The Taxman is Coming for You
If you felt intimidated by the public notice on “national enforcement on tax defaulters” issued last week by the Federal Inland Revenue Service (FIRS), let’s say that is just the introduction. By the time President Muhammadu Buhari signs the Nigeria Financial Bill 2019 into law — possibly before January 1, 2020 — your life will never be the same again. The bill has been passed by both chambers of the national assembly. All it needs to become active is the green pen of the president. The bill amends seven tax laws in the country: petroleum profit tax, customs and excise, company income tax, personal income tax, value added tax (VAT), stamp duties and capital gains.
Perhaps the highlight of the bill — “highlight” in the sense that it is the aspect hugging the headlines — is the increase in VAT from 5 percent, set by Gen Sani Abacha in 1994, to 7.5 percent. In contrast, VAT is 20 percent in the UK and 12.5 percent in nearby Ghana. Before now, time. In truth, a lot of work has been done the Nigerian government had made only one in the last three years to increase the tax base attempt to increase it. That was in 2007 when (under Mr Tunde Fowler as FIRS chairman, we President Olusegun Obasanjo topped it up to moved from 10 million tax payers to over 20 10 percent in his last days in office, but it was million) but how far can we stretch collection reversed by President Umaru Musa Yar’Adua in an economy that is walking on thin ice? That under pressure from the labour unions. Any is the challenge for Mr Mohammed Nami, the increase in VAT is easily felt by consumers, new FIRS boss. People and businesses must so it was not difficult for organised labour to make money first before you can tax them well. mobilise Nigerians against the hike. Economic prosperity will make it easier. In the
Already, Nigerian manufacturers are nervous meantime, states and councils will argue that over the new VAT rate. I heared that Guinness, the new VAT rate will help them as per paying one of the biggest producers of consumer the new wage. After all, they take 85 percent products, is considering increasing its prices, of the revenue while the federal government although Mr Baker Magunda, the MD/CEO, gets just 15 per cent. gave nothing away when he spoke recently. “We Let me now detonate the real bomb. An do not arbitrarily increase prices,” he said. “In aspect of the finance bill that Nigerians are fact, we have maintained price stability even in yet to wake up to is the requirement to attach the most challenging times. Our recommended tax identification number (TIN) to personal retail prices remained same despite inflation, and bank accounts. In fact, the provision says you in the face of major infrastructural challenges. cannot open or operate a bank account without We kept our products’ prices stable by stretching your TIN. If this is implemented, it means production efficiencies, ensuring we do not the taxman (or woman) may just use your pass on the additional cost to consumers.” He TIN (like BVN) to print out all your bank appeared to be saying “we have tried enough”. statements and begin to calculate your tax
Other companies are also weighing their liabilities based on the gross total of deposits. options, particularly because the 7.5 percent tax So if N10 million passed through your bank is applicable to almost all goods and services accounts in a year, your personal income tax (including your phone calls and internet data). could be calculated based on that amount. That means everybody, whether rich or poor, Are you not in trouble? will feel the pinch. I have heard side comments I get where you are going — that is, not all that the benefits of the increase in national the deposits in your account are yours. I know. minimum wage from N18,000 to N30,000 Your uncle transferred N5 million into your have already been wiped off in advance by account and asked you to help him buy a car. the increase in VAT. Many states have even I believe you. Your company sent N500,000 said they cannot pay the new wage because to you to help buy Christmas hampers for of revenue challenges. That would make it some clients. I understand. Unfortunately, I double jeopardy for the unfortunate workers am not the one you will have to explain to, — collecting old wage and paying for goods otherwise I will help you. It is the taxman. I and services at new VAT rate. can only tell you that you will be at his mercy.
Many tax experts and economists will argue He will give you a tax bill of N3 million based that instead of increasing VAT rate, government on the deposits in your account and you will should focus on bringing more people into the start crying and begging for mercy. You will net through a more efficient administration definitely be extorted. You will say I told you. and a more incentivised voluntary compliance. Please accept the assurances of my best wishes. Increasing VAT rate by 50 percent — as we are It should also interest you that the N50 stamp about to do — will inevitably raise costs, reduce duty that started as a squatter on your bank overall consumption especially in these hard account in 2016 has now become a landlord. times, and consequently impact negatively on Basically, all bank transfers from N10,000 production. That means government may not will now be charged stamp duty, even when be able to harvest a commensurate 50 percent you are transferring the money to yourself in increase in VAT revenue. That is why bringing another bank. The only exemption is if you more taxpayers into the tax net seems to stand are transferring money to yourself in the same a better chance of producing positive outcomes bank. I don’t know how many people will open than increasing the rates. two individual accounts in the same bank,
However, it seems government strategy is to except, of course, you have the savings and increase both the rate and the take at the same current variants. But we may be forced to ask
THISDAY Newspapers Limited. you why you are busy transferring funds back and forth to yourself in the same bank. Are you sure you are okay, dear?
Stamp duties will now cover “electronic documents”, a coded phrase covering online transactions. Those of you who like to shop online think you can escape paying stamp duty. No way. It is now your duty to pay N50 on each transaction. Some fuel stations are already charging N50 when you pay with your card. You’d better go with cash, dear. A country that wants to encourage cashless transactions is taxing electronic purchases. It is called dissonance. Also, if you get a compensation pay-off of N10 million and above after being relieved of your job, you will not go home in peace. You will now pay tax — for your loss. Sorry for your loss, but the taxman has a job to do.
But smile — the finance bill is not all bad news. There are plenty things to cheer. Certain things are now VAT-exempt to address concerns about impact on the poor. For one, women and young ladies will no longer pay “period tax”. All locally manufactured sanitary pads and tampons will be VAT-exempt. The campaign against “period tax” started a couple of years ago in Australia and is going global. Nigeria has keyed in so early in the day. This is something to celebrate. Hopefully, this will change the lives of many students across the country who are unable to go to school at that time of the month. However, ladies who prefer foreign sanitary products will pay the VAT. Period.
Perhaps most heart-warming is the mercy that the law will have on small and medium scale businesses. I always advocate for SMEs so I have a duty to rejoice. Companies with annual turnover of less than N25 million will no longer be required to file VAT returns. They will also not be required to pay the mandatory “minimum tax” on turnover. Medium-sized companies, defined as those with annual turnover of between N25 million and N100 million, will now pay a lower company income tax rate of 20 percent. Minimum tax will now be 0.5 percent of the turnover for companies that are required to pay in the absence of profits. These provisions are not bad at all.
Overall, it is a good thing that Nigeria is working hard to become more of a tax economy after being stuck with oil dependency since 1973. Circumstances have forced us into this and the transition will take decades to bed it, but we have to keep walking. We often abandoned fiscal reforms in the past because of the episodic oil booms. As soon as oil prices went high, we retreated. When I was still interested in pursuing a PhD some 12 years ago, my proposed research was to try and understand the nexus between tax reforms and the cyclic revenue crisis in resource-dependent countries. My inkling then was that reforms would be inversely related to the boom-bust cycle.
Finally, I would say it is not enough for the Buhari administration to be doing tax reforms just because we are pressed for revenue. Taxation must create a consensual relationship between the state and the society. Stakeholders must be carried along. Multiple taxations issues must be resolved. Taxation is more sellable when you have accountability and prudence. People’s confidence needs to be boosted so that they can trust government that the money will be well spent. In a country where we will be spending N37 billion to renovate the national assembly complex, it will be difficult to convince Nigerians that the tax payers’ money is being spent judiciously.