The Nigerian government has been making tremendous efforts to expand and diversify its tax revenue from oil, especially following the shocks recently experienced in the global crude oil market and the projected decline in the global crude oil demand in the face of threats of substitutes caused by Shale, electric vehicles e.t.c. According to the IMF, Nigeria’s tax to GDP ratio is among the lowest in the world and the Bretton woods institution has called for an urgent and comprehensive economic reform to expand the non-oil tax revenue in Nigeria.
In October 2019, President Muhammadu Buhari submitted the Finance Bill 2019 to the National Assembly. The bill seeks to implement wide fiscal reforms and transform the government approach to tax administration. While some components introduce increments, several others are aimed at reducing taxes, especially for SMEs, thereby stimulating economic activities. This is the first time that the Nigerian Government is making an attempt at
effecting a holistic change to its entire fiscal laws at one sweep.
The bill, if passed into law, will make an overwhelming change to the administration of tax in Nigeria and further support SMEs in line with the ease of doing business reforms of government. Some of the proposed changes are examined below with a specific focus on their effects on SMEs, insurance and other businesses in Nigeria.
The robustness of the proposed amendments to our fiscal laws is unprecedented in the history of tax administration in Nigeria and it will provide significant support for SMEs in terms of tax benefits.
However, no matter how fantastic a tax regime is structured, there will always be loopholes that will be exploited by taxpayers to avoid tax. Therefore, the government needs to continuously review and update our tax statutes to block these loopholes and ensure the government receives the right amount of tax. At the same time, the government needs to invest in critical sectors of the economy that will stimulate production, while also pruning down the over-bloated government expenses.
The government needs to find a way to effectively capture the informal sector in the tax net as it has huge potentials to drive significant improvement in the government’s tax revenue. Furthermore, there needs to be a conscious effort on the part of the government to plug leakages in tax collection to ensure the taxes that are collected are not funnelled into the private pockets.
The proposed amendment in the Finance bill 2019 for banks to request Tax Identification Number (TIN) for account opening for individuals and for existing customers to provide their TIN to continue operating their accounts, is a move in the right direction. If the current Financial Inclusion drive of the CBN successfully capture a sizeable number of the informal sector, and the FIRS can collaborate effectively with the banking sector, a good number of the players in the informal sector can be captured in the tax net and invariably increase government’s revenue from taxes.