The Presidential Committee on Fiscal Policy and Tax Reforms, chaired by Mr Taiwo Oyedele, has asked states to furnish the committee with their data for tax simulation.
The committee’s decision was on the discovery that most states leave high-net-worth income earners who should pay taxes and concentrate on low-income earners who constitute a larger percentage.
According to Oyedele, the irony of the structural imbalance was that the high-net-worth income earners, though smaller in percentage, hold the tax ace.
He added that the tax bill awaiting National Assembly endorsement is designed, to address inequality in tax payment in which 90 per cent of low-income earners pay tax bulk( Personal income tax) leaving the 10 per cent to have a feel day.
Taiwo spoke in Abuja over the weekend as a guest speaker at the Finance Correspondents Association of Nigeria (FICAN, Abuja chapter) annual conference. His lecture was themed: “Tax Reforms as Pillars for Nigeria’s Economic Prosperity.”
Oyedele said the states inadvertently and unconsciously leave out sources where the bulk of their taxes were supposed to come from and pay attention to low-income earners.
He cited South Africa as an example of a country whose bulk of tax comes from the taxes paid by one per cent of top-income earners.
“How it works all over the world is that your top 5% pay you more than 90% of your personal income tax.
“In fact, in South Africa, the top 1% pay more than the bottom 99%. So you want the inequality in the country; you want the 1% to pay more than the other combined, he noted.
In the tax reform proposal, he said his committee was conscious of the tax burden that previous tax laws imposed on low-income earners.
“The ones we are exempting in the minimum wage are a little bit above N300,000, and there are N200,000. Of course that doesn’t mean a lot to the people, but it means a lot to the low-income earners.
“So our target for that was low-income earners. Take that together; it’s N1 million a year on which you have to pay tax.
“In our meeting with the states, they said the reform targets 60-70% of people paying taxes in their states, and that’s correct. The fact is, it’s up to 90%. But they’re getting it wrong.
“They’re getting two things wrong. The first thing they’re getting wrong is the fact that I exempt 80% of your taxpayer; it does not mean I’m taking away 80% of your IGR. That’s not how it works.
“How it works all over the world is that your top 5% pay you more than 90% of your personal income tax. In fact, in South Africa, the top 1% pay more than the bottom 99%.
“So you want the inequality in the country, you want the 1% to pay more than the other combined.
“In South Africa today, if you earn N600,000 a month, you will earn it tax-free. In fact, even if you increase the exemption threshold for some people they call seniors (retirees), this still collected N50 trillion, and we collected N1.5 trillion.
“Every single state in Nigeria is chasing the bottom 90%. They are allowing the top 10% to have a field day. So the problem is not with our proposals. The problem is with them not collecting taxes from where the tax revenue will come from,” Taiwo said.
To remedy the situation and open the eyes of states to potential tax revenue they are losing by not taxing a few high-net-worth individuals, he said his committee was working with the states.
“I’ll give you more information because we’re working on it. We’ve asked states to give us all their data, and we’re doing a simulation for them.
“If everybody in Nigeria, who is working and collecting a monthly salary, is earning these amounts that they are complaining about, and you exempt all of them, do you know the POI in May, you let us know they’re paying on time, the whole country.
“If you are ready to collect tax, go to the top 10%; that’s where your tax is.”
He added that the increase in revenue enjoyed by the sub-national government recently wasn’t from the personal income tax but from the removal of the fuel subsidy and the floating of forex exchange.
“Do you know the entire personal income tax collected in 2003 was N1.5 trillion? Do you know that the incremental revenue to the government was from the subsidy removal of PMS and the subsidy removal of FX? If we declared a tax-free year for personal income tax in Nigeria, every state would see the better of us.
“Do you know why? That means we forego N1.5 trillion from personal income tax to the whole country, and we make N10 trillion into federal accounts. Why are they focusing on just one line of revenue? I don’t understand this,” he said.
He put the earnings from Value Added Tax last year at almost N7 trillion. The VAT revenue that we collect in Nigeria, 97% of it comes from the top 3% of taxpayers. So when you see MTN, when you see Access Bank, and when you see Transcorp Hotel, those are the people paying VAT”.
The small businesses, whether they be in Lagos, Kogi, or Zamfara, are not paying VAT. Even when they collect VAT, they don’t remit it. So what we are saying is that these top companies are paying VAT today.
They have the capacity to do what we are asking them to do.
