One major way government generates revenue is through taxation, in the light of revenue shortfall, the FG is expected to boost its tax incomes and plug leakages occasioned by tax evasion by taxable companies, businesses and individuals. However, despite the huge market in Nigeria, Nigeria is yet to maximize its potential to generate adequate revenue through taxation. Nigeria has a very low tax to GDP ratio of 6 percent, when compared to other African countries with an average of 10-16 percent. Opportunities to maximize tax from multinational companies and investors are flipped away through unnecessary tax waivers to multinational companies and industries.
The 2022-2024 Draft Medium Term Expenditure Framework earmarked 5.8trn as the total convertible sum of tax waivers to be granted to multinational companies. This is made up of Value Added Tax N4.3trn; Companies Income Tax of N457billion; Petroleum Profit Tax of N307 billion and Customs Duties of N780billion. Whereas government is looking for means to borrow 5.2trn to fund budget deficit. Tax reliefs, avoidance and evasion are major aspect of fiscal corruption that is done with the collaboration of the tax authorities and government in power.
In some cases the official amount of money that should be paid as tax by companies are reduced and revenue officials receives kick backs as gratification for such services. The tax reforms should be implemented holistically, while the anti-corruption agencies deem their search lights in that regard. On tax relieves, there are exceptional cases where tax relieves can be granted. Such cases include considerations for startups business, relieves to encourage production for indigenous companies and for business that supports diversification of the economy etc. Such relieves are given strategically without subjecting same to abuse, thereby undermining the general economic interest of the nation. The Finance Act 2020, made an obnoxious provision in the amendment of section 25 (8) and (9) when it provides as follows;
(8) Donations made by companies in cash or kind to any fund set up by the Federal Government or any State Government or to any agency designed by the Federal Government or to any similar Fund or purpose in consultation with any Ministry, Department or Agency of the Federal Government, in respect of any pandemic, natural disaster or other exigency shall be allowed as deductions as follows;
(a) the cost of in-kind donations made to the Government and any designated agency shall be allowed as deductions or (b) where companies have either procured or manufactured items for contribution, the cost of purchase, manufacture or supply of such in-kind contributions shall be allowed as deductions; Provided that requisite documentations evidencing the donation and the cost thereof are provided to the relevant tax authority and demonstrated to be wholly, reasonable, exclusively and necessarily incurred in relation to the procurement, manufacture or supply of the in-kind contributions.
(9) Notwithstanding the provisions of subsections (2) and (3), amounts allowable for deduction, in respect of subsection (8), in any year of assessment shall be limited to 10% of assessable profits after deduction of other allowable donations made by the company. The above section implies that donations done by companies in the wake of Covid-19 pandemic shall be refunded to them through tax waivers. Recall, that companies owned by business moguls donated to the Covid-19 fund, both in-kind and cash materials in the wake of the pandemic, such acts were viewed by undiscerning Nigerians as the magnanimity of the companies and individuals involved. To most Nigerians, the companies were only giving back to the society as part of its own Corporate Social Responsibility.
It is there for hypocritical for the Federal Government to create a law that would exempt this same people from paying tax. In the wake of revenue shortages currently befalling the nation, there is need to amend the Fiscal Responsibility Act, to accord the power to impose, reduce or grant a waiver on taxation to the representative of the people in the legislature. This is necessary to prevent abuse of tax expenditure.
Tax expenditure has been abused by the executive leading to tax expenditures sometimes being either in excess of retained revenue or a very high percentage of retained revenue. As a result the FRA should be amended as follows; (1) The Minister may recommend tax relief for the approval of the National Assembly. (2) Any proposed tax relief shall be accompanied by an evaluation of its budgetary and financial implications in the year it becomes effective and in the three subsequent years, and shall only be approved by the National Assembly. (3) Tax waivers would only be granted if it does not adversely impair the revenue estimates in the annual budget or if it is accompanied by countervailing measures during the period mentioned through revenue increasing measures such as tax rate raises and expansion of the tax base. (4) Tax expenditures in every financial year shall not exceed thirty percent or any sustainable percentage of projected retained revenue as may be determined by the National Assembly from time to time. These recommendations if signed into law would go a long way to minimize unnecessary tax waivers.
Public Affairs Analyst/Good Governance Expert
Writes from Abuja