Recently, President Bola Tinubu called for a review of the global tax system, which serves the interest of affluent nations, to the detriment of developing ones. The President stated this at the recent Third South Summit of the Group of 77 and China that took place in Kampala, Uganda. Represented by the Minister of Budget and Economic Planning, Atiku Bagudu, President Tinubu stated that the challenge of global taxation has become overdue for a review because of its impact on developing countries. Without doubt, the current international tax regime has left developing countries, including Nigeria, with systemic imbalances that have inexorably resulted in huge revenue losses. This is in addition to hampering efforts to sustainable development and economic self-reliance.
Therefore, the President’s call for a thorough review of the global tax system is timely and should be heeded. A few years ago, Nigeria and other member states of the African Group championed a landmark initiative at the United Nations (UN), calling for a holistic framework convention on tax administration. The economic situation in the world today makes that call more imperative. Perhaps an ideal tax system in developing countries should be one that can raise huge revenues without excessive borrowing. This is the position of the International Monetary Fund (IMF) and we support it.
Statistics show that developing economies and other emerging markets face formidable challenges when they attempt to establish efficient tax systems. Nigeria faced the same challenge when President Tinubu, in August last year, moved to increase taxes without putting the necessary framework in place. The Organised Private Sector (OPS) vehemently opposed it. But last week, the federal government, through the Federal Inland Revenue Service (FIRS) unveiled strategies to realise N19.4 trillion for the 2024 fiscal year with emphasis on voluntary tax compliance and expansion of the tax net without increasing payable taxes. However, it is difficult to create an efficient tax system without adequate trained workforce. Tax officials should be patriotic and willing to resist corruption.
Beyond this, developing countries should computerise their tax operations. Sometimes, governments in developing countries often toe the path of less resistance and develop tax systems that are not so effective. Due to the informal structure of tax systems in many developing countries, tax officials encounter difficulties in generating reliable statistics. This is why tax policies and compliance have had little impact on the economy, with the rich evading tax or paying very little. This is evident at federal and sub-national levels, where tax duplication has become a major contributor to Nigeria’s poor ranking on the world’s Ease of Doing Business index. For example, at the state level, there are over 20 different taxes and levies. This is a burden companies, industries, Micro Small and Medium Enterprises (MSMEs) and consumers are saddled with. Arising from this, a delegation of the federal government will soon be meeting with state governors to suspend “nuisance taxes” nationwide. According to the Manufacturers Association of Nigeria (MAN), the duplication of taxes is much more. These include: Corporate Income Tax (CIT) which has been hiked by 30 per cent, in recent times, Personal Income Tax (24%), Value Added Tax (VAT) or consumption tax, 7.5 per cent from 5 per cent. Others are Education tax, Capital Gains tax, Withholding tax, Industrial Training Fund Tax. In 2022, MAN, Nigeria Employers Consultative Association (NECA) and Nigerian Association of Chambers of Commerce, Industries, Mines and Agriculture (NACCIMA), decried multiple taxes and levies.
MAN recently disclosed that its members borrowed a total of N1.8trillion from banks between January and June, last year in order to remain in business. Multiple taxes and levies hamper businesses and economic growth. Apart from reducing profitability, they create uncertainty for business owners and potential investors. Besides, multiple taxes create hostile business environment and reduce Nigeria’s global competitiveness. Unfortunately, Nigeria ranks low on the global ease of paying taxes, and its Tax-to-GDP is one of the lowest in the world. Government’s inability to rein in tax evaders is why Nigeria ease of paying taxes is below the African average.
The Committee on Fiscal Tax Policy should address the obstacles in our tax system. These include the corruption in the revenue collection agencies, the fragmented complex tax system, the low morale and high prevalence of tax evasion. While we align with President Tinubu’s call for a review of the global tax system, there is need to reform the nation’s tax system as well. The restructuring of the global tax system requires all nations to come to the table as equal players. It will lead to efficient functioning of government and the economy. No country develops with duplication of taxes and levies. Taxes must be used for the development of the country.