At the beginning of each fiscal year governments set expectations regarding both revenue generation and expenditure, in Nigeria government at various levels have wanted to diversify the economy through non-oil revenue and through tax in particular.
In this light and according to a recent PricewaterhouseCoopers (PwC) report titled “Tax Predictions for 2018” some trends will be more manifest on Nigeria’s tax landscape in 2018.
More tax authorities will roll out technology for tax compliance and enforcement
On Paying Taxes ranking, Nigeria moved up from 182 in 2017 to 171 in 2018 according to the World Bank. That was big win which was significantly driven by the various reforms by the tax authorities. There is however still a long road to travel.
For instance, no tax authority in Nigeria has the technology platform that allows you to do your tax transactions online from start to finish. The Integrated Tax Administration System (ITAS) which was first deployed in 2014 is yet to achieve that. A proper technology platform should be able to allow taxpayers to file their tax returns, upload schedules, make payment, process tax clearance certificates, obtain credit for withholding tax and respond to queries without going to the tax office. This will start in 2018.
Tax to GDP ratio will remain abysmally low
There will not be any significant improvement in the tax to Gross Domestic Product (GDP) ratio, perhaps a marginal increase to about 7 percent, for the following reasons:
Tax incentives: government will continue to find a balance between stimulating the economy and tax collection. The road fund tax scheme, the reintroduction of pioneer status and the revised export expansion grant (which can be used against income tax and Value Added Tax) will impact overall tax revenue.
Revenue administration capacity and low uptake of Voluntary Assets and Income Declaration Scheme (VAIDS): statistics show from 2016 showed that only 4 percent of people are in the tax net file returns as entrepreneurs or high net worth individuals; 96 percent were employees who paid their taxes via Pay-As-You-Earn tax and this accounted for about 75 percent of the internally generated revenue (IGR). Despite the aggressive posture to raise revenue, many tax authorities in Nigeria still lack the capacity to tackle the issue effectively.
They continue to focus on those who are already in the tax net rather than expanding the tax base. VAIDS will help but not significantly given the low adoption by many taxpayers especially individuals who should be taking advantage of it.
Lack of data and large informal sector: one area of potential revenue increase for the Federal Inland Revenue (FIRS) is VAT. The VAT gap is huge given the compliance rate of less than 20 percent. At a GDP of N124 trillion, with about 80 percent representing consumption, assuming only 50 percent is VATable, the VAT collection should be over N2.5 trillion. However, the lack of reliable data and integration of transactions mean that the VAT potential will not be achieved in the foreseeable future.
More disputes and tax controversies
The tax authorities will continue to put taxpayers who are already compliant under pressure because they are easy targets and lack of data will make it difficult to open new sources of income. When these taxpayers feel like they have been pushed to the wall, they may fight back. This will trigger a lot of disputes in 2018 and pressure for the reconstitution of the Tax Appeal Tribunal.
More focus on taxation of property and non-essential products
States are beginning to realise that apart from PAYE, they can make a lot of money from real property. In the past, revenue from property expecially in the areas of income tax from rent and tenement rates (or land use charge) have not been properly harnessed but will be an area of focus in 2018. Being a pre-election year, new taxes are unlikely to be introduced but there will be attempts to introduce or increase existing tax rates on luxury items and life-style products.