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Omodele Adigun
“It is doubtful, honestly speaking, whether the Finance Act can fulfil its objectives. In terms of raising revenues for the government, there are so many giveaways. If the objective is to raise revenue, you should be focussed on plugging the loopholes. But you see so many giveaways that undermine the objective of revenue generation.”
This was the verdict of Professor Abiola Sanni , a Law lecturer at the University of Lagos, last Wednesday , while dissecting the Finance Act 2019 in his presentation at a public symposium entitled “Discourse from the Ivory Tower”, organised by the Department of Commercial & Industrial Law of the university.
According to Sanni, while quoting different sections of the Act, particularly its objective of raising revenues for the government by various fiscal measures, the nation “needs to do more.”
Talking about income tax on foreign digital service providers , he explained that the Finance Act stipulated that ‘income of foreign IT and telecommunication companies will be liable to tax in Nigeria, provided the company has Significant Economic Presence (SEP) in Nigeria which the minister will define.’
“This may have created unintended problem. Rather than help or advance revenue objective or drive, it may inhibit revenue drive if one, we adopt OECD definition of SEP; two, where the regulation by the minister is delayed because, right now, section 9 (1) says income that accrues to or derived from , brought into or received from Nigeria is liable to tax. But, if the foreign IT or telecom, has no Significant Economic Presence, the income is going to escape.”
Speaking on the same issue, Mr Taiwo Oyedele of PwC said: “If you go on your mobile phone and run an advert on Instagram, that money does not stay in Nigeria. The money goes to who owns Instagram; Facebook. Now we are saying that if Facebook has significant economic presence in Nigeria, it has to pay tax in Nigeria.
“What is significant economic presence? We don’t know yet. That definition hasn’t been done yet(in Nigeria). The Organisation for Economic Cooperation and Development(OECD) says it include things like the number of customers, the amount of revenue, the number of contracts you have with customers; do you have presence in local dialects? Google has Google Hausa and Yoruba for example. So Google already has created a permanent significant economic presence in Nigeria.
“The Finance Act says the Finance Minister may define the significant economic presence.The lawyer would say that ‘may’ does not mean that it is compulsory. You may or may not define. If the minister refuses to define it, I can suspect what the FIRS would do.”
Oyedele, however, lamented that the domestic revenue mobilisation is low resulting in a Tax to GDP ratio of about 6 per cent, compared to about 17 per cent in other African countries. His words: “Nigeria’s Tax to GDP is very low at 6.1 per cent in 2018.I am still calculating the one for 2019 because the NBS just released the GDP numbers for the fourth quarter of last year. Our tax to GDP ratio is likely to be six per cent or slightly less. Nigeria has significant budget deficit and our debt burden is unsustainable even though the debt itself is small, our revenue is even smaller. And so we cant service it .In 2018, the Federal Government spent 54 per cent of the revenue to service debt, which means we only had 46 per cent for any other things, which, of course, was not enough. So we haD to borrow even more. The Federal Government planned to generate N7 trillion in 2019, they ended up with N4.8 trillion.We planned to spend N8.9 trillion, we ended up with N9.4 trillion. Our budget deficit was meant to be N1.92 trillion. It came out as N4.6 trillion, more than twice. These just show that Nigeria has a major issue that we have to all address.
“At states’ level, this is even worse. For 2019, all the states in Nigeria said they were going to spend N9 trillion. That is their budget, but they could only raise N3.6 trillion, which means budget deficit at the state level is even worse than the deficit at the federal level. It was N5.3 trillion.
“In case you are not aware, the order of priority in which government would spend their money is, number one: debt obligation; number two: recurrent;we have to pay salaries before you think about infrastructure. So the money we make in Nigeria today, even if we eliminate corruption, is not enough to cover debt service and obligations plus recurrent. So what suffers every time is capital projects. And that is exactly what we need for our national development.”
However, another speaker, Dr Olumide Obayomi, wondered why the Finance Act does not make provision for the taxation of illegal income as being done in other African nations:
“We all know that there are some people who make money from illegal activities in Nigeria, like official bribery, kickbacks etc. In Botswana and South Africa, there are express provision for taxing illegal incomes or incomes made from illegal means. One would have thought that this is an avenue for the tax authorities to make provision for that. But we missed that opportunity”.
Sanni, however, reasoned that if the Act has enjoyed the benefit of public hearing, some of these errors would have been avoided.
The Dean of the Faculty, Professor Ayo Atsenuwa, said that the primary mandate of the ivory tower is to engage in discourse; to reflect, to interrogate what impacts new laws, new policies would have on the masses and think outside of the box. “And those who are bogged down and those behind the new challenges, suddenly along the line, would meet and identify what would work this. I have been assured that the rich discussion will serve our economy and socio-politicking on the long run”, she stated.
