A statement by the federal minister of budget and national planning, Udo Udoma, to the National Assembly on Monday noted that the 2017 budget proposals do not incorporate any increases in tax rates. The FGN’s focus is to extend coverage and compliance. There is clearly room for improvement. Only five million of the estimated 37 million micro, small and medium enterprises in Nigeria are registered. The Federal Inland Revenue Service says that about a half a million companies in the corporate sector are not paying tax.
Taking a different position, the federal finance ministry has recently floated the idea of a new higher VAT rate for some luxury goods.
Separately, there have been calls for a rise in the standard 5% rate of the tax. Advocates have included the IMF and the Revenue Mobilization Allocation and Fiscal Commission, which called for a new rate of between 7.5% and 10%. It also observed that Nigeria’s rate is among the lowest in the world.
Online filing of tax returns and computerization at all revenue collection agencies have helped to boost coverage. Increased remuneration for employees of the agencies would also be helpful.
Additionally, they have to encourage the culture of paying tax. This is more easily done when the taxpayer can identify additions to the infrastructure and public services. Lagos State offers a good case study in this respect.
Sources: CBN; FBNQuest Research
Finance ministries in some smaller developing economies have set up units to collect taxes from the largest companies. We do not think the idea should be extended to Nigeria on account of its size and the widespread evasion. The focus on coverage does require patience. The FGN, as we noted yesterday, has adopted more realistic projections for non-oil revenue generation.