(Tax Research -UK)
The EU Parliament’s Economic and Monetary Affairs Committee passed a resolution in response to the IASB’s IFRS 8...
The Committee also approved the use of IFRS 8 for now, but subject to the massive caveat that it:
Requests the Commission to follow closely the application of IFRS 8 and to report back to the European Parliament no later than 2011, inter alia regarding reporting of geographical segments, segment profit or loss, use of non-IFRS measures; underlines that if the Commission discovers deficiencies in the application of IFRS 8 it has a duty to rectify such deficiencies.
Friday, November 9, 2007
Nigeria: Taxation And Justice
No nation can prosper economically without an effective and efficient tax law.
Taxation is a legal method of raising funds by the government. It has transmitted into a civic responsibility of the citizens, who often may not have any choice in its payment due to the system fund point of deduction. Taxation could be likened to a duty of the citizenry towards the government and the nation. It could also be described as levy, toll, dues or assessment placed on the citizens by law.
Justice on the other hand connotes fairness, impartiality, righteousness, evenhandedness, fair dealing, honesty, integrity. The opposite of this is injustices, unfairness, dishonesty, etc.
Every nation including Nigeria makes plans and budget for the smooth governance of the nation.
Our laws provides for a system of taxation under a specific agency called Federal Inland Revenue service. It's legal to impose and collect taxes from the citizens in whatever form and must be fairly and proportionately collected. It must be fairly distributed and higher income earners should pay more and vice versa. This is an ideal scenario and must be constitutionally made operationally so.
The law is a system of rule and principle that guides the people living within a geographical location called country.
The Nigerian experience in taxation is disgraceful and condemnable. Taxation is only properly so called in relation to public school teachers and civil servants who have taxes deducted from their salaries at source.
How much tax do we collect from the businesses operating in our nation? The law of taxation is not a bluechip area of concentration in Nigeria. Its concentration seems only at the point of salary to accommodate the PAYE system. It has evolved to adequately handle issues of taxation on the privileged many who are confronted with taxation squarely and deduction from their meager salaries.
*Points To Note In Taxation*
1. The law must make it mandatory that the basic needs of the people, especially the poor and vulnerable are addressed as a matter of priority before any taxation could be justified.
2. The law must make the collection of taxes an important and justifiable role of government. Taxes are an individual and corporation contribution to the common good. In any society, the common good should be varied of greater importance than the good of any individual, corporation or special interest group. Paying taxes, is one way individuals and corporations give something back to the society.
3. The law must make it obligatory on the nation to seek and maintain revenues sufficient to meet basic needs of all, especially the poor and vulnerable. Taxation in any form should be based on ones ability to pay. The tax law operating in Nigeria, must be reviewed to ensure that the system collects taxes according to ones ability to pay. Hence, a more progressive tax system must evolve to the extent that our contribution to the common good must reflects our blessing. Hence to whom much has been given, much should be expected. Those who make the most profit from our economic system benefit most from the structures and infrastructures that makes economic enterprise possible. Tax exemptions and tax incentives should not change the fundamental requirement that taxes should be based on one's ability to pay.
Any form of taxation that is not fair and just in the treatment of the poor and the less privileged is fundamentally defective. Taxation must exist to be used as an economic strategy to level income distribution in a society. Tax advantage should not be granted on the basis of power and politics, but on moral principle as prescribed by law. The poor should not pay a disproportionate amount of income in taxes.
Who eventually pay any given tax and who will be the ultimate sufferers, both in respect for the money paid and in relation between their income and in the cost of the commodities they have to consume. The total amount of tax paid by each individual, will comprise not only the obvious items of money paid and the goods the money has purchased, but puts more money in the pockets of other individuals.
When a new tax or increased tax is levied on goods already in the hands of manufacturers or dealers, the market value of the goods may suddenly increase by the whole amount of tax without any effort, whatever, on the part of the holder. In such a case the consumer will be the sufferer at first. Hence taxes could be levied on personnel or on production.
Taxation is in the exclusive legislative list of the government. Hence only one system of taxation can be evolved for the entire nation. This means that the nation can survive or be crippled under the weight of the tax system in operation.
The nation's economic base can be affected when tax fails to correct the imbalance between the rich and the poor.
Taxation is a legal method of raising funds by the government. It has transmitted into a civic responsibility of the citizens, who often may not have any choice in its payment due to the system fund point of deduction. Taxation could be likened to a duty of the citizenry towards the government and the nation. It could also be described as levy, toll, dues or assessment placed on the citizens by law.
Justice on the other hand connotes fairness, impartiality, righteousness, evenhandedness, fair dealing, honesty, integrity. The opposite of this is injustices, unfairness, dishonesty, etc.
Every nation including Nigeria makes plans and budget for the smooth governance of the nation.
Our laws provides for a system of taxation under a specific agency called Federal Inland Revenue service. It's legal to impose and collect taxes from the citizens in whatever form and must be fairly and proportionately collected. It must be fairly distributed and higher income earners should pay more and vice versa. This is an ideal scenario and must be constitutionally made operationally so.
The law is a system of rule and principle that guides the people living within a geographical location called country.
The Nigerian experience in taxation is disgraceful and condemnable. Taxation is only properly so called in relation to public school teachers and civil servants who have taxes deducted from their salaries at source.
How much tax do we collect from the businesses operating in our nation? The law of taxation is not a bluechip area of concentration in Nigeria. Its concentration seems only at the point of salary to accommodate the PAYE system. It has evolved to adequately handle issues of taxation on the privileged many who are confronted with taxation squarely and deduction from their meager salaries.
*Points To Note In Taxation*
1. The law must make it mandatory that the basic needs of the people, especially the poor and vulnerable are addressed as a matter of priority before any taxation could be justified.
2. The law must make the collection of taxes an important and justifiable role of government. Taxes are an individual and corporation contribution to the common good. In any society, the common good should be varied of greater importance than the good of any individual, corporation or special interest group. Paying taxes, is one way individuals and corporations give something back to the society.
3. The law must make it obligatory on the nation to seek and maintain revenues sufficient to meet basic needs of all, especially the poor and vulnerable. Taxation in any form should be based on ones ability to pay. The tax law operating in Nigeria, must be reviewed to ensure that the system collects taxes according to ones ability to pay. Hence, a more progressive tax system must evolve to the extent that our contribution to the common good must reflects our blessing. Hence to whom much has been given, much should be expected. Those who make the most profit from our economic system benefit most from the structures and infrastructures that makes economic enterprise possible. Tax exemptions and tax incentives should not change the fundamental requirement that taxes should be based on one's ability to pay.
Any form of taxation that is not fair and just in the treatment of the poor and the less privileged is fundamentally defective. Taxation must exist to be used as an economic strategy to level income distribution in a society. Tax advantage should not be granted on the basis of power and politics, but on moral principle as prescribed by law. The poor should not pay a disproportionate amount of income in taxes.
Who eventually pay any given tax and who will be the ultimate sufferers, both in respect for the money paid and in relation between their income and in the cost of the commodities they have to consume. The total amount of tax paid by each individual, will comprise not only the obvious items of money paid and the goods the money has purchased, but puts more money in the pockets of other individuals.
When a new tax or increased tax is levied on goods already in the hands of manufacturers or dealers, the market value of the goods may suddenly increase by the whole amount of tax without any effort, whatever, on the part of the holder. In such a case the consumer will be the sufferer at first. Hence taxes could be levied on personnel or on production.
Taxation is in the exclusive legislative list of the government. Hence only one system of taxation can be evolved for the entire nation. This means that the nation can survive or be crippled under the weight of the tax system in operation.
The nation's economic base can be affected when tax fails to correct the imbalance between the rich and the poor.
Thursday, November 8, 2007
Tanzania: Non-Tax Revenue - $33m Uncollected
Tanzania lost at least $33 million (about Sh40 billion) in uncollected non-tax forest revenue in the fiscal year 2006/07 as a result of the shortage of staff and supporting resources for the collection and prevention of illegal logging.
Finnish Embassy cooperation head Satu Santana told a recent general budget review meeting in Dar es Salaam that the low rates of investment and expenditure on forest revenue collection and forest law enforcement also limited the revenue collection from forestry.
The non-tax revenue in forestry consists of registration fees, forest royalty fees, export permits, and penalties for forest law violations.
In royalties of timber sales alone, which account to about 93 per cent of all forestry revenue collected, the Government loses around $23.8 million (Sh32 billion) annually.
Recent estimates show that the forest sector's total annual contribution is between 10 and 15 per cent of the total gross domestic product (GDP). At the current Government spending of 30 per cent of GDP, revenues from forestry would have contributed to more than half of the whole Government spending.
In the 2006/07 fiscal year the Government collected about Sh15.2 billion from forestry which was only 27 per cent of total revenue collection potential from forestry amounting to Sh55 billion annually ($46 million).
Development partners urged the Government to put its house in order and strengthen its revenue collection mechanisms from its natural resources.
They said it is incomprehensible that Tanzania should fail to collect so much revenue and still continue to depend on foreign aid to fund its budget.
Ms Santala stressed that inadequate Government expenditure on forest revenue collection and law enforcement contributed much of the poor performance in revenue collection.
"The ministry of Natural Resources and Tourism budget was cut by 13.8 per cent for 2007/08 which has directly affected the ministry's ability to effectively manage the forest resources and the revenue collection. The general problem is that there are not enough resources dedicated to forest law enforcement," she said.
She said although the forest sector's contribution to revenue collection increased from Sh4 billion in 2001 to about Sh15.2 billion in 2006 Government expenditure on forest activities particularly in relation to revenue collection decreased over the last few years.
The current collection of the forest revenue and its allocation and distribution do not support sustainable management or utilisation of forest resources. Current pricing mechanisms do not allocate resources efficiently.
"To be able to sustain the forest resources, more resources are needed for effective revenue collection and monitoring activities," she said.
She observed that multiple reports had consistently found that district forest offices and forest law enforcement offices both at Central Government and Local Government were understaffed.
The situation inhibits their ability to collect forest revenues and enforce the law.
Finnish Embassy cooperation head Satu Santana told a recent general budget review meeting in Dar es Salaam that the low rates of investment and expenditure on forest revenue collection and forest law enforcement also limited the revenue collection from forestry.
The non-tax revenue in forestry consists of registration fees, forest royalty fees, export permits, and penalties for forest law violations.
In royalties of timber sales alone, which account to about 93 per cent of all forestry revenue collected, the Government loses around $23.8 million (Sh32 billion) annually.
Recent estimates show that the forest sector's total annual contribution is between 10 and 15 per cent of the total gross domestic product (GDP). At the current Government spending of 30 per cent of GDP, revenues from forestry would have contributed to more than half of the whole Government spending.
In the 2006/07 fiscal year the Government collected about Sh15.2 billion from forestry which was only 27 per cent of total revenue collection potential from forestry amounting to Sh55 billion annually ($46 million).
Development partners urged the Government to put its house in order and strengthen its revenue collection mechanisms from its natural resources.
They said it is incomprehensible that Tanzania should fail to collect so much revenue and still continue to depend on foreign aid to fund its budget.
Ms Santala stressed that inadequate Government expenditure on forest revenue collection and law enforcement contributed much of the poor performance in revenue collection.
"The ministry of Natural Resources and Tourism budget was cut by 13.8 per cent for 2007/08 which has directly affected the ministry's ability to effectively manage the forest resources and the revenue collection. The general problem is that there are not enough resources dedicated to forest law enforcement," she said.
She said although the forest sector's contribution to revenue collection increased from Sh4 billion in 2001 to about Sh15.2 billion in 2006 Government expenditure on forest activities particularly in relation to revenue collection decreased over the last few years.
The current collection of the forest revenue and its allocation and distribution do not support sustainable management or utilisation of forest resources. Current pricing mechanisms do not allocate resources efficiently.
"To be able to sustain the forest resources, more resources are needed for effective revenue collection and monitoring activities," she said.
She observed that multiple reports had consistently found that district forest offices and forest law enforcement offices both at Central Government and Local Government were understaffed.
The situation inhibits their ability to collect forest revenues and enforce the law.
Friday, November 2, 2007
'Corruption rises' as Africa gains from oil
(Business Day)
Strong economic growth and huge windfalls from high oil prices have fuelled corruption in sub-Saharan Africa and robbed countries of funds for development, researchers said at a World Bank Summit on Friday.
Academics from the University of Massachusetts said billions of dollars continued to leave the continent for secret bank accounts overseas.
"If anything, capital flight is on an increasing trend in the past few years," said University of Massachusetts economics professor James Boyce, who has researched the subject for more than five years.
"And now, with oil windfalls in some countries, the pie from which to take is that much bigger." His research found that about half-a-trillion dollars left the continent between 1970 and 2004. About $35-billion left the continent in 2003 alone.
Oil exploration and production is on the increase in Africa as international companies and countries such as China race to stake a claim on the resources.
Oil prices have risen 40 percent since mid-August, driven by expectations of tighter supplies, a weak dollar and an inflow of money into commodities.
Capital flight
Researchers said despite the emergence of more democratic governments in Africa, capital flight was on the increase because there had not been successful prosecutions of leaders who had left their countries poorer.
It was the single biggest threat to the continent's developmental goals, they said.
"Capital flight has had adverse welfare and distribution consequences on the overwhelming majority of poor in numerous countries in that it heightened income inequality and jeopardised employment prospects," Central Bank of Kenya Governor Njuguna Ndung'u said in a written speech.
The international community needed to cooperate with authorities to clamp down on corrupt officials, Boyce said.
"There are international laws countries could use to track and have their money returned," he said.
"They can go as far as refusing to pay loans, if they can show that the huge loans were for the personal benefit of leaders and not for the country."
Last month, Britain extended an court order freezing $35-million of assets belonging to a former Nigerian state governor.
James Ibori was governor of the oil-producing Delta state and a close associate of President Umaru Yar'Adua.
Compounding the problem was a lack of laws and capacity to enforce them where they existed, said Jerry Rowe, regional adviser for Africa and Middle East at the US Treasury.
"To some extent some countries are stepping up legislation and putting up measures (to fight corruption). With some countries it is really capacity problems and the inability to enforce already existing laws," he said.
Despite robust economic growth and vast mineral wealth in sub-Saharan Africa, millions of people live below the breadline, also hampered by conflict and civil war in some countries.
Benefits from recent debt relief would be short-lived if the trend was not reversed or some of the stolen money repatriated, researchers said.
"Even if 25 percent of the money were to be repatriated, Africa would go a long way to working on its developmental goals," said Hippolyte Fofack, senior economist at the World Bank, the main organiser of the summit.
Strong economic growth and huge windfalls from high oil prices have fuelled corruption in sub-Saharan Africa and robbed countries of funds for development, researchers said at a World Bank Summit on Friday.
Academics from the University of Massachusetts said billions of dollars continued to leave the continent for secret bank accounts overseas.
"If anything, capital flight is on an increasing trend in the past few years," said University of Massachusetts economics professor James Boyce, who has researched the subject for more than five years.
"And now, with oil windfalls in some countries, the pie from which to take is that much bigger." His research found that about half-a-trillion dollars left the continent between 1970 and 2004. About $35-billion left the continent in 2003 alone.
Oil exploration and production is on the increase in Africa as international companies and countries such as China race to stake a claim on the resources.
Oil prices have risen 40 percent since mid-August, driven by expectations of tighter supplies, a weak dollar and an inflow of money into commodities.
Capital flight
Researchers said despite the emergence of more democratic governments in Africa, capital flight was on the increase because there had not been successful prosecutions of leaders who had left their countries poorer.
It was the single biggest threat to the continent's developmental goals, they said.
"Capital flight has had adverse welfare and distribution consequences on the overwhelming majority of poor in numerous countries in that it heightened income inequality and jeopardised employment prospects," Central Bank of Kenya Governor Njuguna Ndung'u said in a written speech.
The international community needed to cooperate with authorities to clamp down on corrupt officials, Boyce said.
"There are international laws countries could use to track and have their money returned," he said.
"They can go as far as refusing to pay loans, if they can show that the huge loans were for the personal benefit of leaders and not for the country."
Last month, Britain extended an court order freezing $35-million of assets belonging to a former Nigerian state governor.
James Ibori was governor of the oil-producing Delta state and a close associate of President Umaru Yar'Adua.
Compounding the problem was a lack of laws and capacity to enforce them where they existed, said Jerry Rowe, regional adviser for Africa and Middle East at the US Treasury.
"To some extent some countries are stepping up legislation and putting up measures (to fight corruption). With some countries it is really capacity problems and the inability to enforce already existing laws," he said.
Despite robust economic growth and vast mineral wealth in sub-Saharan Africa, millions of people live below the breadline, also hampered by conflict and civil war in some countries.
Benefits from recent debt relief would be short-lived if the trend was not reversed or some of the stolen money repatriated, researchers said.
"Even if 25 percent of the money were to be repatriated, Africa would go a long way to working on its developmental goals," said Hippolyte Fofack, senior economist at the World Bank, the main organiser of the summit.
Uganda: Sh1.6 Trillion Waiver May Kill Tax Compliance
(The Monitor)
Last week, Daily Monitor published a list of 42 enterprises that owe government over Shs1,600b. It has also been reported that government is contemplating forgiving the debts. Whereas details regarding how and for what purposes the enterprises accessed the money are not clear, the issue needs to be critically examined.
I'm particularly interested in assessing the possible effect such spending of taxpayers' money has on the taxpayers' morale to pay taxes. I refer to a research publication on the internet titled: The effects of tax morale on tax compliance: Experimental and survey evidence by Ronald G. Cummings, et al.
Tax morale is defined as the intrinsic motivation to pay taxes from the moral obligation to pay taxes or the belief in contributing to society by paying taxes. The above publication contains interesting findings and below are some extracts.
"The experimental and survey results reported in the paper supported the hypothesis that tax compliance increases with the individual perceptions that the tax system is fair and that the government is providing valued goods and services with the revenues...."
"The perceived quality of political institutions is argued to affect taxpayers' willingness to pay taxes. If taxpayers perceive that their interests (preferences) are properly represented in political institutions, and they receive a desirable mix of public goods, their willingness to pay taxes increases. On the other hand, a state in which corruption is rampant is one in which citizens have little trust in authority and thus a low incentive to cooperate."
"A more encompassing and legitimate state will lead to higher tax compliance. Such a state may tend to increase taxpayers positive attitudes and commitment to the tax system, with an accompanying positive effect on tax compliance.
Taxes are the price paid for government services and taxpayers generally are sensitive to the way government uses tax revenues. Taxpayers perceive their relationship with the state not only as a relationship of coercion, but also as one of exchange. Individuals will feel cheated if taxes are not spent efficiently".
From the above, it is clear that for a government to achieve high compliance levels, it must be accountable. Taxpayers must be informed of how their taxes are being used by government. Where they feel the government is not properly using their taxes, there are chances that they will not cooperate hence tax contributions will be low.
We must not forget that previous media reports indicated that Uganda is among the countries with the least tax compliance levels. Whereas government is seeking to increase tax collections to reduce the deficit budget, deriving from the above findings, you will expect such government spending to discourage tax compliance.
The findings give good insights into the causes of non- tax compliance in Uganda. If government expects voluntary compliance, then it should be accountable. Simple. It is hard to tell how many people felt cheated, deprived and hopeless after reading the above story.
Imagine one pays; 30 per cent of salary (PAYE); 18 per cent on all goods that attract VAT, excise duty of 12 per cent on airtime and Shs850 per litre of petrol, among other taxes, yet most of the benefiting companies do not pay a penny in corporation tax since they are not profitable any way. But they receive a fortune out of someone else's sweet.
What makes matters worse, there is no clear policy regarding the bailouts to business people as to how they are determined, their recovery or otherwise. The government is obliged to explain to taxpayers how their money is used if it is to gain their cooperation.
Voluntary compliance is very important as the above publication indicates that enforcement alone will not do much in attaining tax compliance. "... compliance does increase with enforcement effort but the effect is less where the tax regime is viewed as unfair. Thus the results reported in this paper provide support for a model of tax compliance that extends beyond the typical 'economical crime' approach with its emphasis on enforcement effort and deterrence.'
The benefits of voluntary compliance need not to be over emphasised. It ensures higher revenues at least cost, which is every tax collector's dream. It is important that the matter of the Shs1,600b is handled logically or else it may encourage taxpayers to award themselves 'bailouts' before the money reaches the treasury. And this would be to the government's disadvantage.
(The writer is an associate consultant at Q-Sourcing Limited. He has over 10 years experience in taxation having worked with URA and Ernst&Young)
Last week, Daily Monitor published a list of 42 enterprises that owe government over Shs1,600b. It has also been reported that government is contemplating forgiving the debts. Whereas details regarding how and for what purposes the enterprises accessed the money are not clear, the issue needs to be critically examined.
I'm particularly interested in assessing the possible effect such spending of taxpayers' money has on the taxpayers' morale to pay taxes. I refer to a research publication on the internet titled: The effects of tax morale on tax compliance: Experimental and survey evidence by Ronald G. Cummings, et al.
Tax morale is defined as the intrinsic motivation to pay taxes from the moral obligation to pay taxes or the belief in contributing to society by paying taxes. The above publication contains interesting findings and below are some extracts.
"The experimental and survey results reported in the paper supported the hypothesis that tax compliance increases with the individual perceptions that the tax system is fair and that the government is providing valued goods and services with the revenues...."
"The perceived quality of political institutions is argued to affect taxpayers' willingness to pay taxes. If taxpayers perceive that their interests (preferences) are properly represented in political institutions, and they receive a desirable mix of public goods, their willingness to pay taxes increases. On the other hand, a state in which corruption is rampant is one in which citizens have little trust in authority and thus a low incentive to cooperate."
"A more encompassing and legitimate state will lead to higher tax compliance. Such a state may tend to increase taxpayers positive attitudes and commitment to the tax system, with an accompanying positive effect on tax compliance.
Taxes are the price paid for government services and taxpayers generally are sensitive to the way government uses tax revenues. Taxpayers perceive their relationship with the state not only as a relationship of coercion, but also as one of exchange. Individuals will feel cheated if taxes are not spent efficiently".
From the above, it is clear that for a government to achieve high compliance levels, it must be accountable. Taxpayers must be informed of how their taxes are being used by government. Where they feel the government is not properly using their taxes, there are chances that they will not cooperate hence tax contributions will be low.
We must not forget that previous media reports indicated that Uganda is among the countries with the least tax compliance levels. Whereas government is seeking to increase tax collections to reduce the deficit budget, deriving from the above findings, you will expect such government spending to discourage tax compliance.
The findings give good insights into the causes of non- tax compliance in Uganda. If government expects voluntary compliance, then it should be accountable. Simple. It is hard to tell how many people felt cheated, deprived and hopeless after reading the above story.
Imagine one pays; 30 per cent of salary (PAYE); 18 per cent on all goods that attract VAT, excise duty of 12 per cent on airtime and Shs850 per litre of petrol, among other taxes, yet most of the benefiting companies do not pay a penny in corporation tax since they are not profitable any way. But they receive a fortune out of someone else's sweet.
What makes matters worse, there is no clear policy regarding the bailouts to business people as to how they are determined, their recovery or otherwise. The government is obliged to explain to taxpayers how their money is used if it is to gain their cooperation.
Voluntary compliance is very important as the above publication indicates that enforcement alone will not do much in attaining tax compliance. "... compliance does increase with enforcement effort but the effect is less where the tax regime is viewed as unfair. Thus the results reported in this paper provide support for a model of tax compliance that extends beyond the typical 'economical crime' approach with its emphasis on enforcement effort and deterrence.'
The benefits of voluntary compliance need not to be over emphasised. It ensures higher revenues at least cost, which is every tax collector's dream. It is important that the matter of the Shs1,600b is handled logically or else it may encourage taxpayers to award themselves 'bailouts' before the money reaches the treasury. And this would be to the government's disadvantage.
(The writer is an associate consultant at Q-Sourcing Limited. He has over 10 years experience in taxation having worked with URA and Ernst&Young)
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