Unlocking Nigerias Tax Revenue Potential Private Sectors Perspectives

Unlocking Nigeria’s Tax Revenue Potential: Private Sector’s Perspectives Muda Yusuf, DG, Lagos Chamber of Commerce and Industry (LCCI)

Outline Objectives of Tax System & Taxation & Tax Revenue in Nigeria: States & Revenue Generation Mix States Financial Viability Indicators Tax Administration and Compliance Challenges of Tax System & Administration in Nigeria Unlocking Tax Revenue for Fiscal Sustainability Issues for Critical Consideration & Review Summary & Conclusion

Objectives of a Tax System & Taxation To promote fiscal responsibility and accountability To facilitate economic growth and development To provide the government with stable resources for the provision of public goods and services To address inequalities in income distribution To correct market failures or imperfections

Taxation & Tax Revenue in Nigeria: Some Stylized Facts Paying Taxes 2016 Index: 181 out of 189 countries (Pw. C & World Bank Group Survey, 2016) Tax as a percentage of GDP: 6. 1% (13 th lowest in the world)

States Revenue Generation Mix Grants Others Federation Account IGR VAT Exchange Gain Budget Augmentation Excess Crude Oil In 2012, Nigerian States earned a collective revenue of N 9. 9 trillion out of which N 1. 8 trillion (18%) was IGR only.

States Financial Viability Indicators Ten Highest IGR Generating States, 2015 (Billion Naira) 300, 000, 000 250, 000, 000 200, 000, 000 150, 000, 000 100, 000, 000 50, 000, 000 0 Lagos Rivers Delta Ogun Edo Enugu Oyo Akwa Ibom Anambra Kano More than 90% of the states has viability challenges going by their IGR/per capita. Only three states (Lagos, Rivers & Delta) generate tax revenue above N 1, 000 per head. Low IGR: Stalled projects, Inability to pay salaries, Mounting debt profile, Huge financial bail out & Social unrest.

Tax Administration and Compliance in Nigeria Attitude to compliance Vs. Compliance strategy Factors that influence taxpayer behaviour Very High Cost Decided NOT to comply Use full FORCE of the law Business High Cost Psycological Don't want to comply Taxpayer Deter by detection Sociological Low Cost Economic Try to but don't always succeed Help tp comply Very Low Cost Willingness to do the right thing Make it easy

Tax Administration and Compliance Cont. Causes of Noncompliance multiple tax practices high tax burden lack of information Inefficient utilization of tax funds.

Principles of Taxation & Tax System Tax system should be compatible with its principles to prevent aggressive tax system’ Principles of Taxation Accountability Economy Equity Convenience Certainty Limited Number

Challenges of Tax Administration: Private Sector Perspective Heavy tax burden for the formal taxpayers (incentivises informal tendency) Heavy burden on tax payer due to inadequate government presence in social infrastructure such as: Schools, Hospitals, Water, Energy, Security, road, transportation. Institutional weakness Irrational drive for revenue generation from government agencies leads to double burden Agencies should be funded from the tax proceeds

Unlocking Tax Revenue for Fiscal Sustainability Case for Property Tax • Hugely untapped source of revenue. • Remains largely untapped by the states. • Accounts for 40 -80% of total tax revenue to governments in developed economies. Some important aspects of property tax: Tax Base identification – census of available properties. Tax base valuation – proper valuation of properties covered. Tax assessment – of individual property within the tax jurisdiction. Tax collection apparatus efficiency. Tax dispute resolution mechanism Tax payer services.

Unlocking Tax Revenue Cont’d. Way forward Comprehensive Tax Collection Model Strengthening the organization/management of the revenue agency Robust collection systems Building capacity in core tax administration functions (registration, payment enforcement, debt collection, audit, taxpayer services, & processing of appeals).

Issues for Critical Consideration & Review Minimum tax Tax exemption threshold Tax Structure and income distribution Tax allowances and inter-state cost of living

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