Tax multiplicity as investment albatross

Minister of Finance,    Muda Yusuf, LCCI DG

Adeosun

Tax multiplicity as investment albatross

The continued rise in the multiplicity of taxes in the domestic economy has become a major bane to going concerns. In this write-up Friday Ekeoba posit that the race to shore-up Internal Generated Revenue (IGR) by various tiers of government may be the albatross for investment growth in the country.

The need to rejuvenate every stratum of the domestic economy for investment purposes has in the recent times necessitated the three tiers of governance in the country to embark on aggressive generation of revenue to meeting its desired objectives.

The quest to provide the infrastructure that will attract or serve as incentive for investors had grossly resulted in various projects construction which tentative cost is presently running into several billions of naira.

To ensure that the infrastructures are delivered as at when due, the Federal Government and State Government have engage in borrowings through the issuance of bond while some Local Government Council have embarked on taking credit facilities from financial institutions.

To repay the borrowed funds, the tiers of government has since engage in aggressive generation of internal revenues, which has led to multiplicity of taxes even as multinationals, local companies and small business owners have cried out over the tax weight on their investment drive in the economy.

Of course, the nation’s risk appetite seemed to have worn the toga of ascendancy, as currently, the total debt stock recorded about 2.7 per cent increase to N10.43 trillion ($66.99 billion), against N10.16 trillion ($65.25 billion) at the end of the first quarter ended March 31, 2014, judging from the current report of the Debt Management Office (DMO).

The increment was the result of continued debt deals by the Federal Government internally and externally. Specifically, the domestic debt figure, which has assumed a new figure of N7.42 trillion at the end of June, against N7.18 trillion at the end of first quarter 2014- 3.3 per cent increase.

The external debt record changed too, as the government brokered further deals to the tune of about $200 million, totalling $9.38 billion at the end of June, against $9.17 billion as at March 31, 2014. Fortunately, the states were able to maintain status quo within the quarter, settling still for N1.6 trillion ($9.96 billion) at the end of June, as in March.

Worry by manufacturers

The proliferation of tax payment to Manufacturers are still a source of concern even as they said it has led to the high cost of doing business in the country and could discourage investors if not urgently addressed.

Apart from dissuading investors, manufacturers are saying the burden of multiple taxes is too overwhelming on their businesses.

Manufacturers Association of Nigeria (MAN) branch in Cross River and Akwa Ibom States recently lamented the multiple and indiscriminate taxation imposed on them by government agencies, calling on government to harmonize all taxes and levies to address the situation.

In a communiqué issued at the end of its recent 10th Annual General Meeting (AGM) in Calabar, the association said the incidence of multiple taxation had become a nightmare to manufacturers both in terms of cost of doing business and method of enforcing these ‘inappropriate taxes and levies.’

In the Communiqué the members also lamented that lack of adequate provision of basic infrastructure that support manufacturing such as power has had negative effect on industrial survival and productivity.

Members of the Cocoa Produce Merchants Association of Nigeria in Ondo State also raised an alarm over the effect of multiple taxes on their businesses.

The Chairman of the association, Abiodun Jacob, and the Secretary, Oyelere Adebayo, said the various taxes levied on members of the association has created a great burden for them and the general public.

The association had in a statement said Cocoa merchants in Ondo state are being levied heavily by the state government through its produce department, claiming that they pay nothing less than N500, 000 for the warehouse where they operate and at the same time made to pay another levy on same title in the name of another heading as business premises fees.

The association said the measures by the produce department would affect the poor farmers and the economy of the state drastically, appealing to the state government to quickly redress the issue.

Also, a group of traders in Awka, Anambra State, recently staged a rally in protest against ‘multiple taxation’ by the Anambra Government agencies.

The traders under the aegis of Zik Avenue Traders Association, carried placards with various inscriptions such as “Double taxation: we pay for business premises, for ASWAMA, for sign boards, for liquor and small scale businesses,” “If our customers cannot park we cannot sell,” and “Gov Obi, save Zik avenue traders.”

The Vice Chairman of the association, Ikechukwu Ndubusi, said what was being charged on their businesses was crippling, while lamenting that in spite of the taxation, there were no amenities provided by government in the market except the rehabilitation of the road that leads to the market.

“We are being charged exorbitantly, our customers cannot park because there are no parking lots provided. We used to pay N1, 000 annually for waste disposal but now, we are being made to pay over N8, 000.

“We have been meeting with the various agencies in charge but there has not been good response so far.

The President of the Hotel Owners Forum Association (HOFA), Onofiok Ekong, said multiple taxes on hotel proprietors by government agencies could cripple Nigeria’s hospitality industry.

He said multiple taxes could force hotel proprietors out of business in the country, if immediate solution was not provided.

“Hotel operators are faced with daunting challenges; apart from losing members of the association through closure and outright change of purpose.

“The lamentations of the existing ones over multiplicity of taxes can only be ignored to the detriment of the economy,” he said.

The taxes, according to the association president, include consumption tax, value added tax, company income tax, withholding tax, health certificate, and waste operation permit. Others are vehicle emission fee, contravention charges, business premises and administrative charges for environmental audit, which he said had contributed to the increased charges by hotel operators in the country and were affecting the growth of the industry.

President of the Chartered Institute of Taxation of Nigeria (CITN), Rasaq Adekunle, described these taxes as ‘extortions’, saying that it is most prevalent in the local government councils.

“We are not unaware that a situation exists where virtually all the local governments in the country are charging arbitrary taxes which are not in consonance with the law,” he said. But more worrisome is the manner of enforcement or collection of these multiple taxes, especially where business concerns are shut down without prior notice and rendered helpless over taxes that are not covered by the law.

According to the Managing Director of Saro Lifecare Limited, Mr. Oluwole Adeyegbe, multiple taxation undermines the quest for economic transformation. “The problem of multiple taxation has become so bad that it is actually pushing manufacturers to leave Nigeria and to relocate elsewhere,” Adeyegbe said, adding that: “This problem is pushing organizations to retrench staff because of the high cost of doing business, and I have to state that it is one factor that is discouraging inter-state commercial businesses.”

Vice Chairman of MAN in-charge of Imo and Abia states, Ndubueze Anyanwu, said the incidence of multiple taxation is reported to be on the increase from year to year. He said the exact number of taxes and levies collected from enterprises in Nigeria are not clearly defined as a result of the non-specificity of the number of taxes chargeable and the continuous introduction of new ones by the various tiers or government.”

He said currently, most businesses in Nigeria perceived the tax environment as unfriendly and a disincentive to businesses, since it increases the cost of doing business in Nigeria.

“In their quest to enforce tax compliance, revenue officials often employ unorthodox methods where they harass business concerns which most often disrupt industrial and economic activities. In some cases, company vehicles conveying products are impounded and are at times damaged in the process.

A lot of manufacturing and other businesses in Nigeria have shutdown production and in some cases have relocated their factories to places which are perceived to be more investment-friendly,” he added.

The Managing Director of International Packaging Industries of Nigeria Plc, Mrs. Essien-Akpan, said taxes should be based on statistical analysis and the financial records of the organization as at the time tax payment notification is brought.

She said the tax environment in Nigeria was a clear departure from what obtains in other parts of the globe. “I have no problem paying my tax, because I am a law abiding citizen. The problem I have with government is when they make the tax arbitrary,” she said, lamenting the proliferation of the tax collection process by the local, state and federal governments.

“At every level, taxes are paid on an incremental basis into the coffers of different government or agencies for the same purpose,” she noted, calling for a decentralization process of the tax collection system in order to determine which agency or particular tier of government collects specific rates and taxes. She also called for quality motivation in the areas of welfare and better remuneration to discourage workers from colluding with organizations for downward review of their respective taxes.

Alleged multiple taxation

The chairman of the Lagos Inland Revenue Service (LIRS), Tunde Fowler, said the problem of multiple taxes was not at the root of manufacturers’ plight.

According to him, “There is no double taxation or multiple taxes as people claim it to be. According to him, now, the Federal laws that govern tax administration in Nigeria has divided government and their taxing powers into three: federal, state and local governments. People who have laid claims to be victims of double taxation are not really saying it the way it is because when we investigated some of these claims in the past, we found out that what they call taxes are sometimes penalties, levies or user charges. And in some cases, they are charges that their own unions or associations charge them but not government.

“We also find out that there are some criminal elements, maybe not so much in Lagos anymore but in some other states, that will form themselves into revenue agencies and start collecting taxes from individuals and small businessmen,” Fowler said. According to him, individuals and organization had the right to fight back and to report such abuses to relevant government agencies for sanction.

Addressing the issue

According to communiqué issued by MAN, there was the need for state governments to fix federal roads in their states and ask for refunds in order to ease manufacturers’ difficulties in moving products to consumers.

They also stated that with Nigerians’ penchant for buying foreign made goods and low patronage of made in Nigeria goods, manufacturers in the country may not be able to expand to create jobs for the teeming jobless youths who have resorted to violent crimes, stressing the need for the Federal Government to set up monitoring mechanism to ensure that Ministries, Departments and Agencies (MDAs) patronize made in Nigeria goods.

The communiqué also called on the Central Bank of Nigeria to loosen its stringent monetary policies and allow manufacturers have access to finance at a single digit interest.

It said, “There should be a robust synergy of ideas between the government and the organized private sector hence the practice of public private sector partnership in policy formulation and implementation.

“There is also the need for caution in signing economic partnership agreement particularly agreements seeking total market access by the European Union. This is necessary in order not to collapse existing industries in Nigeria.”

Ekong said government needs to engage all stakeholders in a holistic discourse to enable it understand the magnitude and dimensions of the challenges facing the industry.

“This will help to bring out recommendations that will help Nigeria have a more investment-friendly tax regime,’’ he said, calling on the Federal Government to take all necessary steps to reverse the current trend. He said hoteliers pay a variety of taxes, which had made it so difficult for them to stay afloat.

Adeyegbe called on the Federal government to review the constitution of the country to spell out correctly the tax powers of each tiers of government as a way of reducing the burden of multiple taxes. In the interim, he wants all state governments to publish the list of approved or authorized taxes and local governments to educate the public and reduce the number of effective taxes.