Nigeria begins overhaul of tax policy as oil incomes shrink
Nigeria, still struggling to rev up revenues as oil incomes thin out – has now commenced an overhaul of its tax policy which had bred multiplicity in tax process, complexities and also discouraged compliance.
The overhaul would particularly address aspects of the tax code and laws as required and also work out modalities for simplifying the processes and reducing the tax burden on small businesses, Finance Minister, Kemi Adeosun said as she inaugurated a committee that would review and update the tax policy document in Abuja.
In the same vein, the Securities and Exchange Commission (SEC) and Federal Inland Revenue Service (FIRS), will be unveiling new tax incentives to spur further growth of the capital markets, following a meeting held on Saturday between SEC, the FIRS and Ministry of Finance (MOF).
This was disclosed by the Director General (DG) of SEC, Mounir Gwarzo at a press conference in Lagos to mark the end of the capital market committee meeting for the second quarter of 2016.
For over 30 years the Nigerian capital market had been clamouring for concessions in respect to taxes on some capital market products.
The development of new products such as securitisation, mortgage backed securities and asset backed securities has been delayed in Nigeria due to lack of clarity on tax status of such products, according to stakeholders.
Analysts said yesterday the retooling of Nigeria’s tax policy is critical at this time when President Buhari says his administration is committed to diversifying the sources of government revenues away from oil.
“Businesses react to tax policy and we are determined to ensure that ours sends the right message, being that Nigeria is open for business and is encouraging businesses with a tax system that is easy to understand and comply with,” she said.
“Areas of our tax code and laws that are in need of review will be addressed as part of this exercise as will modalities for simplifying our processes and reducing the tax burden on small businesses.”
Nigeria in 2012 introduced the National Tax Policy which contains a set of fundamental principles, which should serve as guide or barometer in determining what legislative and administrative action the tax system may require.
The policy builds on the set of principles espoused by Adam Smith in his Wealth of Nations viz: Equity, Certainty, Convenience, and Administrative Efficiency.
But it’s been over four years now since the document was finalised without any additional updates and it is yet to be fully implemented.
Adeosun argued that the country’s tax policy cannot be static, particularity at this time of rapidly changing commercial environment with new business models, tax avoidance and evasion strategies among other activities.
The country’s oil which is just 13 percent of the economy accounts for 70 percent of government revenue. Besides, Nigeria has one of the lowest tax to GDP ratios in the world at just 5 percent.
The challenge, therefore is to ensure that the remaining 87 percent of economic activity makes its own contribution to government revenue.
“An effective tax system is key to this and such as system must be underpinned by an effective and appropriate tax policy.
“There is clearly a pressing need for an overhaul of our tax policy and this is a key function of the Ministry of Finance,” she added, directing the committee to complete the review in four weeks.
The finance minister said specifically that the Committee’s Terms of Reference include to review the National Tax Policy document; recommend a list of tax laws and regulations that need to be reviewed or amended; make any other suggestions on the NTP to facilitate effective implementation of the document; and recommend policy to ensure inter-agency cooperation between the Federal Inland Revenue Service (FIRS) and other revenue agencies toward enhancing the IGR of the Federal Government.
They are also expected to expand the treaty network of Nigeria to include its major trading partners and review the existing Double Taxation Agreement; as well as ensure that tax laws are reviewed from time to time to minimise avoidable hardships to taxpayers.
“As keen as we are to grow revenues and improve our tax collection, we are equally determined to ensure that our taxes are simplified. The task of growing tax revenue must be pursued with a human face and sustainability in focus. The relevant unit of the Ministry of Finance will be strengthened to enable it play a more vibrant role in tax policy formulation,” Adeosun stressed.
She also indicated that the review would be a continuous exercise, as a means of evolving with global best practices and keeping with the domestic socio-economic realities. Government shall indeed remain committed to the continuous improvement of our tax system as part of a dynamic framework to enhance compliance.
The committee is headed by Abiola Sanni, a professor at the University of Lagos.
Other committee members include Adesina Adebayo- Council Members, CITN; Taiwo Oyedele- Managing Partner PriceWaterHouseCoopers (PWC); Olayemi.Director Tax Policy, FIRS; Odume, Director, Head of Legal, FIRS plus 5 others; M.L. Abubakar-Secretary, Joint Tax Board; Representative of Legal Department, Federal Ministry of Finance; as the Director, Technical services department of the same ministry.
Gwarzo said, “The Capital Market Masterplan Implementation Committe (CAMMIC) of which SEC is a member had a successful meeting with the Honourable Minister of Finance and Chairman of FIRS, and we have agreed to finetune areas where further tax concessions will be given to spur growth of the capital markets. We have set up a small team to work on those areas.”
Gwarzo further stated that he expects that when concessions come from the FIRS, they will encourage new listings on the stock exchange.
On the proposed listing by Nigeria’s largest telecoms company, MTN, Gwarzo said: “It is our expectation that by the first or second quarter of 2017, we will have MTN in the market.”
A listing by MTN could boost the Nigerian Stock Exchange Market capitalisation by as much as $6 billion and help diversify the bourse away from banks and Dangote Cement, BusinessDay analysis show.
The development (tax concessions and new listings) could also encourage retail investors to come back to the capital markets.
In the fixed income space, the Gwarzo said work was being done to improve access for retail investors.
FMDQ OCT securities exchange said it was incubating non bank dealers to trade and sell Treasury Bills and bonds to retail investors.
“Towards the end of the year, we will see more liquidity from the retail fixed income end,” Dipo Odeyemi, senior Vice President Market Operations and Technology, FMDQ, said at the event.
Meanwhile, the SEC in conjunction with capital market operator’s has moved to phase out paper dividend warrants in a bit to entrench electronic dividends for the investing public.
“SEC and market operators have agreed that by 31st June 2017, no registrar will issue paper dividend warrants,” Gwarzo said.
The Nigeria SEC had earlier this year embarked on a major push to end the growing problem of unclaimed dividends of equity market investors estimated at N80 billion at the end of 2015.
This is to be achieved using electronic dividends that are paid directly into investor bank accounts which can be either savings or current.
Sources: Business day