21st Annual Tax Conference of the Chartered Institute of Taxation of Nigeria (CITN)

Founder’s Keynote Address for the
21^st Annual Tax Conference of the Chartered Institute of Taxation of Nigeria (CITN)

National Development: Unlocking the Potential of Taxation

Abuja, Nigeria

(April 24, 2019)

 

• Good morning distinguished ladies & gentlemen

 

• I am happy and pleased to be here this morning, this is a wonderful gathering of policymakers, practitioners and senior industry colleagues.

 

• I thank the organisers for the opportunity to share one’s thoughts with this great audience.

 

• Sometimes you have ideas, but not the platforms to express those ideas.

 

• Especially for some of us in the private sector, we almost always are limited to expressing our frustration in boardrooms, we don’t have the platform or opportunity to make those frustrations expressed on a platform such as this.

 

• In reflecting on what to share with this wonderful audience, I had a lot of ideas, but after listening to President Buhari’s opening remarks delivered on his behalf by the Permanent Secretary, Ministry of Finance, Dr. Mahmud Isa-Dutse, I realised that all the things I would have said have already been captured.

 

• Therefore, I would like to bring a different perspective to the conversation, more like representing the interests of the private sector vis-a-vis national development.

 

• More importantly, representing the interest of the small and medium scale enterprises, the young entrepreneurs that we support at the Tony Elumelu Foundation.

 

• You simply cannot talk about national development without the SME sector that is the engine of every economy. They are the people that create jobs, help to stabilise society and economy.

 

• At the Tony Elumelu Foundation, we support young entrepreneurs, so far about 7000 across Africa, and 3040 Nigerians across all 36 states of the country.

 

• In preparation for today, I put out a message on my social media handles on Twitter and Facebook asking our young ones: “Imagine you had the opportunity of a lifetime to change the tax policy in Nigeria to support more entrepreneurs and SMEs, what one specific recommendation will you give?”

 

• I read what one of the entrepreneurs said:

 

• An average young business owner in Nigeria is a Local government authority on his own, because he caters for his own electricity with generators, he builds his own borehole, handles his own waste disposal and the government can make his life easier by having favourable tax policies that support us as SMEs.

 

• Later on in this discussion, I will share with you more of the feedback from these Tony Elumelu Foundation entrepreneurs.

 

• I know I am addressing tax experts, professors and tax regulators, so I am not here to lecture you, I will not even attempt to lecture anyone because you all know it better than me.

 

• We come to people like you to advise us as consultants on tax issues, so I am not going to attempt to lecture on that

 

• But I want to say that: he that wears the shoes, knows where it pinches. My speech will be more from this perspective.

 

• Our people want a good standard of living, they want to see massive improvement in our infrastructure, they want accommodation, they want security, they want improvement in the moral values and standards of our country and on and on.

 

• Government on the other hand needs revenue to provide all of this, education, healthcare, infrastructure and security, etc.

 

• On one hand, citizens demand a good standard of living and they deserve it, and on the other hand, for the government to provide this, it needs an expanded revenue source.

 

• If there is cohesion in citizens expectation, in government willingness to provide social goods, and the enablement to make all these things happen, then all things being equal, we should be better for it.

 

• However, the revenue sources of government are dwindling; we have largely depended on oil and we know what is happening to oil and the commodity space, and so many other areas that we can do better in.

 

• Citizens expectations are high, government needs revenue but that revenue is not growing.

 

• The population of Nigeria is growing, soon it will be 200 million people in the country, but revenue is not growing to provide these social goods.

 

• It is a challenge for everyone. The question then becomes: “how does government fund this demand – this legitimate and expected desire of the citizens?”

 

• How do we achieve more revenue, so government meets these expectations?

 

• One of the ways is to make sure there is an increase in revenue from taxation.

 

• Tax then becomes so key and relevant to the improvement of our human base needs.

 

• This is what I hope we will be able to discuss in helping to enrich the good work that government already is doing. Indeed, I was quite impressed to hear some of the remarks in Mr. President’s speech.

 

• We also need to know why some of the Executive Bills have not been translated to acts and legislations that can now guide the country

 

• Below are some facts I would like to share here on our tax situation:

 

• Nigeria’s tax to GDP ratio is approximately 6%

 

• Rwanda, a much smaller country has a tax-to-GDP ratio of about 16%

 

• The population of Nigeria as I said before is about 200 million, Rwanda is about 10 million.

 

• Nigeria is the largest economy in Africa – the size of the economy is $400 billion but tax-to-GDP is 6%.

 

• So just imagine if we were able to get our tax to GDP ratio to 10%

 

• 10% of $400 billion is $40 billion – our foreign reserves as a country today is about $44 billion.

 

• Imagine the revenue we would be generating at 10% tax to GDP ratio in terms of capacitising our government to meet these expected demands.

 

• In 2019, the World Bank Ease of Doing Business, out of the 10 business topics surveyed, Paying Taxes had the 3^rd worst score with Nigeria ranking 157 out of 190.

 

• It was stated that the number of taxes paid by an average company in Nigeria per year was 48 compared to an average of 37 in sub-Saharan Africa, and just 3 taxes in Hong Kong

 

• Many group companies are relocating their headquarters away from Nigeria and new ones are being discouraged from domiciling their HQs in Nigeria.

 

• This is quite evident, I believe that most of you know this, there are companies that we used to relate with who have now moved their headquarters and now operate in Ghana.

 

• A recent study by the International Centre for Tax Development (ITCD) stated that 75% of Nigerians believe it is not wrong not to pay taxes.

 

• Keep in view that we have expectations of government and at the same time revenue is not growing yet people feel so

 

• But there is a reason they feel this way. Nigerians on the street believe that she is her own local government, since she pays for public goods by herself, yet she is expected to pay tax with little or nothing in return

 

• With a population of close to 200 million people in Nigeria, we have only 75,000 registered SMEs in the country. With 200 million people, no one needs to tell us that people are avoiding tax or don’t want to be a part of the system.

 

• Can government fulfil its obligation to citizenry, can government support or provide what they need to do in this scenario of such low tax base? No

 

• Why, therefore is it the case that only 75,000 SMEs are registered? This is a question we must interrogate if we are to expand the tax base in this country, otherwise we will be overburdening the few ones already captured in the tax net.

 

• And there will be a breaking point, a tipping point, a limit they will be unable to bear. And despite these efforts, percentage of tax-to-GDP will not grow

 

• Another fact is that Nigeria has 14 double taxation treaties with other countries, South Africa has 79 as at this morning.

 

• Nigeria is the largest economy in Africa with 14 double taxation treaties, and yet we have foreign missions, embassies and High commissions in almost all the countries of the world that should be having double taxation treaties with.

 

• The point is that we as citizens, do we understand the implications of all these things for national development? Because if we did, I assure you that people will be more engaged in this conversation.

 

• When you look at all these facts, the key thing is that we all want a progressive, effective, efficient tax regime in Nigeria, so that government can do what government is expected to do and so that citizens can hold government more accountable.

 

• In America, England and other places, when we engage with our friends there, they tell you about holding government accountable, how the government cannot do certain things with tax payers money, how the ‘government is failing’ , etc. all because they feel the pinch, they pay taxes.

 

• The payment of taxes by citizenry is good for good governance because, then citizens are involved enough to hold government and leadership more accountable.

 

• It is our collective interest to make sure we expand the tax base for the obvious benefit of helping government to raise more revenue, and equally important for the purpose of making sure there is a mass mobilisation of citizens to demand good governance in the country

 

• When people don’t pay tax, “it’s not their money”, they don’t care about what happens.

 

• And this is part of the issue that we need to address here: What makes the average Nigerian think it is not wrong not to pay tax?

 

• Why is it that only 75,000 SMEs in a country of 200 million are registered to pay tax?

 

• How do we formalise our informal economy? How do we bring the informal economy into the formal system so that things can work?

 

• Why is it that corporations are moving their HQs out of Nigeria? Why do people try to avoid taxes?

 

• It took Rwanda 12 years to move from 6% tax-to-GDP ratio to 16%, why was this so? – Because of citizenry participation.

 

• In my view, government knows what needs to be done, what we collectively do now is how do we all work together

 

• Why is the Executive bill that was sent to National Assembly since 2017, this is 2019 now, why has this bill not been passed into law?

 

• Don’t these members of the national assembly have constituents?

 

• Don’t they have unemployment in their constituencies? Don’t they know that these tax amendments will help create employment in the country?

 

• These are conversations that we need to carry to the streets, people need to be mobilised to understand how failure in certain areas affect our overall aspiration as a people and a nation.

 

• The feedback from our SMEs is extremely insightful.

 

• For me, we must ask ourselves what each and every one must do about all these ideas we have here. We must all galvanise into action so that we can start feeling the impact

 

• Between 2017-2019, if these bills were passed into law and implemented, by now, you would have begun to see some improvements

 

• Yes, Nigeria is a large economy, but when people say there is a lot of inefficiencies in our tax system, it is not far-fetched.

 

• Our tax-to-GDP should simply not be where it is at today

 

• I have just demonstrated to you that if we are able to move it to 10%, the implication for that on our GDP will be very significant.

 

Conclusion

• We need in my viewpoint to do a couple of things:

 

• One and very powerful is communication, mass mobilisation, mass participation, letting people know why everyone should pay taxes.

 

• People need to be confident that when they pay taxes, government will use the money well.

 

• And I tell you something, if people pay their taxes, and you don’t use it well, they will demand it!

 

• It is easier for corporations to pay taxes, but when individuals are enlisted and they feel the pinch, and they feel government does not perform, you will see a different reaction! And that to me is extremely important.

 

• Our embassies should be given a simple target: the top 100 countries we trade with as a country, they must sign tax treaties with them in the next two years.

 

• I believe that we need to encourage the relevant arms of government to support them to achieve this

 

• The bills that are with the NASS, let us request of our National Assembly members, some are here, we request of you, with all humility, but with high national sense of importance and urgency, to help us pass these bills immediately into law so that our country will accelerate national development.

 

• I also want to make sure that we listen to these young entrepreneurs, because they yearn to support national development, and need all our encouragement and opportunities.

 

• Other recommendations from our entrepreneurs include:

 

• To increase the number of SMEs in the national tax net, SMEs should be registered for a tax free-season (tax holiday period), exempted from taxes at every level, federal, state and local.

 

• Another said that all the waivers oil companies have enjoyed should be extended to SMEs. They argued that they need the pioneer status more than big business.

 

• Another recommendation is that entrepreneurs and small business owners (one-man business) must pay just their company income tax and no individual tax. Their argument is that if it’s a one-man business, these business owners can hardly be separated from their business.

 

• As for multiple taxation which we have already talked about, small business owners feel this deeply. We should please fix and correct this.

 

• They also request that we synchronise all SME tax payments via one source, reduce the complexities and simplify the process.

 

• Special focus on women entrepreneurs for access to finance, training and for tax breaks.

 

• The few recommendations I want to add from the big business perspective, is the use of smart tax incentives.

 

• Government should employ the use of smart incentives to attract investors, both local and foreign, and new businesses into key sectors of the economy that will help us create employment and address our national development goals.

 

• Also, taxation needs to be less arbitrary. If you take the Agric and telecoms sector, it would be wrong to treat them the same.

 

• Agriculture is key, and we need to pay more attention and give more support to this sector

 

• Another thing that can help us broaden the base is the issue of how we can leverage technology in the 21^st century to improve our tax efficiency

 

• With technology, a lot can happen. People can for instance, pay taxes using their phones.

 

• In one of our businesses, in banking, the mantra is ease of use and simplicity

 

• We need to encourage government; if possible, all of us can march to the National Assembly to encourage them to pass the bill before the May 29, because after then, they start afresh.

 

• We have talked about the need to increase revenue in the country, and for people to willingly come into the tax net.

 

• We need our government to be transparent. All these things will happen if the right engagement and laws are made.

 

• And I believe that all of these must have been captured in the revised Executive Bill

 

• So, on this, I commend the leadership of the country, but we need to ensure that more is done.

 

• All of us have senators and rep members who represent us, and we should hold them accountable to pass this bill

 

• Until there is a reduction in what SMEs pay as tax, it will be difficult for us to expand the tax base, it will be difficult for us to attract investors into this country, it will be difficult for us to retain the ones already in the country, it will be difficult for us to mobilise our SMEs to help create employment that we need so much in this country, it will be difficult for us to have the citizens hold leaders accountable

 

• So, we must encourage government, let’s get the Executive Bill passed immediately.

 

• Let’s get the National Assembly to fulfil their obligation to society and pass the bill so we can start making progress

 

• Ladies and gentlemen, as I said earlier, I have not come to deliver any classroom lecture, I just want to talk about this important topic from my point of view, as first an entrepreneur who wears the shoes and feels some of the pinches, and more importantly, as a philanthropist through the Tony Elumelu Foundation committed to empowering our young ones.

 

• Empowering our entrepreneurs will create economic hope, so that collectively we can create employment

 

• I believe that we should at this time, talk less and just mobilize, engage and get our tax base expanded, get our SMEs into the tax base, encourage the big companies to do better, be more competitive both locally and internationally because we live in a global world today

 

• We need to do all of this to drive the needle on national development

 

• Thank you very much

 

 

Tony O. Elumelu, CON

Chairman, Heirs Holdings Group

Founder, The Tony Elumelu Foundation