Balancing Tax and Social Justice in Nigeria

Dwindling revenues - caused by low global oil prices and economic recession – means that Nigeria has to divert its attention to new sources of revenue – like tax.


With the introduction of the Finance Act 2019 in Nigeria and the financial target of N8.5 trillion set for the Federal Inland Revenue Service (FIRS) by President Buhari, the Nigerian government seems to have beamed its focus on increasing its tax base by capturing more SMEs, Individuals and other previously excluded entities in its tax net.

Overview of recent change in tax policies


The Finance Act is a wholesale amendment of seven different tax laws, namely: Companies Income Tax Act, Petroleum Profit Tax Act, Personal Income Tax Act, Value Added Tax Act, Customs and Excise Tariff, ETC (Consolidation) Act, Capital Gains Tax Act and Stamp Duties Act.


The enactment of the Finance Act ignited some major changes in the tax policies in Nigeria such as the increase of the Value Added Tax (VAT) and catalysing the implementation of some redundant tax laws such as the Stamp Duties Act. In order to aid the growth of small businesses, the Act has also exempted small businesses from paying certain taxes.

It's worth mentioning that one of the significant changes of the Finance Act is the taxation of the digital economy, i.e. businesses not physically present in Nigeria but has significant economic presence as the Act puts it.


While this has been expectant especially with the OECD working out a single policy document which will be implemented by all its member nations, we cannot but spot the change in the Stamp Duties Act which has not only redefined the meaning of stamp and stamped, but also expanded the nature and types of documents required to be stamped. In addition, the Act restricted the collection of the tax to the FIRS where a corporate body is involved in the transaction and the appropriate State Inland Revenue Service where the transaction is between individuals.


Balancing tax and social justice in Nigeria


The introductions in the Finance Act and the leadership changes at the FIRS signalled a new direction in the federal government’s revenue drive and made it abundantly clear that the present administration considers taxes its next cash cow.

While taxation is considered to be the bloodline of most economies, there is hardly any tax system in the world that can be described as completely fair or just. However, in designing an efficient system that implements elements of social justice, such a system must take into account the economic conditions in the country. It must also be flexible, enabling it to respond quickly to changing economic conditions and also fair, to enable individuals to properly evaluate their obligations and encourage belief in the system.


The introductions in the Finance Act and the leadership changes at the FIRS signalled a new direction in the federal government’s revenue drive and made it abundantly clear that the present administration considers taxes its next cash cow.


This drive has however been hampered by the Covid-19 pandemic, which unfortunately has created numerous challenges for the government, businesses and individuals who have had to shut down services and shelter at home for many months in the course of the year. It is also important to note that while the FIRS announced some form of respite which it tagged ‘palliatives’, an in-depth analysis revealed that the FIRS did not waive any tax obligations but only delayed payment in certain cases. 


Comparatively, responsive governments globally have sourced for ways to mitigate the economic effects of the pandemic on its citizens and also on businesses. Some have waived certain taxes in order to reduce the financial burden, especially at a time when many people have lost their jobs, while others have provided financial support and incentives to their citizens and businesses.


In Nigeria, however, the pandemic has coincided with the increased vigour of different regulators in the enforcement of various fees, licenses and Tax obligations. These acts are not limited to Federal Government agencies, as states such as Lagos and local governments such as the Abuja Municipal Area Council have, at various times, demanded obnoxious fees or licenses leading to public outcry. 


It’s reiterated that an efficient tax system must be responsive and flexible to existing economic conditions.  It is unimpressive that the Federal Tax authority and some agencies have taken it upon themselves to demand more from taxpayers without considering the negative economic impact the pandemic is having on numerous companies and the Nigerian labour force. The Stamp Duty Act has, no doubt, been in existence prior to the pandemic without little or no implementation. In the present circumstances, however, it would be right to say such a move by the FIRS, to wield the big stick through the implementation of the SDA, is inequitable and not in consonance with the canons of taxation. 


On a related note, one would have expected that increased taxation will be matched with increased accountability across government circles. Unfortunately, the recent disgraceful spectacle involving the probe of government spending across different agencies has further confirmed the public fear that revenue generated will be mismanaged, thus exacerbating the perpetual issues of non-existent social services, rising inflation, badly managed exchange rates, increasing unemployment, dilapidated health care system, below par educational sector, transportation, poor electricity, water and other services.

Way Forward? 


Despite the numerous challenges, the Covid-19 pandemic presents an opportunity for critical thinking to ensure that the efforts devoted to the needed policy reforms do not have negative impacts on society.

It is pertinent to note that some sub-national governments have taken much more responsive approaches to revenue collection; taking into consideration the plight of SMEs. It is unfortunate that the attempt at increasing revenue collection has been hampered by the pandemic. However, governments must identify and employ creative approaches to reduce the burden on taxpayers, while simultaneously, implementing wide-reaching reforms that increase the number of people captured in the tax net. 


Although not expected, a reduction in taxes that spurs public consumption such as suspension revision of the value-added tax implementation, suspension of stamp duty collection and also proposing tax cuts targeted at industries and persons that have suffered the most economic consequences as a result of the pandemic, may form an aspect of the catalyst needed to revive a dwindling economy while foregoing the much-needed revenue.  


Despite the numerous challenges, the Covid-19 pandemic presents an opportunity for critical thinking to ensure that the efforts devoted to the needed policy reforms do not have negative impacts on society. More than ever, it is important for tax administrators, revenue collectors, the ministry of finance and budget to identify and implement frameworks which enthrone and uphold the principles of tax justice even as we move into a post-covid future. 


Co-authored: by Tobi Adesemowo and Kunle Adewumi

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