With a tax collection rate of roughly 6% of GDP, Nigeria’s tax revenues are lower than its regional peers. The government is working on several fronts to boost its take. The stated goal is to more than double that ratio by 2020, which will involve long-term policy reforms as well as targeting foreign direct investment. Additionally, it is not yet clear to what extent the authorities will solicit or heed the advice of non-Nigerian actors with ideas on how to optimise this revenue stream. President Muhammadu Buhari’s government has been working to update the current National Tax Policy, which was approved in 2012 after a working group suggested establishing one in 2002. President Buhari’s team, led by the prominent tax lawyer Abiola Sanni, determined that the 2012 policy had not been implemented and submitted a new document, which became the basis for a new National Tax Policy approved by the Federal Executive Council in 2017. The document calls for amendments to five existing tax laws, including making the process easier to follow for taxpayers, establishing a court of taxation and an income tax rate specifically for small and medium-sized enterprises, as well as other reforms and educational efforts, such as the creation of a National Tax Day.
Reform Process
Those legal and regulatory reforms have not yet reached the point where they could be shared with stakeholders and developed into bills for consideration by the National Assembly. However, while that process is ongoing, Nigeria’s Attorney General has been assessing major corporations’ compliance with current tax policy. One major case is that of MTN Group, a mobile telephony provider, which the government determined owed an additional $2bn in taxes on the import of equipment into the country and payments made to foreign suppliers. On request, MTN carried out an internal audit and suggested that it had already paid $700m in taxes, and believed that it had complied with the relevant laws and regulations, but acknowledged in a note to investors that the government still intended to collect the full $2bn, in addition to taking various other actions against MTN. According to the IMF, the government could significantly increase its tax revenues by boosting the value-added tax rate. More difficult solutions include addressing weaknesses in administration and ensuring taxpayers comply with existing laws, as many have gone years without facing consequences for non-compliance.
The government has been attempting to register corporations and entrepreneurs so it can tax them, but as of May 2016, the most recent data available, only around one-third of registered corporations could be matched to data from the Federal Inland Revenue Service, only 5.6% of businesses paid corporate income tax and 5.1% paid value-added tax. The IMF recommends large-scale data analysis across agencies, which fits the global trend of tax authorities increasingly working with other government bodies to monitor taxpayers and make better choices about which ones to audit.
Corruption
Another solution to addressing tax revenue shortfalls is to expand the fight against corruption. Direct benefits would include taxpayers following the rules, and indirect benefits would come from economic growth, which would create more profitable activity to tax. A study by PwC found that reducing corruption could add up to $534bn to GDP by 2030, for example.
One approach that could produce results would be to change the way the country uses data as a tool in the struggle against corruption and tax evasion, said Oluseun Onigbinde, a former banker who in 2011 founded the Lagos-based watchdog group BudgIT, which focuses on making public policy and fiscal management in general easier for voters to understand. “A data and transparency culture would be a proactive way to fight corruption,” Onigbinde said.
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