FLASHBACK: How multiple taxation cripple businesses and companies in Nigeria
Though considered a civic duty, tax remittance is a significant source of revenue generation that helps the government to meet its statutory obligations. However, its multiplicity and duplication by government agencies has turned it into a clog in the wheel of progress for companies, micro, small and medium-scale businesses struggling to survive amid worsening economic conditions and unfriendly operating environment, Damilola Olufemi reports
As 2012, the year of retirement inched closer for Bassey Christopher, a Customs officer, the thought of setting up a pure water business that he can later rely on as a constant source of income occupied his mind.
After painstakingly gathering necessary information about the business, he opened a pure water factory at Iba, in the Ojo Local Government Area of Lagos, and commenced production with just two processing machines.
By 2015, the now lucrative business was expanded to include the production of bottled water.
However, years later, bankruptcy stared Christopher in the face due to the huge amount of taxes he remits annually to various government agencies.
The taxes made it inevitable for him not to obtain bank loans to keep his business afloat and he groaned heavily under accruing high interest rates and mounting debt.
The retired customs officer lamented that a greater percentage of the loans he obtained from banks goes into tax payments to the Federal Inland Revenue Service, Lagos State Internal Revenue Service and local government agencies.
He said despite lodging complaints with the state government about similarities in the taxes and their accompanying huge financial burden, nothing changed.
“I am not the only one suffering from this rip-off. Most people into manufacturing and production have channelled complaints officially to the state governor,” he added.
Christopher lamented that the high cost of production has made it impossible for a loan of N5m, which he usually took, to cover the running cost at his factory.
Major among his worries is the payment of staff salaries, which he lamented, had become practically impossible.
Speaking with PUNCH Investigations, Christopher lamented the precarious financial situation of his pure water factory, noting that the heavy taxation has made things more difficult. He expressed the fear that he may have to close down the factory and release the 68 staff working with him to the labour market.
“The cost implication of multiple taxations has made me to consider letting some of them go. High cost of production, low sales, and insignificant profit margin, among other factors, have adversely affected my business. Many people into business stand the risk of losing their property due to the inability to offset loans taken from banks,” Christopher said despondently.
A civic duty abused
Globally, the major source of funds to run government organs effectively has always been through revenue generated directly or indirectly through taxes.
Tax itself is a compulsory (which makes its evasion punishable) contribution to state revenue and is levied by the government on salary, business profits, transactions and even on services.
Be that as it may, the appropriateness of coming up with different names for the same tax by federal, state and local government agencies; ministries, among others, despite clear legislation that outlined lists of taxes and levies to be collected by the three tiers of government, has continued to generate debates.
Tax duplication has been highlighted as a significant contributor to the poor ranking of Nigeria on the world ease of doing business index.
Even though there has been a directive to enforce the Taxes and Levies (Approved Rate for Collection) Decree 1998, which specifically spelt out punitive measures for illegal tax collection, the business of multiple taxes still thrives, causing disincentive in the business community.
Multiple taxations jeopardy
A check by PUNCH Investigations on the website of Nigeria’s leading integrated market infrastructure in Africa, Nigeria Stock Group, indicated that in 2022, a total of 157 companies were listed.
However, many companies or businesses in Lagos, despite their relevance and growth to the national economy, are adversely affected or have been crippled by multiple taxes.
Good as the intention behind tax might appear, it has been observed that the existing tax system across the country, particularly in Lagos, diminishes returns on investment, affects capital base, and more often, lead to the total collapse of businesses and companies.
Corporate and business taxpayers are often faced with multiplicity and duplication of taxes levied by different levels of government.
While taxation is imposed by the government of a country, the National Tax Policy Document describes its multiplicity as a situation where a particular tax is levied on the same person in respect of the same liability by more than one state or local government.
Due to the complexity of this act, the document stated, “Multiple taxations in Nigeria first needs to be defined before it is tackled. The word multiple connotes “numerous, “several”, “various” etc. A certain level of multiplicity is unavoidable in a federal structure as each tier of government may want to charge certain taxes, fees, as may be applicable. The only aspect of multiplicity that is avoidable and for which the Constitution itself abhors is that where tax, fee or rate is levied on the same person in respect of the same liability by more than one state or local government council.”
The Federal Inland Revenue Service in a document, highlighted company tax and Value Added Tax as some of the eight taxes collected by the Federal Government, while the state and local governments collect 11 and other 20 taxes respectively.
Based on PUNCH Investigations findings, these taxes, alongside others imposed by various levels of government have no doubt, become a burden to companies, industries, low and medium-scale businesses, as well as consumers across the country.
In a research carried out by the Chartered Institute of Taxation of Nigeria on why these taxes exist, the root of multiple taxations was linked to greed, perceived unfair revenue formula and the quest to boost internally generated revenue of states and local councils.
Speaking on this, the President, Lagos Chamber of Commerce and Industry, Benjamin Idahosa told PUNCH Investigations that some levies are backed by law and are collected by FIRS.
He listed the Industrial Training Fund as one of the taxes employers must pay at all levels of government and called on the federal government to harmonise taxes paid by employers to be channelled to a single agency rather than have them paid to several agencies.
“Every employer that has more than five employees in Nigeria has to pay the ITF. Since it’s paid to the federal, state or local governments, it can be paid to a single government agency,” Idahosa added.
Speaking further on the CITN research, he said, “The end product of the research is that multiple taxations thrive in Nigeria because of perceived unfair revenue formula, lack of political will-power on the part of the executive arm of relevant governments saddled with the responsibility of enforcing or executing laws that are made in this regard. They now find it difficult to finance, properly or rightly equip their revenue agencies. It has also been contended that apart from other reasons why holders of political power may be failing to properly address the issue, greed on the part of the few in positions of authority is also a factor.”
Taxes payable to companies
One major outcry by companies in Nigeria has always been the multiplicity of taxes paid to agencies in federal, state and local governments.
Aside from those paid to the state and local governments by companies, there are several others that are made compulsory by law and are collected by the FIRS, on behalf of the federal government.
They include company income tax, stamp duties, capital gains tax, personal income tax, withholding tax, industrial training fund tax, Value Added Tax and education tax, among others.
Prominent among them and which resonates more with Nigerians is the Value Added Tax – a consumption tax levied on goods at each level of sales where value has been added.
This process begins from the raw material stage to retail sales and point of purchase.
According to the FIRS, VAT is imposed on goods and services sold to the public, and it is governed by the Value Added Tax Act Cap V1, LFN 2004 as amended.
The present VAT charge in Nigeria stands at the rate of 7.5 per cent after it was increased from five per cent in February 2020.
Aside from some specific goods and services exempted by the VAT Act, every other goods and services either manufactured within the country or imported into the country are taxable.
The tax regulatory Act, stipulates that no person, other than the appropriate tax authority, shall assess or collect, on behalf of the government, any tax or levy listed in the Schedule.
Shedding light on this, the LCCI president, Idahosa, noted that some levies that have been put into law are collected by the FIRS.
Tough operating clime – MAN
The President, Manufacturers Association of Nigeria, Apapa Chapter, Frank Onyebu, decried multiple taxations, noting that it compounds competitiveness among manufacturers grappling with issues of infrastructural decay, insecurity, epileptic power supply and foreign exchange shortage.
He lamented that the operating environment is already tough for Nigerian manufacturers and noted that it is in dire need of an overhaul.
Onyebu noted that amid this challenge, federal, state and local governments, including their agencies, impose taxes and levies to generate revenues.
He said, “These taxes come in different forms and guises, and are often in conflict with one another. A team of inspectors from the Federal Ministry of Environment could, for instance, come on a visit to a factory in one day; another team from the state could come the next day, and yet another, from the local government, could come the day after.”
He appealed to the Lagos State government to harmonise taxes and urgently take steps to address multiple taxations to prevent the continuous rise of unemployment.
“I wish to bring to the notice of the government that several manufacturing firms have shut down due to the current harsh operating environment and so m
any more are just holding on by the strings. We are calling on the government to compel ministries and agencies to abide by the harmonised inspection agreement reached with manufacturers. This will not only curtail corruption but will also encourage manufacturers struggling to survive amid a very uncertain future,” Onyebu said.
How harmonised inspection agreement works
The harmonised inspection has to do with bringing all the various ministries, departments and agencies which have the statutory responsibility to carry out various types of inspection in workplaces, factories, and offices, to operate as a team.
Under this, they are empowered to and are expected to work and undertake inspections together;.
So far, only Lagos has shown promises in that regard.
And it came to be, first in 2016, under the administration of former Governor Akinwunmi Ambode, as a result of agitation by the organised private sector.
However, years back, experts have decried the low level of awareness and little adherence to the initiative.
In 2022, The PUNCH reported that manufacturers pay a total of N403bn tax amid biting economic crunch.
The data from the Company Income Tax reports published by the National Bureau of Statistics showed a significant spike in the tax remitted by manufacturing firms between October 2021 and 2022.
Overburdened telecommunication companies
Findings by PUNCH Investigations showed that telecommunication companies with their headquarters situated in Lagos are mostly affected by multiple taxations, which are classified into customs and general taxes.
Customs taxes are regulated by the Nigeria Customs Service on transported goods such as cells, towers and antennas ferried across international borders.
General taxes involved those which incorporated companies by provisions of the law are required to comply with.
They include VAT, Withholding tax, and Capital Gain Tax, among others, and they are regulated by the FIRS.
According to Mondaq, a technology and intelligent syndication platform, telecommunication companies also pay annual tax to the Nigerian Communications Commission for what is known as ‘Individual Licence’.
In a publication titled, ‘Nigerian Telecommunications Law and Regulations’, jointly authored by Rotimi Akapo and Quasim Odunmbaku, it was revealed that telecommunication companies pay 47 taxes to the three levels of government.
While the state and local government collect 32, the FIRS collects four and they are – 30 per cent of Companies Income Tax, 10 per cent of Withholding Tax, 7.5 per cent of Value Added Tax, and ten per cent of Capital Gains Tax.
While FIRS is mandated by law to collect Companies Income Tax on behalf of the federal government, the Pay As You Earn Tax is collected by the state government.
Additional taxes are also collected by both federal and state government agencies that include the Nigerian Communications Commission, National Information Technology Development Agency, State’s Government Inland Revenue Services, National Civil Aviation Authority, Nigerian Customs Service, Federal Ministry of Environment and Federal Ministry of Works.
In 2021, The PUNCH reported that Mobile Network Operators made an appeal to the federal government to address challenges facing the telecommunication sector, major among them being multiple taxations.
The Executive Secretary of the Association of Telecommunications Companies of Nigeria, Ajibola Olude told PUNCH Investigations that the multiplicity of taxes has reduced the development pace of telecommunication and the number of investors in the country.
He further noted that it has led to the depletion of telecommunication companies’ workforce, as they are faced with financial challenges.
He said, “The money earmarked for expansion of the sector is being used to pay taxes and that will reduce the pace of telecommunication development in the country. It has reduced foreign direct investment that should have come to the country for the purpose of developing the sector.”
MSMEs are not left out
Based on PUNCH Investigations finding, multiple taxations also have devastating impacts on micro, small and medium enterprises.
The Chartered Institute of Taxation of Nigeria, in a paper, stated that many of the SMEs businesses in Nigeria do not survive beyond their fourth anniversary due to multiple taxation challenges.
It noted that the challenges led to the collapse of over 75 per cent of SMEs in Nigeria.
The CITN paper listed the use of crude orthodox means such as mounting of roadblocks and forceful closure of shops as some of the ways taxes are collected from SMEs.
It may be recalled that Vice President Yemi Osinbajo had in 2021, expressed concerns over the rate at which multiple taxations was causing high mortality rate of SMEs in the country.
While decrying this, he said, “The mortality rates of SMEs are very high, and among the factors responsible for this is tax-related issues. Some of the specific challenges related to taxation are multiple taxations at the national and sub-national levels, non-clarity on the procedure and amount to pay and non-friendly tax administrators.”
Closure of shop to work from home
Akwarandu Nkeiruka is one of the many whose business has been crippled by the negative impact of multiple taxations.
After being forced to pay through her nose to various local government officials and having her business place locked up repeatedly, she was left with no option but to shut down and work from home.
The lady, who is in her 40s, told our correspondent that she went into processing agricultural products into finished goods two years ago and was almost forced out of business.
She recounted, “I now operate from home and deal directly with my customers online. I became frustrated by multiple taxations and the high cost of doing business.”
Nkeiruka revealed that she was hounded by various government tax officers who always demanded for signage and banners fees, among other endless lists of levies.
“Shutting down has reduced the amount of money I spend. I now showcase my products online. The world has gone digital. Why waste money on various taxes that are not accounted for when you can do your business and pay the necessary taxes as an entrepreneur,” she said.
She is not alone, as Lukman Adegboyega, an entrepreneur said he had to abandon his packaging business for an office job after he was practically milked dry by various task force and tax officials
The former Lagos State Governor, Akinwunmi Ambode, had during a courtesy call to his office by the Lagos State Professorial Chair in Tax and Fiscal Matters in 2017, admitted that multiple taxations exist in the state.
He said, “You know the citizens believe strongly that the way and manner we structure our tax system is done in such an instance that we are doing multiple taxations within the local government and the state. That’s one aspect that we think we can create some kind of partnership to be able to say that in no distant future that nothing exists in Lagos that relates to multiple taxation. I would like that aspect to be something of interest in the course of your research”.
In a survey conducted by the National Bureau of Statistics and the SME Development Agency of Nigeria in 2018, it was recorded that 41.5 million MSMEs operate in Nigeria.
The Survey also showed that SMEs in Nigeria contribute to about 50 per cent of the country’s GDP and also account for over 80 per cent employment ratio.
Similarly, a lecturer at the Department of Business Administration, Nile University, Nigeria, Abuja, Cross Daniel, in his research concluded that multiple taxations affect the survival and growth of SMEs in Nigeria, but that governments at all levels keep overburdening business owners with multiple taxes.
He noted that small-scale businesses are important to employment generation, the transfiguration of the economy and production of goods and services, adding that business owners should not be overloaded with multiple taxes so as to ensure they stay in business and lend their support to the industrialisation processes in states.
“Tax must be done in such a way that puts their revenue and need for survival into consideration. It is expedient that enough profit is allowed for them for the purpose of expanding their businesses,” he stated.
Meanwhile, PricewaterhouseCoopers Company, in its 2020 publication titled, “Building to Last: Navigating MSME growth and sustainability in a New Decade,” outlined challenges it faced in paying taxes.
The PwC cited 57 per cent of multiple taxes & levies, lack of coordination of federal & state agencies and the absence of technology platforms as part of the challenges.
“Multiple taxes cost businesses more resources”
The LCCI president, Idahosa, lamented that the multiplicity of taxes has cost businesses operating in the country more resources, adding that it makes planning for tax payments more complicated.
“Most businesses spend far more resources than they ought to while trying to comply with these taxes. Many of the taxes are duplicated. The kind of tax you already paid for at the federal or state level is also being collected by the local government without care. There is double jeopardy in the sense that we are meant to pay more tax than we ought to,” Idahosa said.
He also mentioned that high running cost has a rampaging effect on businesses, stressing that it has led to closures as owners cannot cope with taxes which must be paid irrespective of if profit is made or not.
“The taxes are many. We would probably be talking of about 30 to 50 and more. They are quite large and it depends on the industry you are in. It is a primary issue that the government needs to fix,” Idahosa said.
He urged the government at all levels to unify taxes paid by business owners to foster ease of doing business and for effective tax collection.
He said, “Generally, the practice in several countries is to unify taxes and reduce the number to a manageable size so that government agencies will be more efficient in the number of taxes they deal with. This is better than having many agencies going to a particular office to collect different types of taxes and levies.”
Tax multiplicity impedes operation – CPPE
The Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf, said multiple taxations trigger challenges for corporate businesses and makes it difficult for them to operate seamlessly.
He listed some of the problems faced by business owners to include energy, foreign exchange, and transportation cost, which he noted increases operating cost.
Yusuf said, “Some agencies may not call it tax but license fee. They can also call it all sorts of levies but it is still tax because it is coming from the purse of business owners and it affects their cost of operation. Sometimes you get some taxes you didn’t even plan for and they are sometimes, arbitrary.”
The economist implored the federal and Lagos State governments to streamline tax payments and also provide an effective channel of operations for the tax authority.
Cumbersome business operation – Tax lawyer
A tax lawyer, Eyitayo Ogunyemi, said multiple taxations make business operations to become very cumbersome, such that owners begin to evade tax payments in order to survive.
He further noted that taxpayers become easily confused by the different types of taxes incurred on the same thing.
“One of the challenges that the country is facing is people’s distrust of how the government is applying tax revenues. Unfortunately, Chapter 2 of the 1999 Constitution of the Federal Republic of Nigeria (as amended) makes it non-justiciable for citizens to challenge the government regarding issues bordering on basic social amenities. In that sense, people are unable to demand value for their contributions to societal growth through tax payments” he said.
The taxation lawyer suggested that citizens should consider exploring the Freedom of Information Act to compel the governments to give account.
Efforts made to speak with the FIRS spokesperson, Johannes Wonuola, on the government’s plan to address complaints made by companies and business owners concerning multiple taxations was not successful.
He had yet to respond to calls and text messages sent to his mobile as of the time this report was filed.
MOU signed to tackle multiple taxation – LIRS
Reacting on behalf of the LIRS, an official, Monsurat Amasa, disclosed that the LIRS and FIRS signed a Memorandum of Understanding some months back to address the menace of multiple taxes in the state.
She explained that the MoU would help to ensure that no level of government collects more than the tax they are meant to collect.
Amasa gave an assurance that all issues relating to taxes in the state would be addressed.
Credit Punch Newspaper