How tax administration can contribute to gross domestic product (GDP) growth
For the nation’s tax system to contribute meaningfully to the growth of the gross domestic product (GDP), practitioners have stressed the need for government to expand the tax base and strengthen intelligence framework through appropriate synchronisation between the Federal Inland Revenue Services (FIRS) and the Corporate Affairs Commission (CAC).
These were the submissions of experts that gathered at the KPMG’s Tax Breakfast Meeting held in Lagos.
Taxes are what governments at all levels use in paying their workers’ salaries, support common resource agencies like Police, Military and other paramilitary agencies as well as use in providing infrastructure, such as roads, schools, hospitals, railway and a host of many others.
But where a majority of the citizens continue to default, government is unable to fulfill these obligations, which compound economic woes especially in a recessed economy like Nigeria, where many states are unable to pay salaries for months, while existing infrastructure are dilapidated and begging for overhaul.
Indeed, the stakeholders argued that if government deepened intelligence gathering, with proper linkage between FIRS and CAC, it would bring more people into the system, which would ultimately help achieve the 2017 budget of growth and recovery.
Besides, they added that government must maintain good governance practice and become more accountable to boost compliance to tax obligations. For instance, a Partner Tax, Regulations and People Services, KPMG, Adewale Ajayi, said what is expedient at this time is to broaden the tax base with good synergy between FIRS and CAC and not necessarily increasing it.
According to him, many companies that registered with the CAC are not fulfilling their tax mandate. Ajayi, who lamented the current tax to GDP ratio, put at three per cent, explained that such collaboration would help provide the details of these firms.
Furthermore, he urged government to make tax management seamless in such that when a company registers as a corporate body in Nigeria, it will automatically have a tax number.
“The current tax to GDP ratio is just about three per cent. It does not compete favourably with the rest of Africa. The average for the countries is about 14 percent, so we still have a long way to go.
“The problem we have in Nigeria is that people are not oblige or they do not feel it is necessary to pay taxes because they have provided roads, infrastructure, they have provided light for themselves, so they are not seeing any bases to pay tax.
“Government has to implement good governance to encourage people to come forward and pay taxes willingly. For us to be able to increase longevity, first thing is broadening the tax rate, again, there has to be good governance, people will always pay tax when they see where the bulk of their money is going,” he said.
The Executive Director, Finance, Standard Chartered Bank, Yemi Owolabi, stressed the need to improve tax education and show dynamism in reporting tax disputes in Nigeria.
“There are people that have carried out business for decades in Nigeria without filing any returns. We need to make the tax environment competitive. Soaking the few tax payers would not broaden the tax system.”
She added that agency banking would help in the inclusion of the informal sector in deepening the tax base. The Partner and Head Tax Regulatory and People Services of the firm, Wole Obayomi, argued that tax administration in Nigeria is in dire need of reform.
According to him, government must pursue vigorously a tax reform policy that would increase tax contribution to GDP and make it more competitive when compared with other emerging markets.
“There must be a holistic value added tax reform in Nigeria. A taxpayer should not pay more tax than required while the collector must not collect more than stipulated. There is need to broaden the tax space in Nigeria,” he added.