Integrity of database, good governance seen driving efficient tax system
Tax professionals are pointing to integrity of national databases and good governance processes as prerequisites to drive taxation at a time when the various tiers of government look inwards for revenue mobilisation.
On integrity of data, tax experts have said available data on taxpayers exist in siloes or databases of various ministries such as the Nigerian Immigration, National Population Commission (NPC) and recently the National Identity Management Commission (NIMC), an integration of these databases will aid government’s revenue drive.
“The truth is that you cannot tax whom you do not know. We need an integrated database that pulls together data from the national identity card campaign, bank verification number (BVN) and immigration. This is critical if government wants to get ahead with revenue mobilisation. This is also the more important if you imagine that we have an informal sector that accounts for more than 60 percent of Nigeria’s economy” said Ehile Adetola Aibangbee, partner, Tax, Regulatory and People Services at KPMG at a recent tax round-table organised by the Good Governance Africa (GGA), in Lagos, recently.
Tax evasion and avoidance have been major issues in Africa’s most populous nation. According report a from the Ministry of Finance, only 14 million people are registered with all 36 tax authorities and the Federal Inland Revenue Service (FIRS) out of almost 80 million workforce.
This is smaller than South Africa (SA) with less than one third of Nigeria’s population and higher unemployment rate. Out of the 14 million, 96 percent are captured through the PAYE tax system while only 4 percent (or 560,000) file returns through direct assessment as self-employed and high net-worth individuals (HNIs).
Folashade Coker-Afolayan, Director Personal Income Tax at Lagos State Internal Revenue Service, added that in addition to an integrated database, Nigeria also needs database that has integrity.
Similarly, stakeholders contend that good governance is a critical pillar of functional and efficient tax systems. There is a direct correlation between tax compliance and good governance. This is because citizens take more interest in governance and hold their leaders accountable.
“To get it right, we need a radical change of attitude to tax and this must be enshrined into our electoral process. Everyone contesting to hold public office should be obliged to declare their tax liability and compliance. This way the tax system becomes an integral part of good governance mechanisms” said a Senior Manager, Treasury and Tax of multinational fast moving consumer goods company, whose company policy would not allow to publicly comment on the matter.
Tax compliance has been a major challenge in Nigeria, both taxpayers and experts have said this is due to lack of clearly articulated social contract that could serve as a framework to enforce good governance. This, some have said makes voluntary compliance a near mirage in Nigeria.
“Voluntary compliance may not work in Nigeria because of how public revenue is managed. It boils down to good governance. There is public cynicism about taxation as a result. Taxpayers want transparency and accountability, these are elements of good governance” said Reuben Abati, former Special Adviser to President Goodluck Jonathan on Media and Publicity at the GGA tax roundtable, recently.
In the conclusion to a report published by PricewaterhouseCoopers (PwC), a multinational professional services network headquartered in London, it stated that the current state of Nigeria’s economy in the face of huge revenue challenges, ballooning budget deficit and rising debt servicing cost, justify the Voluntary Income and Assets Declaration Scheme (VAIDS) in order to change the country’s tax narratives.
According to an International Monetary Fund (IMF) survey, it is difficult for any country to achieve sustainable development with a tax to Gross Domestic Product (GDP) ratio under 15 percent. Tax is however not a stand-alone issue, there must be economic prosperity for individuals and businesses to pay tax. This means the Scheme should go hand in hand with the Economic Recovery & Growth Plan, implementation of the new National Tax Policy and efforts aimed at enabling the business environment.
Other measures should be put in place to compliment the Scheme including a comprehensive tax law reform, simplification of tax compliance, transparent reporting of tax revenue and utilisation.
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