Nigeria’s recent rating as “third to the last” on the 2015 global ranking of “Ease of paying taxes” is a good indication of why the country is not earning as much as it should from taxation. The country’s ranking as 187 among 189 economies covered by the survey, which assessed the time it takes taxpayers to comply with tax processes, suggests that we are yet to get tax administration right in the country.
Among the things assessed in this survey are the period it takes a company to prepare, file and pay its taxes; the number of taxes that a company has to pay; the method of payment and the total tax liability as a percentage of its commercial profits.
The report says that while worldwide compliance benchmark is 268 hours, it takes 908 hours, which is more than three times of the world benchmark, for companies in Nigeria to comply with tax payment requirements.
Globally, Nigeria is followed by the South American country, Bolivia, with 1,025 hours. This is no good news for Nigeria which is Africa’s largest economy by size of Gross Domestic Product (GDP).
The latest indicators by GDP size rank Nigeria’s tax rate and compliance at 179 or 32.7 percent out of the 189 economies surveyed. Nigeria also ranks far below other African nations like South Africa, Ghana, Ke¬nya and Angola. For instance, South Africa, second largest economy in Africa by GDP, is ranked 19 with 28.8 percent total tax rate and compliance hours of 200.
Ghana ranks 101 (33.3 percent total tax rate)and 224 hours compliance time, while Kenya is ranked 102 with 202 hours compliance rate and 38 percent total tax rate. Angola is 144 with 282 compliance hours and 52 percent in total tax rate.
Nigeria’s poor tax compliance rate has grave implications for national revenue. The implication of the report, which was prepared by the renowned global accounting firm, Pricewaterhouse Coopers, commissioned by the World Bank, is that the government will find it difficult to generate the revenue required for developmental projects. The constraints to prompt payment of taxes will give room for tax avoidance or outright tax evasion.
This unhealthy situation is due to the lax tax administration in the country, which makes it possible for companies to either underpay or evade paying their taxes. Sometimes, this is in collusion with tax officials. The result of this is that many firms and individuals that ought to be paying taxes are defaulting.
This is why, for instance, a country like Ghana with far lower population and registered companies earns more tax per GDP than Nigeria. Ghana’s revenue from corporate tax is 21 percent of its GDP while that of Nigeria is seven percent.
From the foregoing, it is obvious that Nigeria’s tax administration needs a comprehensive overhaul. In this regard, we welcome the measures recently announced by the Acting Chairman of FIRS, Mr. Babatunde Fowler.
They include the decision to collaborate with professional bodies to reform the tax system and processes that have kept Nigeria at the bottom rungs of the global tax compliance index.
Concrete efforts should be made to streamline the rigorous processes required for filing tax papers in the country.
About N85.2bn was reportedly lost in four years (2009-2013) in the automobile industry through tax evasion. No country that tolerates a high level of tax evasion can generate the revenue needed for its development. Low tax compliance in Nigeria is a huge challenge to the FIRS, especially at this time of dwindling revenue from crude oil, which is the nation’s main revenue earner.
Statistics released by the National Bureau of Statistics (NBS) last week showed that the Federal Government projected revenue in the second quarter of 2015 fell by 60 percent.
Let the FIRS do all it can to ease payment of taxes in the country to improve compliance with our tax laws and increase revenue from taxation.
