New tax regime will discourage new investment, erode ERGP gains ― Organised private sector
• Over 40,000 businesses fail to remit tax - FIRS
Members of the Organised Private Sector, on Monday, expressed concerns over the proposed tax regime in Nigeria, which they alleged may discourage new investments into the country and erode returns on existing investments in the country.
Chairman, Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry, Mr Paul McGrath, who gave this position during the public hearing on Tax and Fiscal Law (Amendment) Bill held at the instance of the House Committee on Finance chaired by Hon Abiodun Faleke, argued that stiff business environment left Nigeria with only 3 per cent out of the $73 billion of major project investments in Africa from 2015 to 2019.
According to him, OPTS represents 29 independent, indigenous and international E&P companies which operate about 90 per cent of the oil and gas production and have invested on average $15 billion per year in Nigeria over the last five years with significant benefits to the economy.
He, however, acknowledged that some sections of the composite bill seeking to reform the tax regime by amending several Acts, namely Petroleum Profit Tax Act (PPT), Custom and Excise Tax Act, Company Income Tax Act (CITA), Personal Income Tax Act, Value Added Tax Act, Stamp Duties Tax Act, and Capital Gains Act, are geared toward encouraging small to medium companies flourish and also digitalize communications, especially the exemption of small to medium companies from VAT, as well as a 1-2% bonus for medium-sized and large companies that pay their income tax liability early under the CITA.
He observed that certain provisions in the composite bills such as the proposed increase from 7.5 to 10% withholding tax (WHT) on dividends paid out of petroleum profits which he argued “represents another layer of tax on the pre-existing 85% petroleum profit tax rate will erode investment and investors confidence.”
While cautioning against policy somersault, he observed that when Section 60 of PPTA was put in place, it was widely understood that Nigeria’s PPT rate of 85 per cent was very high when compared to other countries. Therefore, the exemption of dividend payments from WHT was put in place to reduce the burden caused by the high tax rate.
He maintained that the additional tax will further erode returns on investment and will have a negative impact on Nigeria’s attractiveness as an investment destination, to the advantage of other countries, adding that the proposed hike will in the “short-term increase in revenue from all these provisions puts at risk Nigeria’s ability to sustain its current production through new investments.
“Without new projects, Nigeria’s production will be subject to a 15% annual natural decline.”
On the other hand, he urged that the proposal be removed from the Bill, and instead considered within the wider context of a Petroleum Industry Bill, so that its full implications for all stakeholders can be assessed and decided upon.
Speaking on the proposed 7.5 perc VAT rate as contained in Sections 35 & 38 of the bill, McGrath kicked against the imposition of VAT on invoices and similar transactions which he stressed will “widen the operating expenses base, thus, increasing industry operational costs. Again, OPTS recommends the adoption of the globally-accepted industry practice of exempting intra-company across services.”
Despite the laudable objectives of the Nigeria Economic Reform Growth Plan (ERGP) aimed at building a competitive economy through improving the Nigerian business environment, he maintained that some of the proposed amendments would defeat this objective.
“It is noteworthy that total contributions from our operations have consistently constituted over 70 per cent of government revenue and 90 per cent of Nigeria’s foreign exchange. This translates to a cumulative $425billion contribution to Nigeria’s revenue between 2007-2018,” he observed.
On her part, President/Chairman, Chartered Institute of Taxation of Nigeria (CITN), observed that most of the provisions that the bills seek to amend have become obsolete in terms of global practice and have become practically difficult to implement in the Nigerian context.
“These have given rise to many loopholes that are exploited in widening the tax avoidance gap in Nigeria.”
The Institute also commended the proposed amendment to the Excise duties on goods imported for export-oriented activities, just as it called for careful definition of the “range of products so charged as part of strategies targeted at aiding the country’s migration from net-importer to export-oriented nation.”
In his intervention, Chairman, Federal Inland Revenue Service (FIRS), Mr Babatunde Fowler informed lawmakers that over 40,000 registered businesses do not pay requisite taxes.
On her part, Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed explained that the financial bill 2019 seeks to promote fiscal equity by mitigating instances of regressive taxation; reform domestic tax laws to align with global best practices and introduce tax incentives for investments in infrastructure and capital markets.
The bill also seeks to support small businesses in line with ease of doing business reforms and raise revenues for government, by various fiscal measures, including a proposed increase in the rate of VAT from 5 per cent to 7.5 per cent, while the Petroleum Profit Tax seeks to improve revenue by removing the tax exemption granted for dividends or income received from companies charged under PPT.
On his part, Mike Akinfolarin, who called for exemption of Bureau De Change (BDCs) operators from the new tax regime, urged that VAT is only chargeable on the end users, wherein the present CBN regulatory policy on forex trading does not allow our clients members to charge VAT on their customers who are the ultimate end users.
“A close look at the forex operations in the United States of America and the United Kingdom respectively suggest that VAT is not charged on forex operations whatsoever as it is equally obtainable in other international climes, except Nigeria.”
While declaring the public hearing open, the Speaker of the House of Representatives, Hon Femi Gbajabiamila expressed optimism that the funds accruing from the taxes would enable Nigeria to fund the 2020 Appropriation Act when passed into law as well as meet the obligations of government and implement policies to build infrastructure, tackle insecurity, grow the economy, and provide jobs that pay a living wage and lift families out of poverty.
Hon Gbajabiamila who was represented by the Deputy Majority Leader, Hon Peter Akpatason said: “it is an important piece of legislation, deserving of thorough consideration, and reasoned debate by the parliament of the people, acting in the best interests of the people
“We have a responsibility as legislators to meticulously review and examine every aspect of this Bill to ensure that we produce a legislative document that is clear in its objectives, thoughtful in the mandates it imposes and reflective of the best aspirations of all our citizens.
“This public hearing moves us closer to that laudable objective by providing an opportunity for citizens and legislators to jointly consider the contents of the Bill. It is expected that over the course of this public hearing, citizens will advance ideas and make recommendations that will improve the quality of the legislation and ensure the varied interests and considerations of all Nigerians are taken into consideration before final enactment into law of this essential legislation.”