Tax As Unessential: COVID-19 And Option For The Nigerian Government

The government has prerogative over many issues in a state. This can be described as necropolitical privileges – how people live and must die. Technically, taxation is a one way to get the job done.

Tax As Unessential: COVID-19 And Option For The Nigerian Government

In a recent examination organised by the Institute of Chartered Accountants of Nigeria (ICAN), the compulsory question in Advanced Taxation at Professional stage was centered around tax regimes in three African countries, Kenya, Nigeria and South Africa. Unlike the other two countries, Nigeria has multiple of tax regimes ranging from company income tax of 30% to tertiary education tax of 2% to information technology tax of 1% that could shorten the continuity of business entities, and discourage holding companies from having their headquarters in the country with the absence of foreign unrelieved loss provision.

There was hope in the first quarter of the year as government gazetted the Finance Act of 2019 which, according to PWC report titled “Nigeria’s Finance Bill Insights Series” is structured to ‘promote fiscal equality’; align local tax laws with foreign tax laws; encourage micro, small and medium enterprises (MSMEs)’ with incentives for ‘investments in infrastructure and capital market’; and rake more revenue to government treasury. There are specific amendments that are widely applauded.

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The threshold of taxable companies moved to above 25 million naira while companies with gross turnover between 25 million naira and 10 million naira are categorised as medium company with potential 20% tax liability on chargeable profit, and companies with gross turnover above 100 million naira are to pay 30% of their chargeable profit to relevant agency. Commencement and cessation rules were modified, as Seun Adu, puts it in a way that “taxpayers who have suffered the double taxation of ‘overlap profits’ losses the compensatory reward that cessation rule brings

As crude oil proceeds plunge, governments become aggressive with tax collections and expansion. Existing areas of exclusion were integrated into the tax net. From February 1, 2020 VAT rate was jerked up from 5% to 7.5%. Subsequently, notice of stamp duties assessment guide and liability were sent out to tax agents mainly the financial institutions to follow and remit. This means a recall for remittance of charges from customers to the relevant agencies.

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Although, the need to raise more of non-oil revenue is quite understandable and imperative but the timing is not right considering the negative impacts of COVID 19 on the economy, companies’ performance in term of profitability, and on individual disposal income. This is a concern amplified by the International Monetary Fund (IMF) in its press briefing on Regional Outlook for Sub-Sahara Africa where the country’s economy was reported to contrast by 3.4% in 2020.

More reports have shown that governments of countries are implementing policies to revamp their economy through various interventions (non)financial packages to MSMEs and individuals. There is no doubt that the Nigerian governments through agencies have initiated and/or implemented relief packages, but from all indications, the mismatch of policies could lead the country into bigger mess by contrasting the economy further.

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The complexity of the Nigerian economy is that the economy is auto piloted with efforts of individuals who are not such much visible to the radar of the government. These individuals rely on informal job activities that have been disrupted by the restriction measures imposed to halt the spread of the corona virus. Once these important economic agents are stretched further by government’s policies, the economy is bound to collapse.

Unfortunately, that is the possible end of the government fiscal and monetary policies that seek to take more from individual wallet. Now, the focus now should be away from extracting the straitened individuals to financial prudence and cost minimisation.

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The latter suggestion primarily focuses on the cost of governance. Unlike every before, no time has been appropriate to push for a reduction in the size of governance. There are suggestions around the possibility to modify the legislative work structure on part-time basis. In our opinion, there might be the need to tear down the Red chamber. Unlike the Green chamber, it reflects only a sectoral parts of the grassroots which in most cases are privileged – who have either lost sight of the everyday experience of ordinary people in the hinterlands or not so much interested in the narration of poverty and underdevelopment peculiar to ungovernable space into which thousands of people are locked up in.

Also, the retinue of executive advisers become not only unnecessary but impossible to retain without a salary and benefit cut. The executive needs to be more prudent with its expenses than ever before. Overheads and allowances should be adjusted to reflect the country’s revenue. These are commendable options that are available to government.

It will be insensitive for any responsible government to increase the burden of its citizens (companies and individuals) at this crucial time that requires all forms of assistance they can get to sustain the personal economy.

This article was written By: Taiwo and Kehinde Balogun

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