Additional burden of Finance Act 2022 — The PUNCH Editorial

Posted by News Express | 24 January 2023 | 325 times

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AS the regime of the President, Major General Muhammadu Buhari (retd.), plans to boost its income by increasing taxes through the Finance Act 2022, corporates and citizens are in for more economic turbulence in 2023. In summary, the education tax, telecoms tax, a new tax on imports from non-African countries and the removal of waivers, among other levies, dominate the bill. Although the Buhari regime might collect more revenue than before, the Act seems like economic brinkmanship.

Obviously, the Federal Government has serious liquidity shortfall. It has just N10.49 trillion available to fund its Appropriation Act 2023 of N21.83 trillion. This saddles it with a deficit of N11.34 trillion, up from the N10.78 trillion or 4.78 per cent of GDP in 2022. With a debt profile projected at N77 trillion, it really needs money, but the Finance Act is likely to do more harm than good in several key sectors, as the regime is just trying to get more revenue, no matter the impact on corporates. As is common with Buhari, it is just lazy economics in a country where companies spend about 40 per cent of their capital on energy, road, security, and railways, which are taken for granted in other countries.

Economists argue that government should not increase tax during economic downturn but the bill, which Buhari set aside on the day he assented to the N21.83 trillion 2023 Appropriation Act, has jerked up the Tertiary Education Tax from 2.5 per cent to 3.0 per cent. This tax must be a honeypot for the government: the TET was raised from 2.0 per cent to 2.5 per cent in the Finance Act 2021.

Another increment 12 months later has huge impact on the profit retained by companies. Businesses are struggling with a 21.34 per cent inflation rate, insecurity, energy and forex crises and shabby infrastructure. At 30 per cent, Nigeria’s Companies Income Tax is one of the highest in the world. By increasing TET to 3.0 per cent, the rate rises geometrically, and profit dwindles. In the five years to May 2022, over 50 manufacturing companies closed, essentially because of power and forex related shortages. More companies are bound to join them over Nigeria’s toxic business climate.

Instead of his lethargy, Buhari should cast his gaze afield for guidance. In Asia, the average statutory corporate tax rate is 19.52 per cent, which The Tax Foundation, a Washington, DC-based organisation describes as the lowest globally by region. The Organisation for Economic Cooperation and Development average CIT rate is 23.57 per cent. The BRICS average statutory rate is 27.40 per cent.

Additionally, the bill imposes a 0.5 per cent tax on all eligible goods imported from outside Africa; all services, including but not limited to telecommunication services, provided in Nigeria is to be liable to excise duty at rates to be specified via a Presidential Order; repeal of the rural investment allowance for corporates that provide essential services supposed to be undertaken by government and scrapping of the partial tax exemption from CIT granted on income in convertible currencies derived from tourists by a hotel.

By this, call, SMS, and data rates will go up. Already, telecoms operators have been agitating for an upward rate review. This does not sound good for the masses or companies, who rely heavily on telecoms services.

It is not all bad news. The legislation increased the CIT rate for gas-flaring companies from 30 per cent to 50 per cent. Government should make more money from gas flaring, and the penalty is still mild in comparison to the eternal damage the companies are inflicting on the climate and the health of the residents of the affected communities.

If the bill becomes law, the local governments will receive more income because it redraws the sharing formula for revenue from Electronic Money Transfer from the current 15 per cent for the Federal Government and 85 per cent for states to 15 per cent for the centre, 50 per cent for states and 35 per cent for LGs. In a true federal system, LGs are subject to the sub-national governments.

For the EMT to attain its goal, the regime should enforce the law. In respect of the value added tax, which was increased from 5.0 per cent to 7.5 per cent in 2020, there are suspicions of poor collection. The government tacitly admitted this in the 2022 Finance Act with the provision that those appointed to deduct VAT at source on invoices received from their vendors are now to remit such VAT to the Federal Inland Revenue Service on or before the 14th day of the following month.

Unfortunately, Nigeria is a notorious place for non-compliance with tax. The OECD says Nigeria’s tax-to-GDP ratio decreased by 0.4 percentage points from 6.0 per cent in 2019 to 5.5 per cent in 2020. The average for selected 31 African countries was 16.0 per cent in 2020.

Whereas other countries punish the crime, it is not so here. Nigeria’s public revenue crisis centres on non-collection of statutory taxes. Instead of the futile approach to increasing public revenue by raising tax rates, the government should devise innovative ways to collect its extant taxes. Technology will be very useful in this era. Therefore, the EMT, VAT, gas-flaring tax and others should be diligently collected.

On a befuddling note, the legislation is mired in controversy. During passage in December, the Senate scheduled an impromptu public hearing within 24 hours, denying the organised private sector the opportunity to contribute to it. Despite this lacuna, the Senate passed it. The House of Representatives scheduled its own public hearing for January 2023 but passed the legislation in concurrence with the Senate in December along with Budget 2023!

The regime should not burden Nigerians unnecessarily. Therefore, the bill should be thoroughly reviewed. The OPS should be allowed to make its inputs before the presidential assent. To boost its income, government should consider taxing luxury items, reducing the cost of governance, and privatising the commanding heights of the economy.

PHOTO: The President, Major General Muhammadu Buhari (retd.); Minister of Finance, Budget and National Planning, Zainab Ahmed

Source: News Express

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