A wave of tax changes involving the Value Added Tax (VAT), Companies Income Tax (CIT) and Personal Income Tax (PIT), are due for implementation next January, going by a report released yesterday by the government committee on the draft National Tax Policy (NTP).
According to the report, VAT would be adjusted to 15 per cent from five per cent. CIT is to assume a new lower level of 20 per cent from its present high of 30 per cent. PIT is to be pegged at 17.5 per cent, as against its present between 30-40 per cent.

To actualise the new tax regime, the government plans to subject the recommendations and other proposals to seven workshops to be held in the six geo-political zones and the Federal Capital Territory (FCT) – for additional inputs by other stakeholders.

According to the NTP committee’s report, the proposed increase in VAT is aimed at harmonising Nigeria’s VAT regime with what obtains in the Economic Community of West African States (ECOWAS) sub-region.

It said at 5 per cent, Nigeria had the lowest VAT in West Africa as against the 18 per cent for Benin, Cote d’Ivoire, Mali, Senegal and Togo. Ghana and Niger have 15 per cent and 19 per cent VAT.

The NTP committee said the proposed tax policy, was intended to facilitate the economic growth and development in the country, by shifting away from the current direct tax regime to an indirect tax regime anchored on consumption, in accordance with best global practices.

"The tax strategy for Nigeria "is a document mapping out the way the Federal Government intends to achieve a tax system that will significantly encourage investment, leading to more jobs and higher economic growth.

"This will be achieved through the following measures: shifting towards greater reliance on indirect taxation through gradually increasing VAT to 15 per cent by 2009, in line with achieving stable non-oil revenue flows and to achieve high compliance in the tax system as well as fulfilling commitments to ECOWAS.
"Nigeria should seek to have low rates of Companies Income Tax and Personal Income Tax by international comparison. This would then be accompanied by an increase in the rate of VAT. An increase in the emphasis on VAT and Customs duties should have an upward effect on the country’s stable revenue base, at least from the perspective of the ease of collection and yield."

The report recommends that only career tax administrators, who must be public servants, shall collect tax and not consultants or agents in ad-hoc capacity.

Other major highlights of the draft policy are the recommendations that the National Assembly should determine the types and amount of tax payable by Nigerians and that the nation’s tax system should be reviewed every three years.

The draft policy is the outcome of a two-year review of Nigeria’s tax system, which the Federal Government commissioned a study group to review in 2002.

Based on the findings and recommendations of the group, the government in 2005 inaugurated a Presidential Committee on National Tax Policy.

Although the panel came up with the draft National Tax Policy, the document will soon be tabled before stakeholders for consideration. A source said nationwide sensitisation workshops might begin as from the end of this month.

But one of the highlights of the draft policy is the vesting of power in the National Assembly to impose, increase, reduce, vary or cancel any rate of tax.

Extracts from the draft policy reads: "The Presidency or Finance Ministry may propose tax rate variation, but this will not become law until such proposal is supported and approved by the National Assembly. This is important and aims at checking any possible arbitrariness on the part of the Executive in matters of tax rates variation.

"It is therefore recommended that the power to vary tax rates should be vested only on the National Assembly with respect to all taxes.

"Before any significant alteration is made to the Tax System, there shall be broad and detailed consideration on the potential economic impact of the proposed alteration(s).

"As part of this, the Ministry of Finance shall commission a study on the potential economic impact of any proposed alteration to the existing tax laws seeking recommendations from the relevant revenue authorities and stakeholders with the ultimate aim of assessing the extent to which the tax meets the criteria of the National Tax Policy.

"Tax rates must be responsive to fiscal developments within the economy, and it is the executive arm of government that is charged with the responsibility for managing the fiscal affairs of the nation.

On tax treaty, the policy has directed all government agencies to pay serious attention to any obligation being entered into.

It adds: "In order to improve the image or the economic interests of Nigeria, tax treaty matters must be taken more seriously by all Government Agencies having responsibilities for the function. The Foreign Affairs must facilitate the process of negotiation through official channels; ratification process is normally handled by FMF (Federal Ministry of Finance) to the Council Secretariat for FEC approval before the submission to National Assembly for domestication.

Other proposals in the policy are as follows: "Reduction in multiple taxation, by making taxes in the Nigerian tax system few in number, broad-based and high revenue-yielding, fair. "Nigeria should seek to have low rates of Companies Income Tax and Personal Income Tax by international comparison.

"This would then be accompanied by an increase in the rate of Value Added Tax (VAT). An increase in the emphasis on VAT and Customs duties should have an upward effect on the country’s stable revenue base, at least from the perspective of the ease of collection and yield".

"The Nigerian tax system should minimise and streamline the number of tax incentives and restrict their use to instances where they can help to achieve the national objective of building an efficient tax system that encourages voluntary compliance that cannot be achieved more efficiently in any other way.

"The Ministry of Finance should be the body charged with providing oversight function for Tax/Revenue Authorities in Nigeria. It will also coordinate input into the national tax policy, draft amendments to laws or legislations on taxation and revenues. "The Joint Tax Board (JTB) should be strengthened as an institution for the coordination of Personal Income Tax administration by giving it legal powers to function as a policy making body for those taxes for which the administration is split across states, rather than merely an advisory body. This will ensure an increase in collection efficiency.

"The Nigerian Tax System shall be subject to comprehensive review every three (3) years. This review should not only be restricted to the existing tax legislations i.e. CITA, PPTA, PITA, VATA, CGT etc; but cover all aspects in relation to tax policy, administration and laws.

"Nigeria shall ensure that all the international tax obligations contracted by it are respected. Nigeria shall also continue to pursue and expand its frontiers on international tax treaties.

"Tax shall be collected only by career tax administrators, who are public servants, and not by consultants or agents in ad-hoc capacity."

Government, according to the policy document, will strengthen the Oil and Gas Sector, by encouraging Production Sharing contracts in the Oil and Gas Sector in order to reduce the demand for cash calls.

Source: The Nation