• Big entities sabotaging informal sector
By Juliana Taiwo-Obalonye
In contrast to series of tax waivers to big businesses in Nigeria, business within the informal sector, which provides over 70% of employments has no waivers as the state and local council engage in multiple taxation, squeezing meagre profits earned. In spite of the significant contribution, the government has not made a concrete effort to support the actors in the informal sectors tax exemption. Overall policy on the sector continuously grinds down the informal sector with multiple taxation and municipal levies by the state and local authorities.
A female trader, Mrs. Kemi Okewo, a mother of three, who runs a retail outlet where she sales local food items at the Garki Market, in Abuja, Nigeria’s capital city, is forced to pay five categories of taxes and levies imposed by the FCT Administration and Abuja Municipal Area Council. At the end of the month, the struggling trader laments, she is left with nothing as her effort is wiped off by exploitative taxation practice of the government. Kemi and her fellow traders have no voice to speak for them.
The experience of Kemi is replicated across 36 states of the federation and FCT, due to the implementation of the anti-poor multiple taxation. Another trader explains how the authorities at times go ahead to seize traders’ wares, and their business premises are sealed up for failing to pay these daily tolls imposed on them. Instructively, women are mostly engaged in the informal sector where the average annual income is ridiculously low.
Calls for scraping multiple taxation with the poor bearing the brunt resonates among Nigerians while trillions of Naira are granted to big businesses through extant two-pronged waivers every year. Only a pro-poor tax system that prioritizes the poor and underserved, especially the informal sector remains valid. Documenting experiences of traders and other actors in informal highlights struggles to make ends meet, provide for their families, and other exigencies.
In contrast, the government places premiums on tax waivers for the multi-national and international oil companies (OICS), mining giants and big corporations running into trillions of Naira annually, aside unintended loopholes that allow rich people, and their affiliate businesses engage in tax avoidance through all sorts of waivers granted by the government.
In a nutshell, the informal sector needs all tax waivers from the government to enable them to build capital for expansion as they support great job creation activities. According to National Bureau of Statistics (NBS), Nigeria’s informal account for about 80% employments, and 42 % of gross domestic product. It needs support from the government, not excessive tax which kills small businesses. There should be no taxation for small businesses that are struggling to stay afloat
This development comes amid mounting concerns over the policy’s economic effectiveness and the government’s plan to phase out the current tax incentive regime in favour of a more targeted approach.
An October 2024 report, entitled, “Taxing the rich: Nigerian fair tax monitor thematic report”, released by a coalition of civil society groups including Tax Justice Network Africa (TJNA), Oxfam Nigeria, Civil Society Legislative Advocacy Centre (CISLAC) and Oxfam Novib, indicates that evasion of tax payment by 99% of high-net-worth individuals is responsible for Nigeria’s low tax-to-GDP ratio of just six per cent. It outlined for pathways for advancing tax justice in Nigeria, with a clearly defined process that ensures tax rules is pro poor.
The Nigerian government like many of its counterparts across Africa and other developing countries, has predilection to favour fiscal policies such as waivers and tax incentives granted to investors and businesses to attract domestic direct investment (DDI) and foreign direct investment (FDI).
The fiscal policy remains controversial with critics faulting it is opaque, non- transparent, and under whim and the caprices of officials responsible for managing it could grant undue favours to beneficiary business entities. Though the government tried to provide rationale for waivers and tax incentives granted various firms annually classified as having pioneer status, but most Nigerians are not convinced on the propriety of the policy.
Some critics faulted the posture of government that waivers are a talisman to open the floodgate of industrialisation and economic development. Others complain about the opacity of the waivers process as there is no publicly available assessment criterion to know the rules applied.
In February 2024, the National Assembly asked the chairman, Federal Inland Revenue Services (FIRS), Zacch Adedeji, to review the waiver process, during the presentation to Senate Committee on Finance where he disclosed N19.4 trillion as targeted revenue collection for 2024 fiscal year. The Senate had ordered suspension of N2.7trillion planned for tax credit scheme for road construction across the country by Central Bank of Nigeria (CBN).
The committee chairman, Sani Musa, advised the FIRS to review the tax waivers process. He noted: “Tax waivers abuse which has cost the country about N17tn loss within the last five years should be suspended and substituted with the rebating system.
“Available records show that within the last five years, about N17tn have been lost by the country to tax waivers. It should be suspended and possibly substituted with a rebating system.”
Reports released by Nigeria Investment Promotion Council (NIPC) indicates that in the last five years, N14trillion were granted as waivers to over 100 business entities in Nigeria.
Meanwhile, amid the growing concerns about Nigeria’s tax administration, stakeholders continue voice their concerns regarding the recently passed Tax Reform Bills and their ability to tackle the systemic problems associated with tax collection in Nigeria.
Myriads of challenges associated with taxation in Nigeria include corruption and inefficiencies in tax collection.
For Emenike Nwaka, our reporter, that as a driver working with an interstate logistics company, plying from the east to other parts of the country regularly, expressing hope that the anticipated reforms would streamline multiple payments demanded from him as he crisscrosses the country.
Noting that the trauma associated with navigating from one state to the other in his weekly rounds and being asked to pay different taxes and levies by state and local council officials is stressful.
“My expectation is that the promised reforms will end the multiple taxation which differs from one state to another. It very stressful managing this weekly,” he quipped.
“For instance, in Lagos, you are required to pay for tickets, when you get to Benin bypass, you are expected to pay and then getting to the Niger Bridge both at the Asaba end and Onitsha end you are also required to pay, till you get to your final destination. I hope the federal reform will unify all the payments into one. So, if I pay once, we can be able to travel nationwide without harassment for tolls and fees,” Nwaka said.
Currently, waivers granted to business via two existing frameworks, including the Executive Order 7 (EO007) of January 2019 signed by former President Muhammadu Buhari that establishes the Companies Income Tax Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme. The then minister of finance, Mrs. Zainab Shamsuna Ahmed, who chaired the 13-member management committee for the scheme, disclosed that road and bridge projects were constructed under the pilot stage.
Entities that participated in the scheme includes, Dangote Industries Limited, Lafarge Africa Plc, Unilever Nigeria Plc, Flour Mills of Nigeria Plc, Nigeria LNG Limited, and China Road and Bridge Corporation Nigeria Ltd, Mobile Telecommunication Nigeria (MTN Nigeria), Nigerian National Petroleum Company Limited amongst others.
Participating firms were granted Tax Credit which are deducted from the tax at the end of the financial year to cover the expenses disbursed in the projects. Analysts argued that the scheme circumvents legislative scrutiny and oversight of the National Assembly leaving it operations to the Executive.
The second window of the Industrial Development Income Tax Act that grants waiver to businesses with pioneer investment status, allowing certain categories investments in Nigeria. The Nigerian Investment Promotion Commission (NIPC) with the mandate to implement PSI waivers in collaboration with FIRS.
A recent PSI report by NIPC indicated that 107 companies with an invested total of N2.53tn across the sectors including manufacturing, pharmaceuticals, Information communication technology, construction, and renewable energy were granted tax waivers as of December 2024.
Also, standard procedure for granting billions of tax waivers, tax credit scheme which was initiated by the administration of President Muhammad Buhari to company to construct roads and get tax waivers has added to the list of waivers in the country. The policy fiscal including tax waivers and tax holidays that it claimed are incentives to attract both domestic and foreign direct investments into the country.
The policy is in spite of the often repeated good intention, underneath the real sense it runs contrary to principles of tax justice, which seek to ensure that those that earn more should pay their due recompense back to the country through adequate and properly assessed taxation principles.
The pioneer status exempts eligible firms from income tax for up to three years and is aimed at encouraging investments in sectors considered underdeveloped or non-existent in Nigeria. It is offered under
Notable companies among the latest recipients include Sinotrucks West Africa Limited, Rain Oil Limited, JMG Nigeria Limited, Okpella Cement Plc, and Greenville Liquefied Natural Gas Company Limited. Others include Karma Agric Feeds and Foods Limited,
During the 8th National Assembly, both the Senate and House of Representatives held public inquisition on waivers granted under President Goodluck Jonathan administration to business entities as lacking in transparency and fairness. Also, under President Muhammadu Buhari administration, the National Assembly set up inquisitions on waivers granted to businesses as not open and transparent.
While campaigning for an open fiscal policy on waivers continues to restore public trust resonates, other issues which tax justice advocacy groups are pressing for adoption of multi-stakeholders’ assessment for waivers to ensure openness.
The lessons learned from the past inquisitions on taxation to guide implementation of waivers process by building trust in the system, promoting pro-poor tax engendering justice and fairness and inclusive growth.