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Critical Tax Reforms Needed Shared Prosperity – NESG 

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By Tony Obiechina, Abuja 

The Nigerian Economic Summit Group (NESG) has observed that improved tax revenue is necessary to enable the government finance its activities with a view to promoting sound economic growth. 

This was the outcome of a pre-28th Nigerian Economic Summit event organised by the NESG in collaboration with the Federal Ministry of Finance, Budget and National Planning held on Wednesday, in Abuja, with the theme “Critical Tax Reforms for Shared Prosperity.

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The this year’s Economic Summit tagged “2023 and Beyond: Priorities for Shared Prosperity”, will hold between October 24 and 25, 2022, in Abuja.

 

Speaking at the pre-summit event, NESG Board member, Mr Frank Aigbogun, said the introduction of a yearly finance act has supported tax legislation and encouraged policy implementation, which can be strengthened by addressing issues related to tax compliance, taxation and support to households and enterprises.

 

He noted that Nigeria suffers from low tax compliance and that the country’s tax to GDP ratio stands at 6 %, which is significantly lower than the average across African countries, which stands at 18 %. 

Mr Aigbogun who reiterated the need for a paradigm shift in Nigeria’s tax processes, said, “Political leaders can lead by example by supporting a cultural change through tax compliance. Taxes should promote economic growth, especially for MSMEs that contribute a huge part of our GDP. 

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“Taxes can help finance public education and healthcare, offering better chances for people to improve their economic status. Taxes are the financial backbone of social security, protecting the poor. However, policy weaknesses, lack of reforms, and public understanding prevent taxes from playing a significant role in development”, further stated.

In his presentation, NESG Fiscal Policy & Planning thematic group Lead, Mr Taiwo Oyedele, said the Nigerian economy is facing several challenges, including reduced foreign remittances, heightened insecurities, multiple exchange rate windows, low tax to GDP ratio and a high debt service cost to GDP ratio. 

He listed some of the taxation issues to include  the introduction of new taxes on corporates, Naira devaluation, increased inflation at 18.6 %, unemployment at 33%, poor policy coordination, petroleum subsidy and geopolitical tension/crisis. 

Oyedele also stated that the economy is affected by debt/taxes, politics and policies, geopolitical crises, insecurity and petroleum subsidies. 

“Nigeria’s fiscal landscape has been bolstered by the national tax policy 2019, resulting in annual changes through the finance act. Improved coordination at subnational levels, improved capacity for revenue mobilisation and the funding of the federal allocation committee from taxes. 

“Nigeria has a small tax base that continues to face structural problems. We need to focus on tax harmonisation that is broad-based and properly defined,” Oyedele added.

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Mr Rajul Awasthi, senior public sector specialist, Domestic Resource Mobilisation, World Bank, said that Nigeria is a critical pivot for Africa’s progress, and it is essential to highlight that the Nigerian government is facing an existential crisis and that Nigeria’s accrued revenues will be significantly lower this year due to the debilitating impact of the fuel subsidy. 

He stated that the Value Added Tax (VAT) compliance gap was immense, noting that in 2019, 3.1 trillion Naira was collected compared to 1.1 trillion Naira in 2021. 

“There is a need to rationalise tax expenditures, data sharing between Federal Inland Revenue Service (FIRS) collectors and State Inland Revenue Service (SIRS) collectors. Property tax reforms, excise reforms through policy measures and a reform of the PMS subsidy regime by moving towards full elimination by 2024 are essential in improving Nigeria’s tax revenue,” he stated. 

During the panel session, the executive secretary of the Joint Tax Board, Ms Aisha Obomeghie, said that there is need to streamline taxes and levies collected by federal and state governments. 

She also reiterated the need to build up a robust database that will aid the collection of the right amounts of taxes, noting that the solution does not lie in introducing new taxes and agencies but in finding ways to enhance tax collection, which will help fund Nigeria’s recurrent expenditure.

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Furthermore, she revealed that tax revenue sharing between federal and states government is being worked on assiduously, noting that Nigeria’s tax system still faces the problem of capacity building and integration. 

In his submission, the Director-General of MAN, Mr Segun Ajayi-Kadiri, represented by the Director of Research and Advocacy, Mr Oluwasegun Osidipe, said there was no doubt that the country needed money but that the government must exercise caution in introducing more taxes.

He tasked the government to expand the tax base, ensure the inclusion of more people in the informal sector and make the tax system progressive such that the rich would pay more than the poor.

On her part, Founder, Accounting Hub, Ms Chioma Ifeanyi Eze, said that Nigeria remains the largest economy in Africa and that SMEs form a considerable part of this, and that critical reforms will bring about prosperity in Nigeria must include MSMEs. 

Economy

CBN Moves to Save Naira, Raises Interest Rate to 15.5%

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By Tony Obiechina, Abuja 

The Central Bank of Nigeria (CBN) on Tuesday raised the Monetary Policy Rate (MPR), also known as interest rate, from 13.5% to 15.5% as a way of tackling inflation.

 CBN Governor Mr Godwin Emefiele made the annoucement at a media briefing after that Monetary Policy Committee meeting in Abuja. 

This is the highest rates adopted by the CBN after it held the Minimum Rediscounted Rate (MRR) at 15 per cent on August 17, 2003.

The MRR was the rate adopted by the CBN until it introduced a new Monetary policy framework in 2006 which replaced MRR with Monetary Policy Rate (MPR).

The CBN governor, who spoke after the 287th MPC meeting, said its decision was a move to save the naira and curb inflation, adding that the members voted unanimously to raise the rates.

Benchmark lending rate was as low as six per cent thirteen years ago in 2009.

When Covid-19 struck in 2020, the MPC reduced the MPR by 100 basis points from 12.5 to 11.5 per cent.

But this was increased to 13.0 per cent and by another 100 basis points to 14 per cent in May and July 2022 respectively.

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Currently, Nigeria’s inflation is at 20.52 per cent according to the National Bureau of Statistics Consumer Price Index for in August 2022.

During the meeting, the apex bank governor said high energy cost and electricity tariff pushed the inflation upwards.

According to him, the increase in US rates has also pressured the naira and making investors exit the Nigerian market.

Emefiele said broad outlook remains clouded due to headwinds of the Ukraine war and residual impacts of Covid-19.

He said the Nigerian economy will grow but at a “much subdued rate” due to the increased demand for money driven by the 2023 general election.

According to him, the rise in inflation over the past four months has been worrisome  stressing that loosening inflation would worsen Nigeria’s economic condition as well as naira depreciation.

He said a tight policy stand would help appreciate the naira.

According to analysts, the hike in interest rate for three consecutive times is a way of luring foreign inflows into the country and easing the pressure on the naira.

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Business News

 Bill to Amend CBN Act goes for 2nd Reading in Senate

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The Senate on Tuesday at plenary, passed for second reading, a bill to amend the Central Bank of Nigeria (CBN) Act.

Leading debate on the general principles of the bill, its sponsor, Sen. Sadiq Umar (APC-Kwara), said the bill was to enable the appointment of a person other than the Governor as Chairman of the Board of CBN.

He said the bill was also designed to divest the powers of the board on determining and fixing salaries and allowances of its members.

According to him, the bill if passed, will be used to determine consideration and approval of the annual budget of the CBN.

Suleiman said the envisaged new chairman of the proposed board of the CBN, would have powers to determine salaries and allowances of members, while the Governor focused on administrative duties of the bank.

In her contribution, Sen. Betty Apiafi (PDP-Rivers), called for a holistic amendment of the CBN Act, adding that the CBN governor went out of his way to indicate interest to participate in politics while in office.

She said the development was not the trend in the world, given that election materials were kept in CBN.

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Senators Enyinnaya Abaribe (APGA- Abia), James Manager (PDP-Delta), Orji-Kalu (APC-Abia) kicked against the hasty amendments to the bill, while Sen. Barau Jubril (APC-Kano), supported the bill in his submission.

President of Senate, Ahmad Lawan, however, cautioned senators to focus on the proposed amendment rather than deliberating on alleged attempt by the CBN governor to contest as that wasn’t part of the general principles of the bill.

Lawan, thereafter, put the passing of the bill for second reading to a voice vote and senators voted unanimously for its passage.(NAN)

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Economy

FG to Deploy PPP Solution to Boost Excise, Tax Revenue

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The Federal Government says it is set to deploy an Integrated Secure Track and Trace Solution to boost revenue earnings through excise and tax collection.

The Director-General, Infrastructure Concession Regulatory Commission (ICRC), Michael Ohiani, said this while presenting the Outline Business Case (OBC) Compliance Certificate to the Minister of Finance, Budget and National Planning, Zainab Ahmed.

A statement issued by Ms Manji Yarling, the Acting Head Media and Publicity, ICRC in Abuja on Tuesday, said the project was aimed at mitigating the country’s dwindling revenue and foster more non-oil revenue streams.

“The PPP solution will adopt the Build, Operate, and Transfer option.

“It will allow the Federal Government, through the Ministry of Finance, to establish an effective and non-intrusive control on a broad range of goods and services subject to excise duty, safety, and standards,” Yarlling said.

While receiving the OBC certificate, the minister said the proposed solution was important at this time, as the government was currently constrained in terms of revenue and required an urgent boost.

According to Ahmed, the purpose of the project is to enable the ministry to have visibility over some key products that are made in Nigeria, in terms of the quantity and companies that produce them.

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“It is also to differentiate between the same products produced in Nigeria and the ones that are imported, the bottom line is for us to be able to maximise our revenue potential.

“Having had several meetings with the proposing company, we thought that the best way to do this is through a PPP model and I am glad that the OBC Compliance Certificate has been issued,” the minister said.

Ahmed said that as the fiscal authority of the government, the ministry of Finance had the responsibility to ensure that duties and taxes were paid.

She said the ministry’s responsibility was also to assist relevant agencies to make their work more seamless, hence the need to deploy the solution.

The minister promised that the solution was not going to put more burden on companies, as the duties to be collected were not going to disrupt manufacturing in any way.

“I am assuring that the manufacturing companies’ businesses will not be disrupted, they are not going to incur any additional cost, the excise duty that will be charged will be a pass-through cost.

‘We are convinced that this is the right thing to do,” she said.

Ahmed expressed confidence in the solution citing that the same infrastructure had been deployed by the same company in South Africa and Morocco to boost their revenue accruals.

Ohiani while presenting the OBC, said that the solution would bring about many benefits to Nigeria including stemming illicit trade and revenue leakages; and improving revenue generation for government.

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Other benefits he said include ensuring the circulation of high-quality goods and services; achieving economies of scale and synergies among ministry’s agencies; enhancing technology and knowledge transfer and generating employment opportunities.

“The proposed solution when implemented will allow the Federal Government of Nigeria to establish effective and non-intrusive controls on a broad range of markets.

“Markets such as goods and services subject to excise duty, and goods subject to conformity with health, safety, and quality standards.

“Additionally, the solution aims to reduce the levels of counterfeiting, sub-standard quality, tax evasion, and under-declaration in these markets,” Ohiani said.

He pointed out that the ICRC and the ministry would now proceed to the procurement stage.

“A Full Business Case (FBC) Compliance Certificate would be issued for onward submission to the Federal Executive Council (FEC) for project approval,) (NAN)

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