The Centre for the Promotion of Private Enterprise (CPPE) has warned that the present tax system in Nigeria will further discourage investment as corporate rates may reach 36%, citing concerns about the rising weight of taxation on firms.
When delivering the CPPE’s economic and business environment analysis for 2022 and laying out the agenda for policymakers for 2023, Dr. Muda Yusuf, the organization’s chief executive officer, emphasized the need for a forgiving tax structure.
He contends that a country’s economic policy should favor job growth, economic inclusiveness, investment expansion, and the eradication of poverty.
He said specifically that “Corporate tax in Nigeria is 30%. Effective corporate tax, however, encompasses much more. A tertiary education tax of 2.5% of the profit, an NITDA Levy of 1% of the profit, a NASENI Levy of 0.25% of the profit, and a Police Trust Fund Levy of 0.005% of the profit are all applicable.
“This brings effective corporate tax to about 34 per cent. This rate is one of the highest in the world. The average corporate tax rate for Africa is 27.6 per cent; the Asian average is 19.52per cent; the European Union is 19.74 per cent and the global average is 23.37 per cent.
“Meanwhile, new taxes are still being proposed by the National Assembly. These include a Tertiary Health Tax of one per cent of the profit; and an NYSC levy of one per cent of the profit. There are numerous other taxes imposed on businesses by the states and local governments”.
Yusuf pointed out that the numerous levies continue to hinder investment in the Nigerian economy and added that a quick review is required.
He claims that the current tax structure is in contrast with the National Tax Policy, which states that less focus should be placed on direct taxation to encourage investment.
“Meanwhile, investors are grappling with numerous macroeconomic, structural and regulatory headwinds. They incur huge expenditures on stuff that the government should normally provide – electricity, security, water, waste management and human capital. These are implicit taxes, as they were. There are also numerous state and local government taxes which businesses have to pay,’’ he said.
Yusuf asserted that the government needs to make a number of essential reforms in order to spur growth and investment in 2023.
He claimed that the Petroleum Industry Act’s [PIA] passage was an important step in the oil-gas industry’s restructuring.
“It promises to transform the sector through the creation of a legal and regulatory framework that would inspire much higher levels of investors’ confidence. But we need to see a greater commitment to the implementation of the PIA. The deregulation of the petroleum downstream sector is a major economic reform imperative. This is inevitable if we must unlock investment in the sector and put an end to the perennial fuel scarcity and the monopolistic structure of the sector,” he said.
Yusuf spoke about the need to solidify reforms in the power sector and added that a supportive environment needed to maintain present private sector investment in the sector and draw in new private capital to the electricity sector.
He said: “Urgent reforms are vital concerning electricity tariff, metering and deepening of the energy mix. We need robust incentives [fiscal and monetary] to boost private investment in renewable energy.
“We should reform the budget and appropriation processes to prioritise infrastructure financing and human capital development. This would boost the productivity and competitiveness of the economy. Adoption of these reform initiatives would guarantee progression towards fiscal consolidation, reduction in fiscal deficit, diminishing need for borrowing and abating debt service burden.”