Bumper tax revenues are good, but multiple taxes hinder competitiveness

Tax is a contribution exacted by the state. It is a non-penal but compulsory and unrequited transfer of resources from the private to the public sector, levied on the basis of predetermined criteria. The classical economists were in view that the only objective of taxation was to raise government revenue. But with the changes in circumstances and ideologies, the aim of taxes has also been changed.

These days apart from the object of raising the public revenue, taxes are charged to affect consumption, production and distribution with a view to ensuring the social welfare through the economic development of a country. It is this important role that taxes play that makes the revelation by the Federal Inland Revenue Service (FIRS) that total revenue generation through taxation in the first half of the year has risen to about N2.43 trillion. This is cheery news. When compared to the total collected N1.94 trillion for the corresponding period last year, the figure represents a 25 percent increase in the revenue collection performance.

According to Emmanuel Obeta, Director Communications and Liaison Department, the figure, for the first half of 2014, is made up of N1.17 trillion from oil and N1.26 trillion from non-oil revenues. 

However, the recent call by the Manufacturers Association of Nigeria (MAN for the elimination of multiple taxes, charges and levies emanating from both state and local government agencies across the country, blights the ecstasy of the massive increase in revenue from taxes. This is especially so because, taxing a specific tax base will lead to increasing revenues, up to a point, after which the overall tax revenue will decline because the companies may close shop, or evasion increases significantly.

A list of taxes and levies for collection by the three tiers of government as approved and published by the Joint Tax Board (JTB) allocated eight taxes to the federal government, 11 for states and 20 for local governments to make up a total of 39 different taxes. Nevertheless, there are reports that many of the states and local governments, under different guise impose additional taxes to business organisations and individuals.  

Ngozi Okonjo-Iweala, the coordinating Minister for the Economy and Minister of Finance, notes that over 75 per cent of small scale business operators had the penchant for tax evasion in the country. The low tax compliance level may be attributed to the high compliance costs, limited transparency, as well as the incidence of double taxation. In fact, the World Bank in 2007 reported that, the high tax incidence and the associated administrative burden encourage informality to reduce visibility to tax authorities.

In a 2011 study the Bank discovered that the design and application of Nigeria‘s federal tax system represents a significant impediment to formalize and grow a business, and to compete in international markets. And their findings suggested that the direct tax burden may not be intractable relative to counterparts in sub-Sahara Africa and that double taxation is a relatively small share of the overall burden. 

However, the multiplicity of taxation, and the administrative burden created by the uncoordinated and lax enforcement mechanisms across different levels of jurisprudence has given rise to significant costs, particularly penalizing smaller and more remote businesses. 

Though we support the drive to increase revenue through taxes, we urge that states and local governments strictly adhere to the approved taxes. The federal government should enter into a dialogue with the other tiers of government to reduce the overall number of taxes without necessarily reducing the amount of tax revenue collected. Furthermore, tax payer rights responsibilities and approved taxes across the three tiers of government should be publicized.