Globally, Nigeria ranks 182 out of 189 countries on the ease of paying taxes index. Between 2010 and 2016, Nigeria dropped in ranking from 119 to 182. This largely explains the low tax to GDP ratio currently standing at 2.8%. Amidst this poor ranking, drop in oil prices, and slow growth recorded in 2016, the Nigerian government is determined to make Nigeria one of the top 50 countries in the ease of paying taxes index. This has recently been demonstrated in the Revised National Tax Policy (‘RNTP’) approved by the Nigerian government in February 2017 which sets a target date of 2020 for a top 50 ranking. I would be using the 2017 PwC and World Bank Paying Taxes Report (‘Report’) as a benchmark to show Nigeria’s position vis a vis other African countries, and action points the Nigerian government should consider.
The Report uses four major criteria to score countries – total tax rate, number of payments, number of hours to comply, and post filing index.
Number of hours to comply
From the Report, it takes an astonishing 906 hours to comply with tax obligations in Nigeria (an average of figures generated from Lagos and Kano).
I will however focus on one aspect of this figure - Companies Income Tax (CIT) obligations. In Lagos, it takes companies 398 hours to comply with their CIT obligations (another 396 hours for social security contributions, and 162 hours for VAT obligations). Kano has slightly reduced figures (310 hours for CIT, 320 hours for social security contributions, and 117 hours for VAT). The figure becomes more embarrassing when compared with countries like Ghana, Egypt and Kenya.
In Ghana, it takes just 40 hours to comply with CIT obligations, 52 hours in Kenya, 69 in Egypt, and 96 in South Africa . Thus, the pertinent question the tax authorities should be asking is – why does it take so many hours to comply with tax obligations in Nigeria? Countries that have made improvements under this heading have always done so through the use of technology. In 2013, Nigeria introduced the Integrated Tax Administration System (ITAS) with the aim of simplifying the tax compliance process. However, from the consistent drop in Nigeria’s ranking between 2013 and 2016, it seems the ITAS has not achieved its objectives. The tax authorities are not relenting however. Electronic-tax payment platforms (ePPs) were launched in June 2016 to enable taxpayers remit their taxes online through online payment portals.
While the gains from a change from manual to an electronic system may take some time to materialize, the tax authorities must vigorously monitor the transition to ensure that taxpayers are aware of these resources (and actually use them). In addition, these resources should actually reduce the compliance burden of taxpayers. There is no point having electronic systems that are time consuming because they are difficult to navigate, or that are difficult to access because of poor technical infrastructure. There should also be a team dedicated to getting feedback from taxpayers and resolving issues encountered by them while using these resources.
Number of tax payments
Another disturbing aspect of the Report is the number of tax payments in Nigeria.
Here, the key factor is not the number of taxes but the number of times you are required to make payments. Ghana and Kenya have about six payments for CIT obligations compared to Nigeria’s one. Yet, they still fare better in the overall number of payments ranking. Two possible culprits in Nigeria’s case are - Employee Compensation Contribution and National Housing Fund. The laws establishing these payments – Employee Compensation Act and National Housing Fund Act provide for monthly payments leading to a total of twenty four (24) payments. In addition, I could not find their equivalent in most of the other countries featured in the table. Even when they do appear, only one (1) payment is required. To improve our standing in this category, the Nigerian legislature will have to amend these laws to require an annual payment instead of monthly payments.
VAT which is also remitted monthly could be reduced to quarterly payments to help reduce the overall number of tax payments in Nigeria.
Tax professionals have always decried the cumbersome nature of the tax audit process in Nigeria. It is therefore not surprising that Nigeria scored a poor 17.19% in the post filing index. This score is arrived at by looking at the time it takes to comply with VAT refund, to obtain a VAT refund, to comply with a corporate income tax audit, and to complete a corporate income tax audit. Egypt scored 29.05%, Ghana 37.92%, Kenya 32.12%, and South Africa 58.61%. It clearly shows that Nigeria is far behind.
A starting point may be to set clear timelines for the tax authorities on the maximum amount of time it should take to obtain a VAT refund/complete an audit. An authorization should be required to extend the process (after providing cogent reasons) if the timeline cannot be met.
Nigeria’s total tax rate is not horrible at 34.3%. Countries like Norway, Spain, Netherlands and the United States – which are in the top 50, have higher total tax rates. Although Nigeria can improve on this criterion, for the purpose of reaching the top 50, it is not as pressing as the other criteria.
The RNTP and the way forward
The RNTP has about twenty (20) implementation strategies but one strategy which is relevant to this discussion is the following - Ministry of Finance shall establish an Office of Tax Simplification which shall be responsible for ensuring continuous improvement to tax legislation and administration.
I believe this might be the right Office to come up with practical measures to help rectify all the causes of Nigeria’s poor ranking in the Report. I recommend a study of countries like Ghana, Kenya, and other countries that have made remarkable improvements in tax administration to see what Nigeria can do differently. I also propose that the Office of Tax Simplification be established forthwith and mandated to provide specific guidelines to help –
- reduce the number of overall tax compliance time by a minimum of 150 hours every year for the next five years (this is not far-fetched - Senegal was able to reduce its compliance time by 179 hours in 2015);
- reduce the number of overall tax payments to 20 by 2020;
- make the audit and refund processes more efficient with an aim for a 50% score in the post filing index by 2020.
These action points are clear and measurable. Let us check back in two years to see if we have made any progress.
 PwC and World Bank Report
 Heritage.org, 2017 Index of Economic Freedom
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 LLM 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 the Interpublic Group of Companies, Inc.