Luxury items, special taxes and non-oil revenue, by Jide Ayobolu

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The Federal Government has proposed to generate additional N1tn non-oil revenue to reduce the deficit and loans in the 2018 budget.

This will include an additional N60bn from duties on cigarettes and alcohol and N2.5bn from “special taxes” on luxury cars.

Read also: FG moves to establish truck transit parks, By Jide Ayobolu

The details were contained in the briefing note on the revised 2018-2020 Medium Term Expenditure Framework and Fiscal Strategy Paper presented to the National Assembly.

The Minister of State for Budget and National Planning, Zainab Ahmad, presented the revised MTEF and FSP to the Senate Joint Committee on MTEF on November 21, 2017, a copy of which was obtained by The PUNCH.

Ahmad had at an interactive session told the Senate committee that some adjustments had been made to the MTEF and FSP earlier presented to the National Assembly.

The minister had said the Federal Executive Council in August 2017 approved the 2018-2020 MTEF/FSP which had been presented to the National Assembly for approval.

She added, “When the FEC approved the MTEF/FSP, it constituted a committee chaired by the Minister of Finance (Mrs. Kemi Adeosun) which was tasked with identifying additional sources of about N1tn revenue to cut the 2018 budget deficit and new borrowings.

The outcome of the work of the committee necessitated a revision of the Medium Term Fiscal Framework which also formed the basis of the 2018 budget proposal.”

As contained in the document, the adjustments include “N710bn to be generated from the restructuring of government’s equity in all the Joint Venture oil assets; and N320bn additional revenues from revision of terms to improve government take in the production sharing contracts.” The Federal Government is also expecting “additional N60bn from excise duties on cigarettes and alcohol.”

Others are N350bn as additional Company Income Taxes expected to result from the Voluntary Assets and Income Declaration Scheme; N100bn from improvements by the FIRS in the collection of Value Added Tax; and N2.5bn from “special taxes on insurance of luxury cars as well as surcharge on luxury goods.”

Taxation is a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. Governments use taxation to encourage or discourage certain economic decisions.

For example, reduction in taxable personal (or household) income by the amount paid as interest on home mortgage loans results in greater construction activity, and generates more jobs. Taxation refers to compulsory or coercive money collection by a levying authority, usually a government.

The term “taxation” applies to all types of involuntary levies, from income to capital gains to estate taxes. Though taxation can be a noun or verb, it is usually referred to as an act; the resulting revenue is usually called “taxes.”

Taxation is the method by which governments finance their spending by levying charges on their citizens and business entities in order to generate revenue. In economics, taxes are divided between buyers and sellers and the tax burden falls on the group that has to pay for the tax.

In modern countries, taxation is involuntary and failure to pay different taxes can result in imprisonment. Government often uses taxation to encourage or discourage certain economic decisions.

Taxation refers to the practice of government collecting money from its citizens to pay for public services. Without taxation, there would be no public libraries or parks. One of the most frequently debated political topics is taxation. Taxation is the practice of collecting taxes (money) from citizens based on their earnings and property.

The money raised from taxation supports the government and allows it to fund police and courts, have a military, build and maintain roads, along with many other services. Taxation is the price of being a citizen, though politicians and citizens often argue about how much taxation is too little or too much.

Taxation is when governments require citizens to pay a certain amount of money to help fund public institutions. Taxes are used to pay for things like public education, welfare programs, transportation infrastructure, defense funds and libraries.

The process whereby charges are imposed on individuals or property by the legislative branch of the federal government and by many state governments to raise funds for public purposes.

The theory that underlies taxation is that charges are imposed to support the government in exchange for the general advantages and protection afforded by the government to the taxpayer and his or her property.

The existence of government is a necessity that cannot continue without financial means to pay its expenses; therefore, the government has the right to compel all citizens and property within its limits to share its costs.

The state and federal governments both have the power to impose taxes upon their citizens.

The basic concepts by which a government is meant to be guided in designing and implementing an equitable taxation regime.

These include: (1) Adequacy: taxes should be just-enough to generate revenue required for provision of essential public services. (2) Broad Basing: taxes should be spread over as wide as possible section of the population, or sectors of economy, to minimize the individual tax burden. (3) Compatibility: taxes should be coordinated to ensure tax neutrality and overall objectives of good governance. (4) Convenience: taxes should be enforced in a manner that facilitates voluntary compliance to the maximum extent possible. (5) Earmarking: tax revenue from a specific source should be dedicated to a specific purpose only when there is a direct cost-and-benefit link between the tax source and the expenditure, such as use of motor fuel tax for road maintenance. (6) Efficiency: tax collection efforts should not cost an inordinately high percentage of tax revenues. (7) Equity: taxes should equally burden all individuals or entities in similar economic circumstances. (8) Neutrality: taxes should not favor any one group or sector over another, and should not be designed to interfere-with or influence individual decisions-making. (9) Predictability: collection of taxes should reinforce their inevitability and regularity. (10) Restricted exemptions: tax exemptions must only be for specific purposes (such as to encourage investment) and for a limited period. (11) Simplicity: tax assessment and determination should be easy to understand by an average taxpayer.

As part of measures to sanction tax defaulters and enhance voluntary compliance on tax obligation, the Federal Government recently announced it would from July 1, 2017, impose additional 5 per cent charge on firms that fail to honour their tax obligations as and when due. Minister of Finance, Mrs. Kemi Adeosun, who announced the new interest rate spread on unpaid taxes for the year 2017, said such defaulters would pay about 19 per cent on their obligation which is 5 per cent above the Central Bank of Nigeria (CBN) 14 per cent policy rate.

The new interest rate, she noted, shall be 5 per cent over the Central Bank of Nigeria’s Minimum Re-Discount Rate (MRR) for 2017. She explained that Section 32(1b) of the Federal Inland Revenue Service (Establishment) Act 2007 empowers her to approve the new interest rate.

The Minister said the review of the interest rates on unpaid taxes was one of the necessary measures adopted by the Federal Government to enhance tax compliance, minimize tax evasion and deter late payments. “Majority of Nigerian tax payers (PAYE) have taxes deducted automatically.

However, those who do not and are required to file their taxes like companies and business enterprises must understand that there are financial consequences for late payments. We believe that this will support our efforts to ensure that people pay their taxes promptly, thus providing a sustainable source of revenue to the government to finance infrastructure and other projects,” the Minister said.

Recall that Mrs. Adeosun had, during the Finance Ministers’ meeting convened by the G24 Group at the 2017 IMF/World Bank Spring meetings in Washington, DC USA, stressed the need for Nigeria to embark on aggressive tax revenue generation in order to drive economic growth.

She had emphasized that with a tax to GDP ratio of only 6 per cent, one of the lowest levels in the world, the country had to intensify effort at tax collection in order to build a sustainable revenue base that will deliver inclusive growth. She stated that the focus of the Federal Government in 2017 was to improve tax revenue through ensuring voluntary compliance with tax laws.

The Minister has accordingly directed the Executive Chairman of the Federal Inland Revenue Service (FIRS) to commence the implementation of the new interest rate on all unpaid taxes from July 1, 2017.

Meanwhile, in line with its drive to ensure foreign exchange liquidity, the Central Bank of Nigeria (CBN), yesterday, injected additional $205 million into various categories of markets. With only 13 million out of 178 million Nigerians paying tax, government said it intends to raise its tax collection GDP to about 15 per cent by 2020 from the current 6 per cent to enable it deliver inclusive governance. The Nigerian government is also seeking to improve tax revenue to N350 billion ($1.5 billion) per year through measures that would include 15 per cent tax on luxury goods.

It would also be recalled that, the federal government said, hard times await tax evaders in the country; as Minister of Finance, Mrs. Kemi Adeosun, disclosed government will now go after them. Adeosun, who spoke in Lagos, during a colloquium to mark the 65th birthday anniversary of former Lagos State governor, Asiwaju Bola Tinubu, also said a new tax regime was on the way. According to her, one of the strategies the administration of President Muhammdu Buhari intends to use in boosting the country’s revenue is through tax mobilization.

“It is a pity that Nigeria has one of the lowest tax regime ratio globally at six percent.

“The only country that is lower than us is Oman. We have so many wealthy entrepreneurs, who have managed to develop habit of not paying tax, we need to correct that.”

She recalled that “when the administration of Tinubu, as Lagos State governor, introduced a new tax regime, he became unpopular, but, today, when we see the infrastructure, I don’t think anyone will blame him for his action.

“I take this opportunity to reach out to the millionaires and billionaires that you will hear from me, soon. It is a shame that we are one of the largest owners of crude oil, but, we cannot enjoy the revenue from it. “Oil has proven that it would be an unreliable source of revenue. The price is unstable…”

Tax  Evasion:  Tax  evasion  is  a  deliberate  and  willful  practice  of  not disclosing  full  taxable  income  so  as  to  pay  less  tax.  In  other  words,  it  is  a contravention  of  tax  laws  whereby  a  taxable  person neglects  to  pay  the  tax due  or  reduces  tax  liability  by  making  fraudulent  or  untrue  claims  on  the income tax form.  Tax   is   evaded   through   different   methods   some   of   which   include   the following:

  • Refusing to register with the relevant tax authority.

Failure to furnish a return, statement or information or keep records required.

  • Making  an  incorrect  return  by  omitting  or  understating  an  income  liable  to tax refusing or neglecting to pay tax.
  • Overstating of expenses so as to reduce taxable profit or income, which will also lead to payment of less tax than otherwise have been paid.
  • A taxpayer hides away totally without making any tax return at all.
  • Entering into artificial transactions.

Tax  Avoidance:  Tax  avoidance  has  been  defined  as  the  arrangement of  tax payers’ affairs using the tax shelters in the tax law, and avoiding tax traps in the tax laws, so as to pay  less tax than he or she would otherwise pay. That is,  a  person  pays  less  tax  than  he  ought  to  pay  by taking  advantage  of loopholes in a tax levy. Tax can be avoided in various ways:

  • Incorporating  the  tax  payer’s  sole  proprietor  or  partnership  into  a  limited liability company.
  • The  ability  to  claim  allowances  and  reliefs  that  are  available  in  tax  laws  in other to reduce the amount of income or profit to be charged to tax.
  • Minimizing  the  incidence  of  high  taxation  by  the  acquisition  of  a  business concern which has sustained heavy loss so as to set off the loss against future profits.
  • Minimizing tax liability by investing in capital asset (for instance through the new  form  of  corporate  financing  by  equipment  leasing),  and  thus  sheltering some  of  the  tax  payers  income  from  taxation  through capital  allowance claims.
  • Sheltering  part  of  the  company’s  taxable  income  from  income  tax  by capitalizing profit through the issue of bonus shares to the existing members at the (deductible) expenses to the company.
  • Creation  of  a  trust  settlement  for  the  benefit  of  children  or  other  relation  in order to manipulate the martinet tax rate such that a high income bracket tax payer reduces his tax liability.
  • Converting  what  would  ordinarily  accrue  to  the  tax payer  (employee)  as income into capital  gain  (i.e Compensation for loss of office) the  advantage of the employer and employee.
  • Manipulation of charitable organizations whose affairs are controlled and dominated by its founders thus taking advantage of income tax exemption.  Buying and article manufactured in Nigeria thereby avoiding import duty on imported articles.
  • Avoiding the consumption of the articles with indirect taxes incorporated in their prices e.g. tobacco.

Taxation has a key role in a modern economy. Listed below are the ways in which governments can use taxation in a modern economy:- Revenue generation: – Taxation is used by the government to raise revenues for its operations, infrastructure, welfare, education defense. Behavior Discouragement: – Also referred to as social engineering, the purpose of this is to discourage people from antisocial behavior and is often done heavily taxing the commodity there by increasing its price. Reducing Inequality: – Tax money is used to serve the weaker sections of the society through the welfare programs. Resource Redistribution: – Can be used to transfer resources form one section of society to another section of the society and protecting local Industry: – Local industries are normally protected by the government through the use of heavy import tariffs.

This makes the imported goods more expensive then the local goods and thereby encouraging the production of local goods.

Ayobolu, a public affairs analyst contributed this piece from Lagos State.

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