Tax appears to be the major talk in town as the next source of revenue for the government as well as a tool for the development of the Nigerian economy. A major that however also features in the discussions around tax is that of low tax compliance which prevents the country from reaping the benefits of having a considerably large taxable population.
For about five months now, I, alongside my study group, have been working on paper, carrying out extensive research on one of the latent catalysts of ensuring voluntary tax compliance in Nigeria; ‘Presumptive Taxation.’
I share the vision of having a country driven by a tax-oriented economy. Withb, however, with creepy snags like tax evasion still widespread, particularly within the informal sector, such vision may eventually refuse to hold water.
Far back as 2002, the government has identified a number of initiatives to promote tax compliance, one of which is Presumptive Taxation. It was subsequently incorporated into the 2012 National Tax Policy (NTP). This system however has however not been implemented but exists in the prints of the Personal Income Tax Act 2011 (Section 6(6)). Nonetheless, the current leadership of the Federal Inland Revenue Service (FIRS) as well as the Ministry of Finance has begun considerin its implementation.
According to the International Monetary Funsds (IMF), Presumptive tax is the use of indirect means to ascertain tax liability, which is different from the conventional rules based on the taxpayer’s accounts. That is, it is a conjecture of tax payable by those individuals or businesses who have incomplete or no records of their activities. In Nigeria, this tax system can be specifically targeted at players in the informal sector who may ordinarily omit to pay taxes and have inadequate books or records.
Presumptive Tax regime is no doubt gaining popularity, especially in developing nations like India, Singapore and even Lesotho.
In our paper, we have considered the following recommendations in executing a presumptive tax regime in the country:
– The regime may operate a flat rate ranging between 4 percent and 7 percent.
– There should be an annual threshold at which an individual or a business is expected to begin to have books, relieving them of being subject to the presumptive tax regime, thus encouraging them to enter the self-assessment base. We’ve proposed that a relatively low amount within the range of 2 million naira to 3 million naira be set.
– The use of Tax Identification Numbers (TINs) by banks in the opening of accounts for businesses in conjunction with presumptive taxation would help find the average profit for businesses and checkmate the uncertainty of profit caused by inflation.
– There’s the need to strengthen our tax database, especially in the informal sector.
– Presumptive Tax on personal income tax may be collected by the State Boards of Internal Revenue (SBIRs) and each state may include a framework for the collection of presumptive tax in its guidelines for the administration of Personal Income Tax.
– The imposition of penal sanctions, by way of legislations, for individuals whose income is above the proposed threshold and do not possess records of their income that are required under the self-assessment regime.
– And a whole lot more.
Our complete article will be published soon and we hope that some of the suggestions therein will be put to use.
Special thanks goes to Mr Taiwo Oyedele, Mr Yomi Olugbenro, Mr Oluseun Akinrinoye and Mr Adebayo Kehinde for your contributions and copious materials during the course of the research.
Tayo Fabusiwa is a Student of Law, a Legal Writer, as well as an Illustrious Researcher.