We also expect that Government will introduce, in the course of the year, tax policies geared towards improving the overall tax environment in Nigeria and making it competitive.
Based on the proposed 2017 budget, non-oil revenues (largely comprising Companies Income Tax, Value Added Tax, Customs and Excise Duties and Federation Account levies) are estimated to contribute N1.373 trillion (28%) to the projected aggregate revenue of N4.94 trill ion. In order to meet its revenue target, Government intendsto broaden the tax net, enhance the effectiveness of revenue collection agencies and improve tax compliance. We therefore expect that the various tax authorities will continue with the aggressive drive to enhance tax collection. The tax authorities may also resort to name and shame strategy through the closure of the business premises of tax defaulters.
Government intends to ratify the Double Tax Treaties signed with Spain, South Korea and Sweden. It also plans to set aside N20 billion for the revival of the Export Expansion Grant by way of tax credits. There will be a new funding mechanism for Joint Venture arrangements for the Oil & Gas Industry to address the inability to fund cash calls. 2017 may also witness the long-awaited review and amendment of the relevant tax laws to eliminate obsolete tax provisions and ambiguities. The provisions of the Base Erosion and Profit Shifting Action Points issued by the Organization for Economic Co-operation and Development may be incorporated into the domestic law.
We expect that Government will introduce, in the course of the year, tax policies geared towards improving the overall tax environment in Nigeria and making it competitive. According to the World Bank Group (WBG), Nigeria ranks 182 out of 190 benchmarked economies on the Paying Taxes sub-index under the Ease of Doing Business index for 2017. The distance to frontier score is 28.09%, which implies that Nigeria is about 72% away from the best performance observed under the Paying Taxes sub-index. The conclusion from these two benchmarks is that Nigeria needs to embark on a significant tax reform to improve its ranking. There are two main areas, based on the 2017 WBG report, which Nigeria needs to address: reduction in the number of tax payments and the administrative burden involved in paying taxes in the country.
There is, therefore, the need for Government to implement the following initiatives in 2017:
• The enactment of the Petroleum Industry Bill (PIB) to resolve the current uncertainty in the industry.
• Elimination of multiple taxes, despite the existence of the Taxes and Levies Approved List for Collection Act. The State and Local Governments have simply ignored the Act in order to increase their internally-generated revenue.
• A radical shift to indirect taxation, given the low cost of collection of indirect taxes. To manage the burden on taxpayers, Government may consider reducing the income tax rate while increasing VAT.
• Enactment of the approved National Tax Policy into law.
• Implementation of an effective tax risk management process, given the resource constraints faced by the various tax authorities. This will help Revenue focus on which tax returns not to audit, which tax issues to follow up etc.
The proper implementation of the proposed policies contained in the 2017 Budget and the suggested initiatives will make the Nigerian tax environment competitive and the outlook for 2017 promising.
This article is an excerpt from our Thought Leadership document "Nigerian Tax Journal - 2017" . Click here to download the publication.
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