There is a strong relationship between taxation and the development of trade and investment. One of the issues that investors consider is the number of tax payments in an economy unfortunately, in Nigeria there is the challenge of multiplicity of taxes. Thus, it has been observed that Nigeria has an average of 47 tax payments,450 which is too many for a developing country. While it is regrettable that Nigeria has too many taxes, it is doubtful if Nigeria has up to 47 payments. The report seems to be premised on an erroneous assumption that an investor is expected to pay all the taxes in our tax laws at the same time. For instance, a company paying company‘s income tax is not expected to pay petroleum profit tax.
Nigeria imposes taxes for almost every issue taxable. In most cases rather than amend existing tax laws to incorporate a new issue sought to be taxed, the Government prefers to
448Ibid at p. 25.
449 Corporate Tax Rates between 2006 and 2014, Table provided by KPMG International.
http://www.KPMG.com. Accessed on the 1May, 2014.
450Ibid at p. 168.
126 impose a new tax law entirely. It is expected that with the enactment of the Companies Income Tax Act451 and the Personal Income Tax Act452 there should not be more than 5 additional tax payments investors will be subjected to. This is because all taxes target the income of tax payers and every direct tax can conveniently be taxed under the Companies Income Tax Act453 or the Personal Income Tax Act.454 Unfortunately, this is not the case in Nigeria, as almost every issue is taxed separately. For instance there is no need to have a special law to tax capital gains as it can conveniently be taxed under any of the Income tax Act; all that the legislature need to do in that situation is to simply amend the relevant sections of the Companies Income Tax Act455 and the Personal Income Tax Act456 tomake provision for the taxation of capital gains instead of enacting the Capital Gains Act.457 Nigeria quest to attract investors will be boosted if she repeals the Capital Gains Tax Act.458 Capital gains is not a major source of revenue for the Government, often times there is hardly gains from disposal of assets because the difference between the cost of assets when it was bought and when it was sold in most cases is not due to asset appreciation but inflation.Also, it is unnecessary to have the Tertiary Education Trust Fund (Establishment ETC.) Act,459 the Act seeks to provide for the mandatory payment of 2% of the profits of any registered company in Nigeria460 in addition to the 30% Companies Income Tax the company is expected to pay under the Companies Income Tax Act,461 this is clearly double taxation and an attempt by the Government to shift her responsibility of funding education to Investors.
451Op cit.
452 Cap P8 LFN, 2004.
453Op cit.
454Op cit.
455Op cit.
456 Cap C1 LFN, 2004.
457Op cit.
458Op cit.
459 2011.
460Ibid, Section 1(2).
461Op cit.
127 Stamp duties is another example of multiple taxation and affects the development of trade and investment adversely in Nigeria.For instance, under the Stamp Duties Act462 a mortgage is expected to be stamped.463The requirement for stamping of mortgages as one of the requirements for perfection does not seem to serve any purpose other than revenue generation. A mortgage is security for a loan transaction, it is not an income or profit; taxation should be from income and profits thus, mortgage deeds should be exempted from stamp duties. This is because payment of stamp duties depletes the value of the loan secured by an investor to boost his trade and investment and increases the cost of doing business. Furthermore, it leads to double taxation, as the investor will still pay his income tax from the proceeds of the investment.
Another Act that needs consideration is the Taxes and Levies (Approved List for Collection) Act.464 This Actwas amended in 2015 by the Minister of Finance465to include most of the arbitrary taxes by State Governments. Part 11 of the Act which is on taxes collectable by State Governments was amended to include the following class of taxes: Business Premises Registration Fees of Urban and Rural areas of each State renewable annually, Land Use Charge, Hotel, Restaurant or Event Centre Consumption tax, Entertainment tax, Environmental Tax, Mining, Milling and Quarrying Fee, Animal trade Tax, Produce Sales Tax, Slaughter or Abattoir Fees, Infrastructural Maintenance Charge or Levy, Fire Service Charge, Property Tax, Economic Development Levy, Social Services Contribution Levy, where applicable and Signages and Mobile Advertisement jointly collected by State and Local Governments. Also, Part 111, which is on taxes collected by Local Governments was amended to include Wharf Landing Charge.466
462 Cap S8 LFN, 2004.
463Section 80.
464 Cap T2 LFN, 2004.
465 Taxes and Levies (Approved List for Collection) (Act Amendment ) Order, 2015.
466Ibid, section 3 and 4.
128 The Federal Government in reaction to the observation that taxing powers are over concentrated at the Federal level amended this Act to expand the no of taxes the States can collect. Although, it is arguable that an Act of the National Assembly cannot determine the taxing powers of States and Local Governments.Clearly this amendment seeks to institutionalise double and multiple taxation in Nigeria. For instance, Hotel, Restaurant or Event Centre Consumption tax and Entertainment tax are not different from Value Added Tax, thus it clearly amounts to double taxation to expect investors to pay Value Added Tax to the Federal Government and Hotel, Restaurant or Event Centre Consumption tax and Entertainment tax to the States. Furthermore, the inclusion ofMining, Milling and Quarrying Fee may expose investors to double taxation as they will still be liable to pay federal mining fees after paying state mining fees. Furthermore, the payment of business premises registration fees is targeted at generating revenue for the Government but it amounts to double taxation and is another example of multiplicity of taxes. This is because businesses are already subject to several taxes which includes companies income tax, personal income tax and tertiary education tax. Registration of business ought to be for the purpose of data collection to aid Government agencies in planning.This amendment will surely discourage investment and will not serve any purposes other than to expose investors to multiple taxes. It is the researcher‘s view that an Amendment of an Act of the National Assembly cannot address the imbalance in the distribution of taxing powers between the Federal and State Government; it is only a constitutional amendment that can effectively address this issue. A more detailed discussion on the effect of these state taxes on trade and investment is in chapter 5 of this dissertation.
The researcher is of the view that there is need to reduce the number of taxes and discourage multiplicity of taxes in Nigeria, if she wants to be considered an investor friendly
129 Nation. A comparison between Nigeria and Mauritius which is ranked no.1 in Africa and 32 in the world by the World Bank on the ease of doing business index467 will clearly demonstrate this. Mauritius has an average total of 8 tax payments468 compared to Nigerian‘s 47. The Nigerian tax system presently cannot stimulate thedevelopmentof trade and investment in Nigeria; this is further compounded by the multiplicity of taxes. In this direction, it has beenobserved that ‗multiple taxation hinders economic development because it is a disincentive to foreign direct investment.‘469The issue of multiplicity of taxes is compounded by the lack of fiscal federalism in the Nigerian Constitution, which has led to the proliferation of State taxes.
Most of these state taxes amount to double taxation and in most cases are duplications of existing federal taxes.The abuse of State taxing powers will be discussed in detail in the next chapter.
There is an urgent need to reduce theno of tax payments in Nigeria;the National Tax Policy clearly recognizes these challenges and proposes that there should be a reduction in the number of effective taxes.470
Furthermore, Nigeria has a relatively high compliance time in the payment of taxes. Studies indicate that it takes an average of 956 hours to pay tax in Nigeria. Whereas, in United Arab Emirates, it takes just 12 hours, 110 hours in the United Kingdom, United States 175 hours, Mauritius 152 hours, Malawi 175 hours, South Africa 200 hours.471The long time it takes in complying with payments of taxes in Nigeria and most African countries is largely due to lack of effective electronic filing system. Thus, there is an urgent need to improve on the Electronic Tax
467 Mauritius Ease of Doing Business in Mauritius www.doingbusiness.org/data/exploreeconomics/mauritius/
accessed on the 4th of june, 2016.
468Paying Taxes 2016, op citat 142.
469 O Abioye ‗Multiple Taxation Hinders Foreign Direct Investment‘ The Punch, March 28, 2014, 28.
470 The National Tax Policy Document, Paragraph 3.4 D(i).
471Paying Taxes 2016, p. 137-140.
130 System. This will help to reduce the cost of compliance in addition to making payment of tax faster.
Most Countries in Africa have not fully embraced the electronic tax system. In the regional analyses for Africa by the Paying Taxes 2014 Survey, it was noted that only 3 out of 53 African countries effectively use electronic filing for all major taxes.472For instance, in Kenya the introduction of online filling, led to a considerable improvement in the processing time to pay taxes. It led to a reduction in the time required to comply with payment of taxes from 340 hours to 308 hours.473 Nigeria is trying to embrace the electronic tax system by the introduction of the Integrated Tax Administrative System (ITAS), an electronic platform for filing returns and assessment.474
There is a relationship between an effective tax system and economic development of a nation. Thus, for Nigeria to develop into a major economic hub there is need to reduce compliance time and the number of tax payments.