Government's Plan to Accelerate Non-oil Revenue Generation: Implications for Nigerian Taxpayers

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Oluwatomisin Adebayo-Begun

Oluwatomisin Adebayo-Begun PwC, Nigeria

Oluwatomisin Adebayo-Begun is a Senior Associate with PwC Nigeria

The Nigerian Government recently released a plan to steer the economy out of recession and promote economic recovery. It outlines a number of tax measures intended to accelerate non-oil revenue generation.

Nigeria's Ministry of Budget and National Planning recently released a medium-term plan with the theme “Economic Recovery and Growth Plan” (“ERGP”). The ERGP is expected to steer Nigeria's economy out of its current recession. It outlines economic policies that will guide the government from 2017 through 2020. The fiscal policy strategies in the ERGP aim to increase oil production to 2.5mbpd, accelerate non-oil revenue generation, cut costs through operating and capital expenditure optimization initiatives, optimize the debt strategy and privatize selected public enterprises or assets.

Plan to Accelerate Non-oil Revenue Generation
Key Measures

To accelerate non-oil revenue generation, the key activities include:

  •  improvement of tax compliance and revenue collection through broad audit campaigns;
  •  increase in the VAT rate on luxury items from 5 percent to 15 percent; and
  •  review of waivers, reliefs and incentives granted to taxpayers.

Other activities include deployment of technology to enhance both tax and custom duties collection as well as improve efficiency and block leakages in customs administration.

Audit Campaign

The Federal Inland Revenue Service (“FIRS”) recently started the broad audit campaign on companies. However, they have been using private consultants to carry out the audits which raises some issues around legality and confidentiality of information.

If the audit campaign is implemented in line with the ERGP, it may mean that the FIRS would have to discard its previous approach of targeting mostly large taxpayers and multinationals for tax audits and also conduct rigorous audits on medium and small taxpayers. It also implies that taxpayers should expect imposition of stiffer penalties and interest as a result of these audits because the private consultants assisting the FIRS would be compensated based on the amount of revenue assessed and collected from the audits.

VAT Increase on Luxury Items

The attempt to tax luxury items separately is not a new initiative as the Federal Government initially announced plans to introduce luxury taxes in the last quarter of 2014. Items such as private jets, luxury yachts, luxury cars, business and first class plane tickets, champagnes, wines and spirits were listed with varying applicable rates. However, this was never implemented because it lacked the necessary legal backing.

The ERGP clearly outlines how the government will impose the luxury tax charge through a proposed increase in the VAT rate from 5 percent to 15 percent on yet to be defined luxury items. This would require amendments to the rate specified in the VAT Act through a Regulation. A specific list of the luxury items would also need to be included through a Regulation before the full effects of the policy on taxpayers can be determined, since this was not provided in the ERGP. Taxpayers however could expect the list to be similar to the previous list even though that list was defined under the former president.

Review of Waivers, Reliefs and Incentives

The review of waivers, reliefs and incentives granted to taxpayers would require some legislative amendments and the details of these amendments to assess their impact on taxpayers. For instance, the ERGP specifically mentioned the review of the Export Expansion Grant (“EEG”) (this is an incentive scheme operated by the Nigerian Export Promotion Council and is granted to non-oil exporters who repatriate in full the proceeds of their export transactions, as confirmed by the Central Bank of Nigeria) and the mining incentives which cannot be implemented until the Export (Incentives and Miscellaneous Provisions) Act and Nigerian Minerals and Mining Act are amended, respectively.

In addition, there is an estimated 300 billion Nigerian naira of historic outstanding claims of EEG yet to be paid to exporters. The bulk of this may remain unpaid for the meantime because the government only set aside 20 billion Nigerian naira in the 2017 budget to settle part of the total outstanding claims. This implies that the effect of any review of the EEG on taxpayers may be marginal. On pioneer status, the Nigeria Investment Promotion Commission is already reviewing the incentive to streamline the basis of qualifying for the scheme and to reduce the opportunity of exercising discretion.

Other policies such as implementing an anti-smuggling strategy, reducing leaks at the customs, modernization of custom processes and deployment of technological tools for tax collection require changes to the administrative processes of both the Nigerian Ports Authority and the Nigerian Customs Service. Where the government follows through on these activities, taxpayers should expect a significant reduction in the average time to comply on taxes and the time required to clear goods at the Nigerian port.

The tax policies delineated to accelerate non-oil revenue generation are simple and concise on paper. If properly implemented with the right political will, the policies should lead to a significant improvement in the Nigerian custom and tax administration and by extension the ease of doing business in Nigeria.

Oluwatomisin Adebayo-Begun is a Senior Associate with PwC Nigeria.He may be contacted at: Oluwatomisin.Adebayo-Begun@ng.pwc.com

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