Multiple Taxes in Nigeria’s informal sector have made it to the news again as stakeholders in the advertising sector through a detailed communique from their National Advertising Conference.
The stakeholders stated in strong terms that one of the advantages of eradicating this menace of multiple taxation in a sector that controls a significant portion of the economy will be the attainment of an annual national goal of $2 trillion by 2030.
In line with the call from these stakeholders, Taxmobile.Online also highlights below, the consequences of multiple taxation in this integral sector.
Nigeria: See Key Consequences as Advertisers Worries Over Multiple Taxes in the Informal Sector
Multiple taxation increases the cost of doing business for informal sector enterprises. With each layer of taxation, businesses have to allocate a larger portion of their revenue to taxes, leaving less for investment, expansion, or even basic operations.
This reduces their competitiveness compared to larger, formal businesses that may have more resources to handle tax burdens.
High taxation can push informal businesses further into the informal sector or underground economy. When taxes become overly burdensome, some businesses may choose to operate entirely outside the formal system to avoid taxation altogether.
This perpetuates informality, reducing the government’s ability to collect taxes and weakening regulatory oversight.
Multiple taxation can distort market dynamics by favoring larger, formal businesses over smaller informal ones. Informal businesses may struggle to compete with formal enterprises that have the resources to navigate complex tax structures or exploit loopholes. This can stifle entrepreneurship and innovation in the informal sector, leading to market inefficiencies.
Informal businesses often face challenges in accessing formal financial services like loans or credit lines. Multiple taxation exacerbates this issue by reducing the profitability and financial stability of informal enterprises, making them less attractive to lenders.
This limits their ability to invest in growth or weather financial shocks, perpetuating a cycle of poverty and limited economic mobility.
Excessive and arbitrary taxation in the informal sector can erode trust in government institutions. When businesses perceive taxation as unfair or unjustified, they may become less willing to comply with tax regulations or engage with government agencies. This can undermine efforts to formalize the economy and reduce tax evasion.
Multiple taxation can perpetuate economic informality by discouraging businesses from registering and formalizing their operations. Instead of incentivizing compliance and formalization, burdensome taxation reinforces the perception that operating informally is the easier and more cost-effective option.
Paradoxically, multiple taxation in the informal sector can lead to reduced government revenue over the long term. While the government may collect some revenue from informal businesses, excessive taxation drives many businesses underground or encourages them to operate entirely outside the formal economy, depriving the government of potential tax revenue.
High levels of multiple taxation can also increase opportunities for corruption as businesses seek to evade or reduce their tax burden through informal payments or bribes to tax officials. This perpetuates a cycle of corruption and undermines efforts to improve governance and transparency.
In conclusion, the consequences of multiple taxation in the informal sector of a country like Nigeria are multifaceted and can have long-lasting implications for economic development, market dynamics, government revenue, and trust in institutions.
Addressing these challenges requires a holistic approach that considers the unique dynamics of the informal economy and aims to promote formalization, fairness, and transparency in taxation policies and administration.