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Leading tax expert and partner on taxation with PricewaterhouseCoopers (PwC), Mr Taiwo Oyedele has raised an issue of urgent national importance, saying “All things being equal, anywhere around the world, when you raise tax rate, compliance will go down because you give incentive to other people not to pay.”
Speaking a seminar by Finance Correspondents Association in Lagos recently, he made it clear that the latest increment in Value Added tax (VAT) will not solve Nigeria’s problems as it remains “a drop in the ocean in terms of the deficit of the Federal Government”.
According to him, “when you raise tax rate, compliance will go down because you give incentive to other people not to pay.”
“Last year, we collected N1.1 trillion in VAT. So all things being equal, anywhere around the world, when you raise tax rate, compliance will go down because you give incentive to other people not to pay.
“Let’s assume Nigerians cannot wait to help government and they would continue to comply. We would make additional N550billion. Fifty per cent of that go to all the 36 states; 35 per cent of that goes to the 774 local government areas; the Federal Government keeps about 15 per cent.
“Now that 15 per cent amounts to about N90 billion. And that N90 billion is a drop in the ocean in terms of the deficit of the Federal Government. At the state level, this 2019, all the 36 states in Nigeria has a budget of N9 trillion. And how much money did they make last year? Their Internally Generated Revenue (IGR) was N1trillion.
“Their share from the federation account was N2.5trillion, which means, as last year was one of the most successful years for us in terms of tax collection, let’s even say we repeat this year 2019, we would make N3.5 trillion.
“And they want to spend N9trillion.This extra N550 billion that they would get 50 per cent of it would not move the needle at all.”
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