The Nigerian tax system is characterized with irregularities. The Daily Champion reported in 2010 an event where some residents in Aba impersonated government tax officials to extort residents of the area. They operated in front of the Aba Town Hall requesting tax receipts from passersby and in a bid to ‘settle’ these said-to-be government officials, the residents of the town had to part with various amounts of money. This is not an uncommon event in the rest of the country.
Multiple taxations – a situation where the same earnings are taxed more than once unfairly or unlawfully – are a major problem facing the Nigerian tax system.
Once commenting on the menace of multiple taxations in the country, Aliko Dangote asserted that “the manufacturing industries are confronted with multiple statutory levies and taxes which are clearly duplicate of what other tiers of government charge. Apart from the additional costs to industries, the time spent discussing such levies constitutes a distraction to the operators of manufacturing industries in Nigeria.” He also stated that it makes planning difficult since one is not sure of how many levies and taxes will be paid.
Multiple taxation gives rise to unauthorized persons getting involved in the collection of taxes and levies and has created an unfavorable image of the business environment in the country.
Also, in the Nigerian tax system, there is the issue of lack of data, records, and inefficiency in data management which contribute to the high rate of tax avoidance in the country, low level of taxpayer enlightenment as well as inadequate training of tax collectors. There is a poor attitude towards tax by most Nigerians (lack of tax culture) as most would not voluntarily comply to tax laws, they would rather deliberately evade tax.
Diversion is another side of the problem facing the Nigerian tax system. There have been incidences of diversion of tax revenues before or during the collection of taxes by tax officials, leading to a lack of confidence by the general public in the Nigerian tax system. The lack of proper infrastructural development fuels this distrust in Nigerians. After all, aren’t the taxes paid meant to be used to provide infrastructure?
There are tax incentives (reduction in the corporate income tax rate, for example) specially arranged to retain, attract or increase investment in the economy. However, there are also some tax disincentives that pose a major problem for local and foreign investments in the country. One is the issue of excess dividend tax. In Nigeria, a holding company that receives dividends from a subsidiary and other equity investments will have to pay 30% tax when it further distributes its dividend to its shareholders, even though another provision of the tax law protects dividends received by a company to be subject to further tax. A company that distributes dividends from its capital gains even after paying the Capital Gains Tax will also be subject to paying 30% tax on the dividends it distributes.
During the commencement of a business venture, CITA imposes some rules for the taxation of a company. However, most of these rules are overly complicated and often leads to double taxation of these companies even in their startup phase. Also, even though there are provisions in tax laws for tax refunds to be paid to taxpayers with genuine cases, this rarely ever happens in reality.
Way Forward For The Nigerian Tax System
In light of these issues in the Nigerian tax system, there is a strong need for the development of tax culture at all levels of government as well as with the citizens of the country. The government should improve on the records or database of the citizens in order to assess taxpayers’ compliance. Even though the Presidency, Ministry of Finance, the Joint Tax Board as well as the National Executive Council have been making efforts in combating multiple taxation, a more rigorous approach should be implemented and those impersonating tax officials should be severely punished.
Nigeria operates a federal tax system, i.e. taxes are collected at the federal, state, and local government levels. The harmonization of these taxes would also go a long way in reducing the incidence of multiple taxation on a single taxpayer. There should also be greater accountability and adequate communication on the uses of tax revenues by the government so as to bridge the gap of mistrust between the citizens and government in regards to tax and also foster voluntary compliance with tax laws.
In the early 1970’s, Civic Education was part of the educational curriculum. A reintroduction of this curriculum in schools will teach this present generation and next on the importance of upholding their civic responsibility as well as patriotism. Public enlightenment on tax laws, payments, and administration will go a long way also in aiding tax implementation in Nigeria.
Specific agencies should be set up where people can relay their questions, observations or issues as regards to tax and be sure they would be attended to. Companies should only be made to pay tax on their actual profits on a preceding year basis right from the start to finish of the business venture. Tax authorities should be willing to refund genuine claims of tax overpayments. There should also be efforts to simplify the complicated tax system for easier understanding. Excess dividend tax, minimum tax and commencement rule should also be removed.
The Nigerian tax system has had several reforms in a bid to enhance tax collection and administration, for example, the introduction of TIN (Taxpayers Identification Number) and Special Purpose Tax officers (tax officials who collaborate with security agencies to ensure strict compliance in payment of taxes). However, there has not been a commensurate development of infrastructure to signify this increase in the tax purse. This mismatch should be fixed.
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