Nigeria’s poor rating on ease of tax payment

PricewaterhouseCoopers (PwC) has ranked Nigeria 170th out of 189 countries in its 2014 global ease of paying taxes report. With the ranking, Nigeria just did better than 19 countries globally in terms of measuring all the mandatory taxes and contributions that a medium-sized company must pay in a given year.

It is instructive that Nigeria went down from a ranking of 155 in the previous year report to 170 in the current rating. This is coming at a time when the federal government is supposedly pursuing the improvement of the business environment and the diversification of sources of revenue.

The ease of tax payment index is one of the eleven indicators that the World Bank uses in determining the ease of doing business globally. The report looks at tax systems from the business perspective and considers all of the taxes and contributions that a typical medium sized domestic company pays and generates.

There are three key indicators that are considered for the report: total tax rate, making payments, and compliance time.

In terms of the total tax rate index, Nigeria performed better than the rest of the world which had an average of 43.1 percent as well as Africa at 52.9 percent. It, however, performed poorly on the second index -the number of tax payments, where the country makes 47 different payments.

The world average total tax payments is 26.7 percent while for Africa, it is 36.1. This places Nigeria far more than world average and also higher than the Africa average.

This performance, experts believe reflects the vexing issues of multiple taxation, where presently, companies are made to pay too many taxes at both local, state and federal levels, all trying to raise revenue without due consideration to the impact of all these on the tax payer and the growth prospects of companies.

Nigeria’s worst performance came from the tax compliance time. Compliance time means the time it takes to prepare tax returns, gather the needed information, fill out the tax forms and submit, make payments as well as even securing the tax clearance, which is presently quite difficult in the country. The report states that it takes a company up to 956 hours in a year to comply with tax payment. This is in contrast with the global average of 268 hours. The average tax compliance time for Africa is 230 hours. This places Nigeria in an infamous position, as it takes up to four times more time to comply with tax payment in the country than across Africa.

For an economy that aims to be one of the top 20 economies by 2020, the current ranking on ease of tax payment is dismal and a pointer that there is still a huge hurdle to surmount on our path to economic growth and development.

We urge the relevant tax authorities to digest this current report and tackle the grey areas appropriately towards ensuring a competitive and convenient tax payment infrastructure.