Manufacturers recently cried out to the federal government on the biting effects of multiple taxation on companies as well as other barriers hampering growth in the Nigerian economy. Speaking through the National President, Manufacturers Association of Nigeria (MAN), and former Industry Minister, Dr Kola Jamodu, they urged the federal and state governments to urgently remove the bottleneck of multiple taxation and provide infrastructure that will support manufacturing industries with a view to returning the country to full industrialization.
Jamodu said this in Ilorin during a familiarization visit of the national executive members of the association to industries in Kwara State. He noted that it is only through industrialization that the unemployment problems in the country could be solved.
Undoubtedly, unfriendly tax system is usually a disincentive to investment while friendly tax regime especially for investment, creates no anxiety for investors as it goes a long way to create jobs and grow businesses.
The World Bank’s Doing Business 2011 report, indicates that Nigeria ranks 137 out of 183 countries surveyed on the ease of doing business and 134 on the ease of paying taxes. In the 2010 report, Nigeria ranked 134 and 131 on the ease of doing business and paying taxes respectively. Nigeria has been slipping back consistently on the ease of Paying Taxes index which is a function of three main indicators – number of tax payments, time required to comply with tax obligations and total tax rate. At 134 Nigeria is far behind a number of other African countries such as Mauritius (12), South Africa (24), Zambia (37), and Ghana (78) all competing for foreign direct investments.
Suffice it to say that multiple taxation and levies by various tiers of government have the potential of spelling doom for the economy, contrary to government’s ceaseless campaigns for internally generated revenues.
Available statistics shows that some states have as many as 97 different taxes, levies and charges that are imposed on businesses. This is simply not economically viable, even as the costs to the government of administering these various taxes and the costs to business of paying these taxes outweigh their benefits to both the private businesses and the government.
Another recent World Bank report also shows that for every N100 that businesses have to pay in taxes, they pay about N35 in compliance costs. This again, is a waste of capital that could be reinvested in these businesses to grow them and create more jobs for our economy.
By streamlining and harmonizing taxes across the federation, Nigeria would be in a position to increase its productive potentials.
One area impact of multiplicity of taxes is felt is on the transportation sub-sector. The presence of various task forces (federal, States and local governments) on our roads has become a nuisance and adds to cost of goods. It also impairs the integration of internal markets and the establishment of a fully integrated economic space within the country, by impairing the integration of the national market The mobile levies also reduces competition between companies located in different states of the country.
It would be recalled that the National Economic Council (NEC) had, in March, this year, constituted an adhoc committee to review the presentation made by the Manufacturers Association of Nigeria (MAN) to it on multiple taxation and other challenges facing businesses in Nigeria.
The key requests and recommendations then made by MAN include: review and amend the various taxes and levies on its members, stoppage of the use of unorthodox means to collect taxes and levies, immediate automation of tax operations by relevant tax authorities to eliminate leakages and ensure ease of collection, and publishing of the approved list of taxes and levies within the states and local governments to educate the public and facilitate compliance.
Regrettably, despite several attempts by the government to tackle this issue, it has remained unabated – affecting both big and small businesses and the movement of goods and services in the country.
In addition to creating hiccups in local business transactions, it also underscored the danger in multiple taxation, relative to breaking international business barriers.
If Nigeria will continue attracting foreign investment, diversify economy and create more jobs, and become one of the top 20 economies of the world by 2020, we must get our tax system right.
Reducing the total number of taxes paid, increasing transparency as to how and what to pay, and facilitating procedures for filing taxes, will be essential to reducing high compliance costs and, in so doing, increase Nigeria’s tax compliance rate and also the revenue.
Therefore, we have to have a transparent process that makes it easy for people to know what taxes and levies to pay and to harmonise these activities across the country.
To address problems of multiple and numerous taxation in Nigeria, number of taxes to be paid should be reduced to the barest minimum and approved list of taxes should streamlined and adhered to by all tiers of government. Also government should reduce ambiguity in the tax law and practice, correct unintentional errors in drafting of tax legislation, reform obsolete or outmoded provisions in the laws and improve efficiency of tax collection and payment.
These measures will definitely stimulate the economy and enable Nigeria to assume a more competitive position on the global stage.