost the economy and the revenue available to government for developmental projects.