NATIONAL TAX POLICY
2017: FEDERAL MINISTRY OF FINANCE
FOREWORD
This administration is committed to diversifying the
sources of government revenues by significantly increasing tax to
Gross Domestic Product (GDP) ratio, among other things. The
attainment of this laudable objective will require an
overhaul of our
tax
policy which is a key function
of
the Ministry of Finance. Businesses react to tax policy.
We are therefore determined to ensure that ours sends the right
message to both
local
and
international investors.
Despite the existence of
National Tax Policy (NTP) since 2012, it would appear that most of the key
stakeholders are not sufficiently aware
of its provisions resulting in non-implementation. To address this
problem, I inaugurated a Committee on the 10th of August, 2016 to review the NTP and recommend
workable implementation strategies.
The Committee has produced a slim, simple and concise revised policy with
clear implementation and
monitoring strategies for stakeholders in the Nigeria tax system. We are confident that the revised
Policy will eventually give a new lease
of life to, and inspire far-reaching reform of, the Nigeria tax
system in terms of structure, number of taxes, and administration within the context of our peculiar
environment. This
Government remains committed to the continuous improvement of our tax system towards the attainment
of our objectives. Thus, tax policy review will be a continuous exercise, as a
means of evolving with
global
best practices.
Special
thanks to the members of the National Tax
Policy Review Committee under the Chairmanship
of Prof. Abiola Sanni for their steadfastness and commitment to their mandate within a tight schedule. I acknowledge the contributions of
other key stakeholders including Mr. Babatunde Fowler, the
Executive Chairman
of
the Federal Inland
Revenue Service, resource persons and
stakeholders who submitted
inputs to the Committee. I also thank the
staff of the Federal Ministry of Finance for
working assiduously
towards the completion of the
assignment.
Mrs. Kemi Adeosun
Honourable Minister of
Finance
November,
2016
Chapter One: Introduction
1.1
Background
The National Tax Policy (NTP) was first published in 2012, as part of the efforts to entrench a
robust and
efficient tax system in Nigeria. Four years after, the rapidly changing
commercial environment and
persistent low tax to Gross Domestic Product (GDP) ratio among other developments, demand new strategies to continue to meet government objectives of
creating an enabling environment, simplifying the tax system and ensuring ease of compliance. It has become imperative to review and update
the NTP.
1.2
Definition of Tax
For the purpose of this Policy, “tax” is any compulsory payment to government imposed by law without
direct benefit or return of value or a service whether it is called a
tax or not.
1.3
Constitutional Provisions
Chapter 2 of the Constitution of the Federal Republic of Nigeria 1999 contains Fundamental Objectives
and
Directive Principles of State Policy which are relevant to the NTP. In this regard, appropriate tax
laws, administrative processes and procedure should be made to advance the Constitutional provisions.
Therefore, tax policies,
laws and administration shall promote the attainment of
the following:
a)
the ability of all taxable persons to declare their income honestly to appropriate and lawful
agencies and pay their tax promptly;
b)
residence
rights of
Nigerians,
free
mobility of
people,
goods and
services
throughout
the
federation;
c)
promoting fiscal
responsibility and accountability that reflects the principle of
fiscal
federalism;
d)
ensuring that the rights of all taxable persons are recognized and
protected;
e)
eradicating corrupt practices and abuse of
authority in the tax system;
f)
ensuring that the resources
of
the nation promote national
prosperity and self-reliant economy;
g)
securing maximum welfare, justice
and equity;
h)
ensuring that the resources of the nation are harnessed and distributed to serve the common good;
i)
promoting and protecting Nigeria’s
national interest;
j)
promoting African integration, international co-operation and eliminating discrimination; and
k) respecting international
law
and treaty obligations.
1.4
Challenges of
Nigeria Tax System
Despite the potentials of taxation as a dynamic tool for sustainable national development, Nigeria tax
system has been
unable to achieve its objectives due to the following challenges, among others:
·
lack of robust framework for the taxation of informal sector and high network individuals, thus limiting the revenue base and creating
inequity;
·
fragmented database of taxpayers and weak structure for exchange of information by and with tax
authorities, resulting in revenue leakage;
·
inordinate drive by all tiers of government
to grow internally generated revenue which has led
to the arbitrary exercise of regulatory powers for revenue purpose;
·
lack of clarity on taxation powers of each level of government and encroachment on the powers of one level of government by another;
·
insufficient information available to taxpayers on tax compliance requirements thus creating
uncertainty and non-compliance;
·
poor accountability for tax revenue;
·
insufficient capacity which has led to the delegation of powers of revenue officials to third parties, thereby creating complications in the tax system;
·
use of aggressive and unorthodox methods for tax collection;
·
failure by tax authorities to honour refund obligations to
taxpayers;
·
the non-regular review of tax legislation, which has led to obsolete laws, that do not reflect current
economic realities; and
·
lack of strict adherence to tax policy direction and
procedural guidelines for
the operation of the various tax authorities.
1.5
Objectives
of the National Tax Policy
The National Tax Policy provides the fundamental guidelines for the orderly development of the Nigeria
tax system. The Policy is expected to achieve the following specific
objectives, among others;
·
guide the operation and review of the tax system;
·
provide the basis
for
future tax legislation and administration;
·
serve as
a point of reference for all
stakeholders on taxation;
·
provide benchmark on which
stakeholders shall
be held accountable; and
·
provide clarity on the roles and responsibilities of Stakeholders in
the tax System.
Chapter Two
Policy Guidelines
Tax Policy provides a framework for a
sustainable system that would ensure reliable sources of revenue to government
and support the economic
development of the nation.
2.1
Guiding Principles of Nigeria
Tax System
All
existing and future taxes are
expected to align with the following fundamental
features:
Equity and Fairness: Nigeria tax system should be fair and equitable devoid of discrimination. Taxpayers should be required
to
pay according to their
ability.
Simplicity, Certainty
and Clarity: Tax laws and administrative processes should be simple, clear and easy
to understand.
Convenience: The time and manner for the fulfillment of tax
obligations shall take into account the
convenience of taxpayers and avoid undue difficulties.
Low Compliance Cost: The financial and economic cost of compliance to the
taxpayer should be kept to the barest minimum.
Low Cost of
Administration: Tax Administration in Nigeria should be efficient and cost-effective in line
with international best practices.
Flexibility: Taxation should be
flexible and
dynamic
to
respond to
changing circumstances
in
the economy in
a manner that does not retard economic activities.
Sustainability: The tax system should promote sustainable
revenue,
economic growth and
development. There should be a synergy between tax policies and other economic policies of government.
2.2
Taxation
as a Tool for Economic Management
and Development
The tax system should support sustainable growth and development at all times. In this regard, the tax
system should be geared
towards meeting the following goals:
2.2.1 Wealth Creation and Employment
The tax system should be designed to promote social, political
and economic development.
Accordingly,
i.
tax policies shall promote employment, export and local
production;
ii.
tax policies and laws shall not be retroactive;
iii.
tax policies and laws should ensure equal investment opportunities and support for businesses
whether local or foreign;
iv.
tax policies
and laws
on investments
should be
long
term focused
and tenured to enable
investors plan with reasonable certainty;
v.
any incentive to
be granted
should
be broad,
sector based,
tenured
and transparent.
vi.
Implementation should be properly monitored, evaluated, periodically reported and kept under
review;
vii.
revenue
forgone from tax incentives or
concessions
should be quantified
against expected
benefits and reported annually. Where the benefits cannot be quantified,
qualitative factors must be considered; and
viii.
tax policies on investments should not promote monopoly such as entry barriers or otherwise
prevent competition.
2.2.2 Taxation and Diversification
There should be concerted efforts to attract investments in all sectors of the economy, with more focus
on promoting investment in specific sectors as may be identified
by government in the overall interest
of the country from time to time. This will boost the revenue base for optimum revenue generation.
2.2.3 Focus on Indirect Taxation
The tax system should focus more on indirect taxes which are easier to collect and administer and more difficult
to
evade. Tax rates should be progressive and should be designed to promote equality. The tax system should gradually seek a convergence of personal income tax and capital gain tax rates with corporate income tax rates to reduce opportunities
for tax avoidance.
2.2.4 Convergence of
Tax Rates
Tax rates should be progressive and should be designed to promote equality.
The tax system
should gradually seek a convergence of the highest marginal rate of personal income tax, capital gains tax rates and the
general companies income tax rates to reduce opportunities for
tax avoidance.
2.2.5 Special Arrangements and Other Incentives
Special arrangements should be sector based and not directed at entities or persons. Also, special
arrangements such
as free
zones and
other tax
incentives or
waivers should
not
be arbitrarily
terminated except as provided in the enabling legal framework or treaties at the time of creation. Government
may provide tax incentives to specific sectors
or for
such specific activities
in order to stimulate or retain investment in the sector.
The process of granting and renewing incentives, waivers and concessions shall be transparent and
comply strictly with
legislative provisions
and international treaties.
2.2.6
Creating a Competitive Edge
i.
Reduction in
the Number of Taxes
Taxes should be few in number, broad-based and high revenue-yielding. The administration
of
the taxes should also be simplified
for ease of enforcement and compliance.
ii.
Avoidance of
Multiple Taxation
Taxes similar to those being collected
by a level of Government should not be introduced by
the same or another level
of Government. The Federal,
State and Local Governments shall
ensure collaboration in
harmonizing and eliminating multiple taxation.
2.2.7
International and Regional Treaties
A wide network of International and Regional treaties would be beneficial to the economy. In this
regard, Nigeria shall continue to expand its treaty network in the best interest of the Nigerian State. Generally, treaties should prevent
double taxation without creating
opportunities for non-
taxation.
Existing
treaties should
be reviewed
regularly and where necessary
renegotiated in line with
international best practices. New treaties should consider benefits to Nigeria both in the
short, medium but more importantly long term.
Nigeria’s
model double tax treaty should be regularly reviewed to adequately cater for
the
best interests of the country. Appropriate measures shall be taken to ensure that all treaties duly signed and ratified
are implemented.
Chapter Three
Responsibilities of Stakeholders
For an orderly and sustainable development of the Nigeria tax system, the Federal and State Ministries
of
Finance shall have the primary responsibility for tax policy matters, including initiating proposals for amendments to tax Laws. Ministries
of Finance shall collaborate with relevant Stakeholders in carrying out their tax policy responsibilities. The key stakeholders in
the Nigeria tax system can
be
broadly categorised as
follows:
3.1
The Government
All levels and arms of Government, Ministries, Extra-Ministerial Departments and Agencies where applicable shall:
i.
implement and regularly review tax policies and laws;
ii.
provide information on all revenue collected on a quarterly basis;
iii.
ensure adequate funding, administrative and operational autonomy of
tax authorities; and
iv.
ensure a reasonable transition period of between three and six months before implementation of
a new tax.
3.2
The Taxpayer
A taxpayer is a person, group of persons or an entity that pays or is liable to tax. The taxpayer is the
most critical stakeholder and primary focus
of
the tax system. The taxpayer shall
consider tax
responsibilities as a civic obligation and constant duty that must be discharged as and when due. The
taxpayer shall be entitled
to:
i.
relevant information for the discharge of tax obligations;
ii.
receive prompt, courteous and professional
assistance in dealing with tax authorities;
iii.
raise objections to decisions
and assessments and receive response within
a reasonable time;
iv.
a fair and impartial appeal; and
v.
self-representation or by any agent of choice, provided an agent acting for financial reward shall
be
an accredited tax practitioner.
3.3
Revenue
Agencies
Any agencies
responsible for the collection and administration of
revenue shall:
i.
treat the taxpayer as a customer;
ii.
ensure efficient implementation of
tax policies,
laws and international treaties;
iii.
facilitate
inter-agency co-operation and exchange of information;
iv.
undertake timely audits and investigations;
v.
undertake tax awareness and taxpayers’ education, and
vi.
establish
a robust process to prevent, detect and punish corrupt tax officials.
3.4
Professional Bodies, Tax Practitioners,
Consultants
and
Agents
They shall:
i.
act in accordance with professional code of conduct and ethics;
ii.
not aid and abet tax evasion and corrupt practices, and
iii.
actively promote effective tax compliance.
3.5
Media and Advocacy Groups
They shall:
i.
promote tax education and awareness;
ii.
articulate,
protect and advance taxpayers right;
iii.
advance accountability and transparency in the utilization of tax revenue;
iv.
ensure accurate, objective and balanced reporting in accordance with their professional code of
conduct and ethics; and
v.
ensure that aspiring political office holders clearly understand the Tax Policy and the Nigerian tax system and are able to articulate their
plans for the tax system to which
they will be held accountable.
Chapter Four
Tax Administration
Tax administration
in Nigeria cuts across the
three-tiers of Government. This tax policy
document establishes clear guidelines on crucial tax administration issues.
In the context of
the Nigerian Tax Policy, tax authorities at all levels shall administer their mandates in accordance with the following:
4.1
Registration of Taxable Persons
All taxable persons shall be registered and issued
with
Taxpayer Identification
Number (TIN) applicable nationwide. Tax authorities should leverage on the
database of the Central Bank of Nigeria on Bank Verification Number (BVN), National Identity
Management Commission (NIMC), Nigeria
Communication Commission (NCC), Corporate
Affairs Commission (CAC), Federal Road Safety
Commission (FRSC), Nigeria Immigration Service (NIS) and
other relevant sources. The current uncoordinated
registration by different agencies should be harmonized.
4.2
Tax Compliance
Government shall apply all available resources and tools at their disposal to ensure that taxpayers voluntarily comply with their tax obligations. In
order to improve voluntary compliance, the relevant
authorities should ensure:
i.
that the option for
self-assessment is in place, and the process and procedures are simple;
ii.
development of
frameworks for tax amnesty in order to
expand the tax net;
iii.
focus on taxpayers’
services;
iv.
constant tax education and enlightenment;
v.
the overall
performance of the tax system is measured and reported periodically,
and the establishment of
a system
to recognize and honour compliant taxpayers
4.3
Efficiency of
Administration
Payment Processing and Collection
Collection
system shall leverage on
modern technology towards advancing ease of payment and prevention of revenue losses.
Record Keeping
Tax authorities shall partner with the relevant agencies to setup automated systems and adequately train
tax officials in the use and maintenance of such systems.
Electronic systems of record keeping
in
line with global
best practices should
be
entrenched
to
enhance the tax administration process.
Exchange of Information
Tax authorities shall develop an efficient
framework for cooperation and sharing of information
with other tax authorities and relevant local and international agencies. This will
mitigate tax evasion and
revenue losses.
Enforcement of
Tax
Laws
Tax authorities shall ensure the enforcement of civil and criminal sanctions as provided under the
various tax laws.
Funding of
Tax Authorities
Government shall provide adequate funding for tax authorities. Accordingly, Government should ensure
that an adequate percentage of revenue collected should
be provided to the authority for its operations.
Funding for Tax Refunds
Government shall provide adequate funding to meet refund obligations. Tax
authorities shall ensure timely and efficient payment of
refunds.
Ease
of Paying Taxes
Tax authorities shall ensure that payment procedures and documentation are convenient and
cost effective. Tax authorities shall work towards ensuring accelerated improvement on the global index of ease
of paying taxes.
Revenue Autonomy
Governments shall ensure a reasonable level of financial and administrative autonomy for their
respective tax authorities to facilitate effective discharge of their duties.
4.4
Technology and
Tax Intelligence
Tax authorities shall
ensure:
i.
deployment of technology to aid
all aspects of tax administration;
ii.
the integrity and regular update of the database; and
iii.
a workable and secure structure for intelligence and information gathering.
4.5
Dispute
Resolution
In the event
of
any dispute, the tax authority and relevant stakeholders shall leverage on all amicable means of dispute resolution including arbitration and only resort to judicial
determination as a last resort.
Chapter Five
Implementation
The effective implementation of the National Tax
Policy is crucial for Nigeria to attain the set goals. The Federal Ministry of Finance has a pivotal role to play in the development and implementation
of
the Tax Policy. Accordingly, the
Ministry shall take appropriate steps to ensure effective implementation of the
following.
5.1
Implementation
Measures
The President and Governors
i.
The President and Governors shall ensure that Budget Speeches and presentations for the fiscal year consistently contain the overriding fiscal policies and summary statements of the
expected
tax revenue. This will give key stakeholders a sense of what government plans
to do and enable them to plan accordingly.
ii.
The President and Governors should work towards ensuring that there is only one revenue
agency per level of
government. This would streamline revenue administration and improve efficiency of revenue collection. Ministries, Extra-Ministerial
Departments and
Agencies other than
tax authorities should not become tax collecting bodies.
iii.
The Executive shall sponsor a bill for the establishment of a tax court as an independent body to adjudicate in tax matters.
Legislature
iv.
The consideration and passage of tax bills
have
not
fared well within the existing Finance
Committee of the National and State Houses of
Assembly. The National and
State Houses of Assembly are encouraged
to establish a
Taxation Committee to focus on tax matters and collaborate with the Tax Policy Implementation Committee.
v.
There shall
be an Establishment Act
for the Joint
Tax
Board towards strengthening and
repositioning it to contribute
meaningfully to
the
development of
the
Nigeria
tax
system
through broader mandate
beyond its current
advisory role.
vi.
The qualification for
the lower income
tax
rate applicable
to
small businesses
should
be reviewed in line with
current economic realities.
The income tax rate for
small
businesses
should be further reduced as an incentive to encourage compliance and promote Micro, Small and
Medium Enterprises (MSMEs).
There should be a minimum threshold for VAT registration and compliance in order to protect
micro-businesses.
Ministry of Finance
vii.
The Minister
of Finance shall set in motion machinery for tax reform. Taxation is a dynamic tool.
Having reviewed
the
policy,
the
tax
law and
administration cannot
remain
stagnant.
It
is
imperative to streamline existing
and future tax laws for
an orderly development.
viii.
The Minister of Finance shall
establish a Tax Policy Implementation Committee to monitor
compliance, regularly review the
Policy and make appropriate recommendations.
ix.
The Minister of Finance/Commissioners of Finance shall ensure automation of collection and remittance processes
of
taxes by all Ministries,
Extra-Ministerial Departments and Agencies.
x.
The Ministry of Finance shall work with the Legislature to ensure that the requisite changes to tax laws are enacted
together with
the Appropriation
Act
of the same year.
This would require
the executive to timely present tax laws as executive bill for the timely consideration of the
National and State House of
assemblies.
xi.
Ministry of Finance shall establish an Office of Tax Simplification which shall be responsible for ensuring continuous improvement to tax legislation and administration.
xii.
Ministry of
Finance shall create a dedicated tax
policy website. Apart
from sensitizing the general
public on the provisions of the Tax Policy, such a platform would facilitate feedback
from
stakeholders on the existing and future policy proposals.
xiii.
The Minister of Finance shall give periodic reports to the National Economic
Council
(NEC) on tax policy implementation
agenda. Apart from
updating NEC, such obligation
will
ensure that the Ministry
of Finance is
up to speed in its
implementation agenda.
xiv.
Ministry
of Finance shall
ensure that
tax
authorities develop Key Performance Indices for
Nigeria
to attain a top 50 position
on
the global index of ease of paying taxes by 2020 and consistently
improve on the ranking.
Ministries, Departments and Agencies (MDAs)
xv.
Head of MDAs shall
give
periodic
report(s) to
the
Ministry of
Finance on
the
level
of implementation of
the National Tax Policy. Apart from sensitizing the
MDAs
to the provisions
of the Tax Policy, such reports would afford the
Ministry of Finance the opportunity to determine
the level of
compliance and devise appropriate responses as
may
be necessary to improve
implementation.
Tax
Authorities
xvi.
To promote tax awareness and a tax culture in Nigeria,
the Federal and State tax authorities through the Joint Tax Board shall
set aside a uniform
day in the year
as a National Tax
Day. Also, Government should
make concerted efforts to ensure that taxation is taught at all levels of education.
xvii.
Tax authorities shall establish administrative framework for amnesty and whistle blowing as part of
the strategies for curbing evasion and widening the tax net.
xviii. Federal and State Tax
authorities should
respond
promptly to
the
changing business environment as it affects
tax administration and develop a workable framework to meet the taxpayer demands
in this respect.
Independent National Electoral Commission (INEC)
xix.
The Independent National Electoral Commission (INEC) shall by necessary Regulation and Rules
mandate political parties to articulate,
prepare, provide and make public their tax agenda before and during election campaigns.
This will
make
political parties
reflect more deeply in an organized fashion on the financial implications of their promises and the options of financing
them. This would also help the taxpayer know the preferences of each party on tax matters and
take informed
decision.
5.2
Conclusion
The main thrust of the Tax
Policy is to establish fundamental principles to guide an orderly development of the Nigeria tax system towards
meeting its overall objectives. In this regard, the Policy highlights the
Fundamental Objectives contained in Chapter 2 of
the 1999 Constitution of the Federal Republic of Nigeria and reinforces the need for
tax laws and administrative practices to promote economic
development. The Policy highlights the challenges confronting the Nigeria tax
system and key policy principles to address them. It recognises the roles played by key stakeholders in
the development of an
effective tax system, and clearly states their rights and duties. The Policy also highlights the need for effective Tax Administration through the development of mandates which relevant Tax Authorities
should seek to achieve in their
pursuit of an effective and efficient tax system.
Finally, the Policy reinforces the role of the Ministry of Finance in the formulation, coordination and
most importantly monitoring the implementation of
the tax policy on an ongoing basis. It recognises the need for a holistic review of the various components of the
Tax System [Laws and Administration]. It requires
all stakeholders to be
fully committed
to playing their
parts towards
achieving
the
set objectives.
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