- November 19, 2021
- Posted by: Manuels Effe
- Categories: Economics, Finance & accounting, Insight
From the time, individuals and organizations are known to cheat the tax system but how far they are able to go about it is usually dependent on culture, legal system, and laxity, or even the enforcement mechanism. Tax evasion could as well be connected with the cost of living and business transactions, denoting that businesses and individuals may be less willing to keep to their tax obligations at hard times.
Nothing may have been responsible for the reported loss of about $427 billion yearly to tax avoidance and evasion around the world other than these as companies and wealthy individuals were found to have pushed their assets to tax havens. Tax havens’ are obviously now uncomfortable phrases as the global community grapples with the challenge of fixing a broken system that gives wealthy individuals and companies the leeway to cheat and get away with it. Part of efforts to address the loophole is a global reform that will set a minimum corporate tax at 15 percent. This will hopefully reverse the decades-long race to the bottom of corporate tax rates, which have encouraged companies to shift profits to low-tax jurisdictions, thus depriving countries of the resources needed to tackle rising social challenges.
While the global community is long-established to need a more efficient tax practice, Nigeria had always sat at the bottom of efficiency constraints, putting the country’s tax revenue to gross domestic product (GDP) among the poorest globally, being about six percent as against 16 percent regional average.
Tax revenues to GDP ratios in many oil-producing countries like Nigeria are historically low, taking the United Arab Emirates for instance, where it’s about one percent, and Kuwait, estimated at 1.5 percent. But with the future of the petrodollar now increasingly becoming uncertain, the importance of taxation is becoming more appreciated to all countries not as an alternative but as a primary source of public financing.
Regrettably, however, in the face of an urgent global need to develop a tax culture that works, Nigeria’s tax laws remain largely obsolete and lethargic and have made room for circumvention. The Chartered Institute of Taxation of Nigeria (CITN) and other stakeholders had, at different fora, blamed the poor performance of the system on obsolete legislations and slow response to changes.
The need to create an efficient tax administration system that aligns with the prevailing social needs has made new Tax Appeal Tribunal (TAT) rules approved by the Minister of Finance, Budget and National Planning, Zainab Ahmed, an interesting matter. The tax appeal panel has long emerged as a cost-effective option for resolving assessment disputes in the United States, the United Kingdom, and many other countries.
A readily available justification for a functional tax appeal panel is the fact that the traditional justice system is bogged down with low capacity among others. In the now-rested Ease of Doing Business Ranking, time, cost, and quality of judicial process were the three variables that the World Bank took into account in assessing countries on the enforcing contracts parameter.
A professor of economics, Ken Ife, argues that the new development in Nigeria aligns with the global trend, stating that tribunals are faster in dispensing justice and resolving conflicts relating to tax matters.
“In the UK, the tax tribunal has become an established mechanism for settling tax disputes. The commissioners are independent and discharge their responsibilities with speed. Tax administration is a big issue. There are cases where government agencies deduct taxes but do not remit to the Federal Inland Revenue Service (FIRS). Meanwhile, the taxpayers are required to start chasing the agencies involved to remit to the appropriate bodies. TAT is in a better position to address disputes such as these,” Ife states, describing the roles of the tax commissioners as different from those of judges in a strict judicial sense. Rather than becoming a part of the judiciary, the tax appeal panel, he said, serves a preparatory role or acts supplementary to the conventional judicial system. He identifies TAT as a product of the failure of the regular court tasks with the responsibility of resolving tax disputes speedily.
From the foregoing, its objectives include helping to reduce the incidence of tax evasion, ensuring fairness and transparency of the tax system, minimizing the delays and bottlenecks in the adjudication of tax matters, and improving the taxpayers’ confidence in our tax system.
Others are providing an opportunity for expertise in tax dispute resolution, providing an avenue for effective involvement of parties, focusing on facts rather than legal technicalities, and promoting early and speedy determination of matters without compromising the principle of fairness and equity.
Changes introduced by TAT 2021 rules, which took effect in June, have received commendations. The changes, among others, include admittance of service of documents or processes carried out by email or such other electronic means and the recognition of virtual/remote hearing of applications as well as delivery of rulings by the tribunal. The changes have the potential of reducing the cost of dispute resolution and aligning with the trends.
Also, the rules impose a tough but necessary timeframe during which cases must be resolved, giving the panel a six-month time frame from the date of commencement of trial to conclude and provide a decision. Thus, the tribunal cannot sit on a matter indefinitely. It also implies that a petitioner knows how the timeframe within which he would get justice before he files a complaint. The new rules will, certainly, not resolve the anomalies in the tax administration but they are a starting point in building the confidence required to make the tax system deliver on its mandate.
Nigeria generally needs an efficient tax system to shore up its pantry revenues and achieve fiscal stability. The fact remains today that the country’s earnings are a far cry from the national social-economic needs and incomparable with other countries in the same stage of development.
For instance, the proposed N16.4 trillion ($40 billion) total spending in the 2022 appropriation is about a quarter of $147 billion South Africa plans to spend in the same year. Egypt, another country competing with Nigeria for regional economic power, would as well spend $158 billion.
Both South Africa and Egypt are ahead of Nigeria in terms of physical infrastructure, meaning that Nigeria needs to spend much more than they are doing to bridge the gap. But has lagged in terms of infrastructural funding in recent years with debt the level continuously increasing and capital spending on a reducing balance.
There is always a trade-off between tax and debt financing when economies face the sort of challenges Nigeria is currently grappling with. Switching to tax would require that the country retools the rules, making the tribunal approach to dispute resolution a necessity for sustainable income.