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Increasing Nigeria's Tax Revenue - Ten Ways to go

Since the discovery of oil, the Nigerian economy has been run almost solely on petrodollars. The fall in oil prices has propelled the government to revisit the issue of tax as a more sustainable means of funding infrastructure. But can the current design of Nigeria’s tax system maximally increase revenue? The tax to GDP ratio of 7% revealed by the rebasing of the Nigerian economy in 2014 confirmed a low revenue generation from tax.

Increased tax revenue can be achieved, not by creating more taxes or increasing tax rates; but by ensuring efficiency of the tax system and enlarging the tax net. Below, I suggest ten ways the Nigerian government can achieve this:

(1) Modify/Enforce Section 85 of the Personal Income Tax Act (PITA)

Under the payroll system, tax enforcement is easier because the employer acts as an agent of the tax authorities by deducting payroll taxes at source and remitting same to the tax authorities. Enforcement mechanisms need to be put in place for the informal sector which is largely un-documented. Section 85 of the Personal Income Tax Act (as amended) is meant to solve this problem. The section provides that “A Ministry, Department or an agency of Government or a commercial bank with whom a person has any dealing with respect to any of the transactions mentioned in subsection (4) of this section, shall demand from the person a tax clearance certificate (TCC) for the three years immediately preceding the current year of assessment”.

The aim of the provision above is to expand the scope of transactions to make it impossible to carry out any business in Nigeria without being tax compliant. The TCC shows chargeable income, tax payable, tax paid, tax outstanding or alternatively a statement to the effect that no tax is due, and the tax identification number (TIN) of the individual in respect of the last three years. The law also provides that the TCC must be submitted to the issuing tax authority for verification. The law provides that any government organization or corporate entity that does not comply is guilty of an offence and liable upon conviction to a fine of N5, 000,000 (Five Million Naira (approx $14,000)) or to imprisonment for three years, or both fine and imprisonment.

The application of the law should not be restricted to the government and commercial banks. Transactions such as the application for employment into the public or private sector, obtaining loans other than government loans, the renewal of professional licences, the issuance/renewal of drivers’ license, opening of bank accounts and application for/renewal of passports should be included to make the list more exhaustive. Relevant stakeholders should also be informed about these provisions and there should be prosecution of principal officers of defaulting government ministries/agencies, and private companies.

(2) Modify/Enforce Section 101 of the Companies Income Tax Act (CITA)

There is a similar provision in the Companies Income Tax Act (CITA) (as amended) subjecting certain transactions to the TCC requirement. Section 101 of CITA mirrors the transactions provided for in section 85 of PITA but does not provide any penalty for its breach. However, section 92 of the CITA provides that "Any person guilty of an offence against this Act or any person who contravenes or fails to comply with any of the provisions of this Act or of any rule made thereunder for which no other penalty is specifically provided, shall be liable on conviction to a fine of N20, 000.00" [approx. $60]. This penalty is unlikely to deter non-compliance. An amendment of the law is required to provide a steeper penalty for the breach of this provision.

Another important transaction covered is the “application for award of contracts by Government and its agencies, and registered companies.” A motivation for tax compliance would be denying a company the award of a contract without presentation of its TCC. The law should be amended to: include contracts awarded by individuals and unincorporated entities, and to deal with situations where a company is currently contesting tax assessments issued by the tax authorities.

This should be followed by prosecution of principal officers of defaulting government ministries/agencies and private companies.

(3) Introduce Net Wealth Tax (NWT)

To enforce the NWT, Nigerian residents who own any asset covered under the definition above should be made to submit a tax return. The tax return should disclose all assets held in Nigeria and overseas. Tax should be paid on the value of the assets if it meets a specified threshold (for instance, the threshold could be put at 350,000,000 Naira and above (approx $1M)).

Implementing of the wealth tax should be followed by strengthening enforcement mechanisms. There would be need for collaboration between the tax authorities and agencies like the Corporate Affairs Commission (CAC), Securities and Exchange Commission, various property registries, and banks to help establish the beneficial owners of assets. The government will also have to take advantage of Tax Information Exchange Agreements (TIEAs) signed with other countries to unravel hidden offshore assets.

To help encourage compliance, information supplied under this law should be kept confidential and only disclosed to other agencies (like the Economic and Financial Crimes Commission, the Independent Corrupt Practices Commission, and the Code of Conduct Bureau) upon obtaining a court order. The agency requesting this information must show reasonable cause why the tax particulars of an individual should be disclosed. The tax authorities and the individual should have the opportunity to contest this request. Additionally, there should be steep penalties for tax officials responsible for unauthorized disclosures of an individual’s tax information.

(4) Improve Value Added Tax (VAT) Compliance

VAT is tax on the supply of goods and services. Every business is expected to register as a VAT agent of the government. Businesses charge VAT on the supply of goods and services and remit the money to the Federal Inland Revenue Service (FIRS). The government should make investments in technology to simplify VAT registration and remittance for businesses.

Additionally, there should be an increased focus on all e-commerce platforms operating within Nigeria to ensure VAT is being charged and remitted on goods and services sold in Nigeria. Continuous training of tax officials would be necessary to keep up with the growing number of technological start-ups in Nigeria.

In relation to the supply of goods from non-resident companies, VAT collection at the ports should take care of compliance. On the otherhand, resident taxpayers should deduct and remit VAT from payments made to foreign suppliers of services and intangibles consumed (used) in Nigeria. This aligns with OECD’s destination principle which provides that the taxing authorities of the jurisdiction of consumption should collect VAT on services and intangibles. This principle was applied by the Tax Appeal Tribunal, Lagos Division, in the recent case of Vodacom Business Service v. Federal Inland Revenue Service (FIRS). This principle is a whole lot easier to enforce in B2B (business-to-business) cases as consumers of goods can easily be located. B2C (business-to-customer) cases pose a different set of challenges e.g. a Nigerian resident buys a song from iTunes. In this case, only iTunes (which has the capacity to know that a VATable transaction has occurred in Nigeria) can ensure VAT compliance. The OECD recommends that jurisdictions should develop a simplified electronic VAT compliance system to encourage foreign suppliers to register and remit VAT originating from B2C sales in their jurisdictions. The VAT Act should be amended to accommodate (and modify where necessary) the OECD guidelines.

Finally, the VAT rate should be increased from 5% (one of the lowest in the world) to at least 10%.

(5) Re-evaluate all tax incentives

It is necessary to periodically review all tax incentives offered under various Nigerian laws to ascertain the actual cost of these incentives in relation to the economic benefits derived from them. Additionally, the government should regulate the issuance of tax incentives to avoid abuse. The abuse of the Pioneer Status regime is a good example of the negative impact of inconsistent policies regulating tax incentives.

(6) Make tax registration and payment as easy as ABC

Tax registration and payment should be simple to make compliance more attractive. To achieve this, there should be online registration of taxpayers and electronic means of payment. . The time span for obtaining a Tax Clearance Certificate should also be reduced.

(7) Training of Tax Officials

Tax planning by multinationals has become more sophisticated. Therefore, tax officials of developing countries need to be better informed about the resources and the techniques required for combating aggressive tax planning. They should undergo periodic training to equip them with the necessary skills to deal with aggressive tax planning.

Tax officials must also have the capacity to detect and punish tax evaders. This will encourage compliant taxpayers who could be discouraged from complying when no consequences apply for evading tax.

Commissioners of the various Tax Appeal Tribunals, Judges of the Federal High Courts, Justices of the Court of Appeal and Justices of the Supreme Court will also benefit from regular tax seminars to keep them abreast of the latest developments in the tax world.

Remuneration should be given due consideration to motivate officials, attract brilliant minds and help discourage corruption. Officials caught in shady practices should be prosecuted. Additionally, the public should be given the opportunity to regularly rate tax units on their response time. Perhaps bonuses and promotions could be tied to these public ratings to encourage tax officials to be diligent.

(8) Put a searchlight on the Entertainment Industry

There should be an increased focus on the entertainment industry which has become a multi-billion naira industry. Mechanisms should be put in place for tracing payments to artists, and valuating receipts on a movie production. There should also be a focus on artisans like make-up artists, fashion designers, and caterers.

(9) Tackle waste and corruption on all levels

Unnecessary government purchases, large entourages, state sponsored medical trips at foreign hospitals and state sponsored foreign vacations discourage taxpayers from complying. This is because they could view their payments as a mechanism to fund the ostentatious lifestyles of government officials.

(10) Invest in Education and Infrastructure

Where the number of unemployed youths and failed businesses increases, (due to lack of power and raw materials and harsh economic policies) there would be reduced taxable income and thus less revenue to the government. Thus, there is need for the government to invest in public infrastructure and implement sound economic policies that encourage entrepreneurship and aid growth of businesses.


Tax is a contract between the government and its people. This contract propels the people to demand better governance from their leaders and places a burden on the leaders to provide purposeful leadership. The Nigerian people more than ever, need a binding contract between them and their leaders. Let tax be that contract.

*This article was first published on Thisday Lawyer on June 21, 2016 as 'Ten Steps Nigeria Should Take to Increase its Tax Revenue'.


Chukwuebuka Uyanwa specializes in the taxation of cross border mergers and acquisitions. He is a law graduate from the University of Nigeria and holds an LL.M in International Taxation from New York University. He is a member of the International Fiscal Association.

Chukwuebuka is currently a Tax Planning and Research Associate in the New York Offices of Interpublic Group.

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