Tax reform is the process of changing the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. This includes reducing the level of taxation of all people by the government, making the tax system more progressive or less progressive, or simplifying the tax system and making the system more understandable or more accountable.
The impact of the coronavirus pandemic on African countries public finances, it is hardly surprising that cash-strapped governments across Africa like Nigeria, Ghana, Cameroon, Kenya, Uganda and Zimbabwe looking at different tax reforms to broaden state revenues. That, in turn, has put the spotlight on tax collection across Africa more broadly.
For the purpose of this Newsletter, we would focus on Nigeria. We would be looking at National Tax Policy(NTP) which seeks to provide a set of guidelines, rules, and modus operandi that would regulate Nigeria’s tax system and provide a basis for tax legislation and tax administration in Nigeria. The National Tax Policy is a document, which is essentially about taxation and other ancillary matters connected with taxation.
Tax Reform and Economic Growth: A Nigerian Perspective
In January 2004, a private sector-driven working group was constituted to review the recommendations of the study group.Both working and study groups addressed macro and micro issues in tax policy and administration.
The decision to reform the tax system and develop a National Tax Policy that would serve as a guide to tax administration in Nigeria was necessitated by Federal Government desire to address structural, institutional and other inherent problems in the existing tax system, in order to enhance effectiveness, efficiency and transparency. In putting together a National Tax Policy, it is important to uphold the concept of federalism, as practiced under the Nigerian constitution.
The 1999 Constitution of Nigeria places the responsibility for legislating on taxation of income,capital gains tax and stamp duty on Federal Government.The same Constitution also place responsibility for legislating on the collection of taxes,fees and charges that can be collected by local government on the state governments.
The National Tax Policy recognises that the Federal Government through the National Assembly is empowered exclusively to impose taxes on incomes,profits,and capital gains and stamp duties on corporate organisations documents,while State Governments are empowered to collect taxes from individuals resident in their respective states as determined by the National Assembly.
Taxes imposed by the Federal Government are Companies Income Tax,Personal Income Tax, Education Tax,Petroleum Profits Tax,Capital Gains Tax,Value Added Tax and Stamp Duties. Aside from Income taxes,State Governments,through their Houses of Assembly are also empowered to impose,fees,levies and rates collectible by them and Local Government Authorities in their respective states.
There have been major changes in tax systems of different countries with a wide variety of economic systems and levels of development in the last few years. The purpose of these reforms varied from one country to another and the thrust of reforms has differed from time to time depending on the development strategy and philosophy of the times. In many developing countries, the immediate reason for tax reforms, has been the need to enhance revenues to meet impending fiscal crises.
In conclusion, Nigeria had several reforms in the past, these reforms were not pursued under any policy direction and, in some cases, were carried out in an uncoordinated manner. This informed the decision of the government to pursue a comprehensive reform of the tax system under the umbrella of National Tax Policy that would provide a direction for Nigeria’s tax system and establish a framework that all stakeholders would subscribe to and to which they would be held accountable.
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Olatunji is the founder Taxmobile.Online and Managing Partner/CEO of AOA Professional Services. Prior to this, Olatunji worked as Director, Tax & Regulatory Services at Nolands Nigeria Professional Services, Senior Manager -Tax, Regulatory & Advisory Services at Saffron Professional Services.
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