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Efforts At Boosting Non-oil Revenue

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There is no doubt that with a fast-rising level of debt, the Nigerian government is in need of diversifying its sources of revenue in such a way that would not roll a burden down the road for future generations. Saddled with 2022 budget of over N17 trillion of which there is over N6 trillion deficit, the federal government is looking to slow down borrowings by looking inwards to raise the needed revenue.

In line with current realities, analysts  believe that taxation is the way to go in growing government revenues and in recent times, steps are being taken to streamline the country’s tax system in such a way that it would become more beneficial to the nation’s economy.

Last year December, President Mohammed Buhari signed into law the 2021 Finance Act which took effect in January this year. Several changes had been made to the 2020 Finance Act which had been instrumental to the Federal Inland Revenue Service (FIRS) being able to meet its revenue target and surpass it last year.

According to the FIRS, it had collected a total of N6.405 trillion in both oil and non-oil revenues last year as against a target of N6.401 trillion. The revenue service said it collected N2.008 trillion in oil revenue and N4.396 trillion in non-oil revenue.

The FIRS said Companies Income Tax amounted to N1.896 trillion; Petroleum Profits Tax amounted to N2 trillion; Value Added Tax amounted to N2.07 trillion; Electronic Money Transfer Levy amounted to N114 billion; Earmarked Taxes amounted to N208.8 billion; among others.

It furthered that non-oil sector contributed 69 per cent of the total collection in the year, while oil sector’s contribution was 31 per cent of the total collection. As the 2021 Finance Act became effective this year, critical changes have been made to further tilt upwards government revenue this year.

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Among the critical changes made is the 10 per cent capital gains tax chargeable on the disposal of shares worth N100 million or above in any 12 consecutive months except to the extent that such proceed is reinvested in the shares of any Nigerian company.

Also, in its renewed drive to boost domestic resource mobilisation, the federal government limited companies involved in the trade or business of gas utilisation in downstream operations in the country to a, “once in a lifetime” tax-free regime, according to the latest changes effected in the Finance Act, 2021.

The new law states that additional investment, re-organisation or other forms of corporate restructuring shall not qualify for a further tax incentive under the gas investment programme. Such companies are further barred from similar incentive under any other sections of the Companies Income Tax Act (CITA) or other law.

Moreover, companies engaged in upstream petroleum operations would continue to have obligation to withhold VAT, even when they have not commenced commercial operations or have not reached N25 million turnover.

There is also the education tax payable by Nigerian companies which has been increased from two per cent to 2.5 per cent of assessable profits, while companies engaged in educational activities are now subject to corporate income tax regardless of whether such activities are of a public character. This means that private institutions are now pay corporate income tax.

Asides this, a science and engineering levy of 0.25 per cent of profit before tax is being levied on companies engaged in banking, mobile telecommunication, ICT, aviation, maritime, and oil & gas with turnover of N100 million and above.

The Act also stipulates that the FIRS is to assess, collect and enforce the payment of Nigerian Police Trust Fund levy. The tax was introduced in 2019 at the rate of 0.005 per cent on the net profit of companies operating in Nigeria.

Also the FIRS is allowed to assess tax on the turnover of a foreign digital company involved in transmitting, emitting, or receiving signals, sounds, messages, images or data of any kind including e-commerce, app stores, and online adverts. Such companies are also obliged to charge, collect and remit VAT to FIRS.

Even more controversial is the imposition of excise duty at N10 per litre on non-alcoholic, carbonated and sweetened beverages, which analysts say could translate to an increase in the retail price of products by up to five per cent with lower end products bearing higher burden.

Some analysts are of the view that stakeholders in the country need to collaborate with the federal government in finding solutions to Nigeria’s perennial low public revenue challenge. Their arguments were premised in the fact that the time had come to evolve strategies that would hold public officials accountable and checkmate wasteful and unjustifiable public expenditure in the country.

President of the Institute of Chartered Accountants of Nigeria (ICAN), Mrs. Comfort Olajumoke Eyitayo, said the current revenue challenge facing the country made it an imperative that all stakeholders should work with the government to address the recurring issue.

Eyitayo said: “The Finance Act introduced with the budget process in the country over two years ago is aimed at developing strategies to shore up capital (public revenue) for the economy. This is a step that had to be taken by the government to enhance the income-generating potentials of the country.”

She, however, added that as, “we focus on modalities for revenue generation, the country must not lose sight of the expenditure side, develop strategies to guide against wasteful and unjustifiable spending.

“In essence, all stakeholders must continue to advocate for a public sector where value for money needs to be entrenched and officeholders will be held accountable, and transparency in public financial management promoted.”

However, some analysts have dissented to the latest changes warning that it could have adverse effects on the Nigerian economy. Fiscal Policy Partner and Africa Tax Leader, PwC Nigeria, Mr. Taiwo Oyedele, commenting on the changes in the 2021 Finance Act said the tax being levied on educational will not only negatively impact tuition fees but further degenerate human capital in Nigeria in the long run.

He noted that with human capital being a major deficit to Nigeria, tax increase towards education shouldn’t have occurred. “I struggle to understand why we are trying to tax educational institution, educational institution, I don’t understand why when every plan that we have speaks to the fact that we need more education not just in terms of the quantity, but the quality and depth of education for us to lead in this new age.

“So, the implications would be that you have increased funds and my estimation is that educational tax will go up by about N60 billion in a year, so that we agree is significant, but it means that higher burden for companies that have to pay this. Tuitions are likely to go up because if I have a school and I have to pay tax now I have to do my calculations, I need to still pay salaries of staffs, I need to do so many other things like infrastructure that you need to maintain, so I’ll just adjust my tuition. “

He stated that gains on disposal of shares in any Nigerian Company worth N100 million or in any 12 consecutive months are liable to CGT at 10 per cent, with the returns to be rendered annually even for disposal proceed less than the threshold.

He also added that notable exemptions would include cases where the amount is “reinvested in the same or other company and the shares are transferred between an approved borrower and lender in a regulated securities lending transaction.”

On implications of the tax levied on share purchase in the country, Oyedele highlights that there would be a likely shift of focus from equity investments to government securities, as revenue generation is likely to be minimal. “It may discourage investment in the capital market given the expiration of tax exemption also on corporate bonds.”

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