(This Day-Lagos)
By most accounts, the last has not been heard of the federal government's plan to impose on Nigerians stiffer consumption tax, otherwise known as the value added tax (VAT).
The last time the government made moves to raise the tax from five per cent to 10 per cent, Nigerians, including this newspaper, opposed it. We did so not because we did not believe in the right of government to tax people to fund development or welfare programmes aimed at improving the people's standard of living. Rather, most of the opposition stemmed from the apparent disconnection between high taxation in Nigeria and the people's welfare.
By almost every index of the social contract principle, successive Nigerian governments have failed substantially to account for the huge income that accrues to the nation from taxation and other sources. There is a mismatch between revenue collection and performance.
As it is, few Nigerians are therefore convinced that the government has any moral right to levy higher taxes on its people in the face of the incredible fiscal irresponsibility so rampant in public spending. Besides, not many people are convinced that the consumption tax is the first place to start if taxes must be raised at all. They believe that there are yet many loopholes in our income tax systems which make tax evasion, especially by the rich and super rich, quite rampant. A government that is determined to improve tax revenue ought therefore to start from there. By plugging the existing loopholes, a lot more income will be realized from personal and corporate income taxes.
However, it would appear that this thinking cuts no ice with the Federal Inland Revenue Services (FIRS) which has instead come up with a plan to raise the VAT by a whopping 200 per cent by the year 2009. In effect, Nigerians are expected to start paying 15 per cent VAT by then if this proposal is endorsed by the Senate. FIRS's justification for this proposal is that it would eliminate multiple taxation and reduce personal income tax.
Although it certainly makes sense to reduce multiple taxation and personal income tax, such promises had, however, not always been kept in the past. It is for this reason then that Nigerians tend to be skeptical about such plans. Many now see taxation in the country as a mere exaction where as taxes are supposed to be a means of improving social services. It is this disconnect between taxation and the people's welfare that makes any talks about increasing the tax level paid by Nigerians controversial. Few Nigerians are convinced that paying a higher VAT will necessarily lead to improved services.
In this instance, we think the government should not raise the VAT unless and until it has fully articulated how it would spend revenue accruing from it. In other countries, because of the sensitive nature of taxes, every planned increase in taxation, especially consumption tax, is usually preceded by government's elaborate explanation of how it will spend the revenue for the people's benefit. We expect no less from the Nigerian government.
The plan should therefore be shelved for now. What we expect the government do is to throw the issue open for public debate. It must not allow the FIRS to stampede it into imposing greater burden on Nigerians at a time when consumer prices are going through the roof. The challenge of the government for now should be to ensure the prudent use of existing revenues.
Monday, October 22, 2007
Wednesday, October 17, 2007
Open up debate of tax policy to public
(East African Standard)
The arrival of the Kenya Revenue Authority's annual Taxpayers' Week should be seen as an opportunity to mend fences with taxpayers, even as the institution pats itself on the back for a job well done. It should also be an opportunity to reopen debate on whether current tax policy addresses issues of equity and distribution adequately.
A great deal has been achieved in the last few years with regard to broadening the tax base and ensuring those who have previously evaded taxes pay up. However, this hasn't always been done with sensitivity to taxpayers.
As we have urged in these pages before, a softly-softly approach is no less likely to work and will go a long way to enlisting the cooperation of taxpayers.
To keep up economic growth, the State requires sufficient revenue to fund the physical and social infrastructure.
The revenue also enables a degree of wealth distribution in order to promote equity and security.
Tax collection has steadily grown by an average of 13 per cent increasing from Sh200 billion in 2003 to approximately Sh375 billion in 2006. KRA plans to raise Sh425 billion this financial year in revenue collections. This will be Sh65 billion more than last year and about Sh127 billion more than the year before.
The remarkable improvement in revenue collection is probably one of the few undisputed achievements of the current Government.
It has seen the financing of development programmes from domestic financial resources go up to 95 per cent of the national budget.
This is indeed high compared to our neighbours Uganda, for instance, where only 55 per cent of the budget is financed domestically.
The unprecedented growth has also enabled the Government to substantially reduce dependence on assistance for both recurrent and development expenditure.
While this independence from donors is laudable, it also raises a number of issues that require discussion.
As organisations such as the Tax Justice Network for Africa have suggested before, the public would greatly benefit from debating issues such as:
How has the increase impacted on the poor households? Who is carrying the tax burden resulting from this increased revenue collection? How adequately have issues of equity and distribution been addressed in the current tax system?
The arrival of the Kenya Revenue Authority's annual Taxpayers' Week should be seen as an opportunity to mend fences with taxpayers, even as the institution pats itself on the back for a job well done. It should also be an opportunity to reopen debate on whether current tax policy addresses issues of equity and distribution adequately.
A great deal has been achieved in the last few years with regard to broadening the tax base and ensuring those who have previously evaded taxes pay up. However, this hasn't always been done with sensitivity to taxpayers.
As we have urged in these pages before, a softly-softly approach is no less likely to work and will go a long way to enlisting the cooperation of taxpayers.
To keep up economic growth, the State requires sufficient revenue to fund the physical and social infrastructure.
The revenue also enables a degree of wealth distribution in order to promote equity and security.
Tax collection has steadily grown by an average of 13 per cent increasing from Sh200 billion in 2003 to approximately Sh375 billion in 2006. KRA plans to raise Sh425 billion this financial year in revenue collections. This will be Sh65 billion more than last year and about Sh127 billion more than the year before.
The remarkable improvement in revenue collection is probably one of the few undisputed achievements of the current Government.
It has seen the financing of development programmes from domestic financial resources go up to 95 per cent of the national budget.
This is indeed high compared to our neighbours Uganda, for instance, where only 55 per cent of the budget is financed domestically.
The unprecedented growth has also enabled the Government to substantially reduce dependence on assistance for both recurrent and development expenditure.
While this independence from donors is laudable, it also raises a number of issues that require discussion.
As organisations such as the Tax Justice Network for Africa have suggested before, the public would greatly benefit from debating issues such as:
How has the increase impacted on the poor households? Who is carrying the tax burden resulting from this increased revenue collection? How adequately have issues of equity and distribution been addressed in the current tax system?
Wednesday, October 10, 2007
Nigeria: FG to Cut Company Income Tax
10th October 2007(Vanguard-Lagos)
The Federal Government may drastically cut Companies Income Tax as from the 2008 Fiscal Year, as part of a basket of tax incentives geared towards attracting more investors to Nigeria and voluntary compliance, expected to boost tax revenue in the country.
Part of the plan of the government would be a deliberate policy shift towards indirect taxation, in line with international best practices.
These were part of the new National Tax Policy draft which the Executive Chairman of the Federal Inland Revenue Service (FIRS) Ms. Ifueko Omoigui presented to the Minister of Finance, Dr. Shamsuddeen Usman, in Abuja, yesterday.
The new rate being proposed in the draft would see companies operating in the country paying 20 per cent as Income Tax, rather than the current standard rate of 30 per cent.
"*If Nigeria decides to lower its rates of income tax in order to attract investment into the country, it would be nearly impossible for countries like Kenya, South Africa or any of the ECOWAS countries to compete, in view of the fact that dependence on income taxes for these countries is much higher. It is therefore possible that Nigeria can achieve competitive advantage in its tax system through lower rates adjustment", the policy draft said*.
The draft crafted by a Technical Sub-Committee of the Presidential Committee on National Tax Policy, the focus would be to achieve the objective of creating a good business environment through the provision of massive infrastructure for both existing and potential foreign and local industries.
"In a short to medium term, where it may not be possible for the government to provide the quality of infrastructure on the scale needed, it should seek to achieve the objective by making good use of the tax system. This can be done by decreasing the burden of taxation on companies and enterprises", the draft said.
The Federal Government may drastically cut Companies Income Tax as from the 2008 Fiscal Year, as part of a basket of tax incentives geared towards attracting more investors to Nigeria and voluntary compliance, expected to boost tax revenue in the country.
Part of the plan of the government would be a deliberate policy shift towards indirect taxation, in line with international best practices.
These were part of the new National Tax Policy draft which the Executive Chairman of the Federal Inland Revenue Service (FIRS) Ms. Ifueko Omoigui presented to the Minister of Finance, Dr. Shamsuddeen Usman, in Abuja, yesterday.
The new rate being proposed in the draft would see companies operating in the country paying 20 per cent as Income Tax, rather than the current standard rate of 30 per cent.
"*If Nigeria decides to lower its rates of income tax in order to attract investment into the country, it would be nearly impossible for countries like Kenya, South Africa or any of the ECOWAS countries to compete, in view of the fact that dependence on income taxes for these countries is much higher. It is therefore possible that Nigeria can achieve competitive advantage in its tax system through lower rates adjustment", the policy draft said*.
The draft crafted by a Technical Sub-Committee of the Presidential Committee on National Tax Policy, the focus would be to achieve the objective of creating a good business environment through the provision of massive infrastructure for both existing and potential foreign and local industries.
"In a short to medium term, where it may not be possible for the government to provide the quality of infrastructure on the scale needed, it should seek to achieve the objective by making good use of the tax system. This can be done by decreasing the burden of taxation on companies and enterprises", the draft said.
Monday, October 8, 2007
Nigeria: Property Tax as Tool for Poverty Eradication
8th October 2007 (Vanguard-Lagos)
THEY craved for the opportunity and when it came, grabbed it with both hands.
That apparently explains why the banquet halls of Golden Gate Restaurant, Ikoyi was filled to capacity despite the early morning downpour and the attendant flooding and traffic snarl in the area and other parts of the metropolis. Estate Surveyors and Valuers, known for their very busy schedules defied all the odds to brainstorm on how to use property taxation to eradicate poverty in the country.
Setting the tone for the day-long programme, Chairman of the Lagos State branch of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Dr. B.J Patunola-Ajayi said it would afford government functionaries and professionals the avenue to "share information, ideas and opinions on a major issue that affects us all, the society we live in and how we contribute to the development and prosperity of our society as individuals, professionals, government functionaries and citizens as a whole through the tax system with emphasis on property taxes".
Describing the theme of the Continuing Professional Development Programme (CPD) as very apt, Dr. Patunola-Ajayi stated that both the Federal and State governments would benefit from it as they strive to "grow greater social wealth for the transformation of our society from a poverty infused one into an evolving socially prosperous one and lay a solid foundation of better wealth distribution for future administration through appropriate legislations as backup".
The Lagos NIESV Chairman identified property tax as those derivable from interests either in ownership or usage of landed properties and similar assets. They include: probates tax, capital gains tax, capital transfer tax, tenement rate, ground rate and withholding tax among others.
"We at the Lagos State branch of NIESV see the great need for the process of achieving poverty eradication through a proper tax system and effective administration to commence now, with the involvement of the State governments, especially Lagos State," he said.
It was the view of Dr. Patunola-Ajayi that if properly packaged with inputs from relevant stakeholders, property taxes would gradually reduce corruption and the current wave to illegally amass wealth. It will also lead to wealth re-distribution and the eventual eradication of poverty in the land.
But what is the role of estate surveyors and valuers in tax system and administration? Dr. Patunola-Ajayi had this to say. "Estate Surveyors and Valuers and its counterpart professional colleagues play a pivotal role in tax systems and administrations, especially in the developed world, which greatly forms the backbone of the prosperity and strength of these world economies. In Nigeria, the case should be the same. Property taxes should not be based on assumptions, mere conclusion of property value by individuals, old records and non-professional opinions among other means but it should be based on property values obtained from registered Estate Surveyor and Valuer's certificate of valuation".
Leading the discussions, two frontline Estate Surveyors, Mr. Mondiu Adebayo Belo stated that suggesting property tax as an addition to the tax regime in the country might sound foolhardy but explained that Estate Surveyors and Valuers would not shy away from making the recommendation because of the importance of property in the assessment of a person's well-being.
"If we as a country are serious about eradicating poverty and its side effects, we must consider redistribution of wealth through such medium as property taxation as has been done successfully in most advanced countries of the world," he said.
Mr. Belo who uses every forum he addresses to kick against the involvement of engineers in plant and machinery valuation did not disappoint this audience. He maintained that the properly qualified professional known all over the world as a valuer is the Estate Surveyor and Valuer.
"The effect of property tax must be reviewed with regard to the wider economy and must be viewed beyond the property market because the aim of the tax is raising of revenue for essential social welfare services. The important point in the review will be to identify any distortions caused by the tax and to recommend remedies in the light of the economy, the need to raise needed revenue and political realities. Whatever distortions may be thrown up, it must be borne in mind that property can play an important role in developing sustainable social welfare benefits which will help in tackling the debilitating poverty facing most of our population", he said.
Both Belo and another frontline Estate Surveyor and Valuer, Chief Richard Okafor explained that apart from oil revenue, taxation is the most important source of government revenue.
Speaking specifically on property tax, the duo described it as "transparent, cheap to administer, efficient in its collection, easy to understand by the tax paying public and feasible in administration in most circumstances".
"It is suitable as a source of locally generated revenue for the local and state governments throughout the country. It will consequently enable these governments to provide for locally determined needs geared towards poverty eradication. These needs could come in form of the provision of rural infrastructure", they noted.
Continuing, Chief Okafor explained that progressive property taxation in Nigeria could become a veritable tool for poverty eradication. But how? Hear him: " Progressive taxation is a system when the tax burden lies more on those with higher incomes than those whose incomes are lower. The affluent own properties in prime locations and property tax assessment should be such that they pay higher than the poor who earn less and own virtually no properties".
In their opinion, both Mr. Belo and Chief Okafor are of the view that religious and charitable organisations should continue to enjoy tax exemptions to enable the less privileged have access to the use and ownership of properties. They also canvassed strengthening and encouraging property rates because it is a veritable source of revenue for local government councils.
Explaining that the operation of Capital Gains tax and Capital Transfer tax in Nigeria is not clear, Messrs Belo and Okafor who noted that most property transfers and sales are done by the rich, stated that many of these sales and transfers have not been subjected to this tax. They attributed this to the dearth of property sales/transfer database.
"The tax could be better administered if there exists record of sales/transfers of properties. The beneficiaries of these sales and transfers are mainly the rich. Their tax returns can then be applied to poverty eradication programmes that benefit the poor better such as building of public schools, hospitals and provision of rural infrastructure," they posited.
In his contribution, Chief Oye Afolabi dwelt on the challenges of probate valuation practice in the country and called on the National Assembly to make laws on Estate duty and the rates payable. The House should also review or amend the Capital Transfer tax Act to reflect the current economic trends and care of the needy.
Other recommendations canvassed by Chief Afolabi include: Making the registration of death compulsory by law; enacting a law that would make it mandatory for medical practitioners to make returns of death certificates issued on a prescribed form and ensuring proper registration of Will made by the deceased in the Probate Registry of each state. Chief Afolabi would also want the publication of the assets in such Will to enable members of the public ascertain that all properties of the deceased are filed at Executor's expense. "As a condition for the issuance of a Letter of Administration, a valuation report from any registered Estate Surveyor and Valuer practicing in the country must be attached to such application. Each probate Registry must as a matter of necessity employ a Valuer who will vet such valuation to ensure that such values in the Valuer's certificate is the true open market value of the assets, he said, adding that penalty must be levied on false assets declaration and late submission of application for Letter of Administration from executors.
Chief Afolabi who claimed that the present practice makes government lose billions of Naira which should have been used to fund major projects, advised that the valuation of deceased assets must be made compulsory as an avenue for arriving at accurate charges on such assets.
THEY craved for the opportunity and when it came, grabbed it with both hands.
That apparently explains why the banquet halls of Golden Gate Restaurant, Ikoyi was filled to capacity despite the early morning downpour and the attendant flooding and traffic snarl in the area and other parts of the metropolis. Estate Surveyors and Valuers, known for their very busy schedules defied all the odds to brainstorm on how to use property taxation to eradicate poverty in the country.
Setting the tone for the day-long programme, Chairman of the Lagos State branch of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Dr. B.J Patunola-Ajayi said it would afford government functionaries and professionals the avenue to "share information, ideas and opinions on a major issue that affects us all, the society we live in and how we contribute to the development and prosperity of our society as individuals, professionals, government functionaries and citizens as a whole through the tax system with emphasis on property taxes".
Describing the theme of the Continuing Professional Development Programme (CPD) as very apt, Dr. Patunola-Ajayi stated that both the Federal and State governments would benefit from it as they strive to "grow greater social wealth for the transformation of our society from a poverty infused one into an evolving socially prosperous one and lay a solid foundation of better wealth distribution for future administration through appropriate legislations as backup".
The Lagos NIESV Chairman identified property tax as those derivable from interests either in ownership or usage of landed properties and similar assets. They include: probates tax, capital gains tax, capital transfer tax, tenement rate, ground rate and withholding tax among others.
"We at the Lagos State branch of NIESV see the great need for the process of achieving poverty eradication through a proper tax system and effective administration to commence now, with the involvement of the State governments, especially Lagos State," he said.
It was the view of Dr. Patunola-Ajayi that if properly packaged with inputs from relevant stakeholders, property taxes would gradually reduce corruption and the current wave to illegally amass wealth. It will also lead to wealth re-distribution and the eventual eradication of poverty in the land.
But what is the role of estate surveyors and valuers in tax system and administration? Dr. Patunola-Ajayi had this to say. "Estate Surveyors and Valuers and its counterpart professional colleagues play a pivotal role in tax systems and administrations, especially in the developed world, which greatly forms the backbone of the prosperity and strength of these world economies. In Nigeria, the case should be the same. Property taxes should not be based on assumptions, mere conclusion of property value by individuals, old records and non-professional opinions among other means but it should be based on property values obtained from registered Estate Surveyor and Valuer's certificate of valuation".
Leading the discussions, two frontline Estate Surveyors, Mr. Mondiu Adebayo Belo stated that suggesting property tax as an addition to the tax regime in the country might sound foolhardy but explained that Estate Surveyors and Valuers would not shy away from making the recommendation because of the importance of property in the assessment of a person's well-being.
"If we as a country are serious about eradicating poverty and its side effects, we must consider redistribution of wealth through such medium as property taxation as has been done successfully in most advanced countries of the world," he said.
Mr. Belo who uses every forum he addresses to kick against the involvement of engineers in plant and machinery valuation did not disappoint this audience. He maintained that the properly qualified professional known all over the world as a valuer is the Estate Surveyor and Valuer.
"The effect of property tax must be reviewed with regard to the wider economy and must be viewed beyond the property market because the aim of the tax is raising of revenue for essential social welfare services. The important point in the review will be to identify any distortions caused by the tax and to recommend remedies in the light of the economy, the need to raise needed revenue and political realities. Whatever distortions may be thrown up, it must be borne in mind that property can play an important role in developing sustainable social welfare benefits which will help in tackling the debilitating poverty facing most of our population", he said.
Both Belo and another frontline Estate Surveyor and Valuer, Chief Richard Okafor explained that apart from oil revenue, taxation is the most important source of government revenue.
Speaking specifically on property tax, the duo described it as "transparent, cheap to administer, efficient in its collection, easy to understand by the tax paying public and feasible in administration in most circumstances".
"It is suitable as a source of locally generated revenue for the local and state governments throughout the country. It will consequently enable these governments to provide for locally determined needs geared towards poverty eradication. These needs could come in form of the provision of rural infrastructure", they noted.
Continuing, Chief Okafor explained that progressive property taxation in Nigeria could become a veritable tool for poverty eradication. But how? Hear him: " Progressive taxation is a system when the tax burden lies more on those with higher incomes than those whose incomes are lower. The affluent own properties in prime locations and property tax assessment should be such that they pay higher than the poor who earn less and own virtually no properties".
In their opinion, both Mr. Belo and Chief Okafor are of the view that religious and charitable organisations should continue to enjoy tax exemptions to enable the less privileged have access to the use and ownership of properties. They also canvassed strengthening and encouraging property rates because it is a veritable source of revenue for local government councils.
Explaining that the operation of Capital Gains tax and Capital Transfer tax in Nigeria is not clear, Messrs Belo and Okafor who noted that most property transfers and sales are done by the rich, stated that many of these sales and transfers have not been subjected to this tax. They attributed this to the dearth of property sales/transfer database.
"The tax could be better administered if there exists record of sales/transfers of properties. The beneficiaries of these sales and transfers are mainly the rich. Their tax returns can then be applied to poverty eradication programmes that benefit the poor better such as building of public schools, hospitals and provision of rural infrastructure," they posited.
In his contribution, Chief Oye Afolabi dwelt on the challenges of probate valuation practice in the country and called on the National Assembly to make laws on Estate duty and the rates payable. The House should also review or amend the Capital Transfer tax Act to reflect the current economic trends and care of the needy.
Other recommendations canvassed by Chief Afolabi include: Making the registration of death compulsory by law; enacting a law that would make it mandatory for medical practitioners to make returns of death certificates issued on a prescribed form and ensuring proper registration of Will made by the deceased in the Probate Registry of each state. Chief Afolabi would also want the publication of the assets in such Will to enable members of the public ascertain that all properties of the deceased are filed at Executor's expense. "As a condition for the issuance of a Letter of Administration, a valuation report from any registered Estate Surveyor and Valuer practicing in the country must be attached to such application. Each probate Registry must as a matter of necessity employ a Valuer who will vet such valuation to ensure that such values in the Valuer's certificate is the true open market value of the assets, he said, adding that penalty must be levied on false assets declaration and late submission of application for Letter of Administration from executors.
Chief Afolabi who claimed that the present practice makes government lose billions of Naira which should have been used to fund major projects, advised that the valuation of deceased assets must be made compulsory as an avenue for arriving at accurate charges on such assets.
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