Many people talk about the Nigerian Financial Bill as a news item, but few truly understand what it’s meant to do for Nigerians. The purpose of the bill is to make or amend provisions to specific laws connected with the public financial management of the Federation. In plain English, setting guidelines on how the Federal Government generates revenue for public spending.
Key changes to the Nigerian Finance Bill 2022 include;
- Increase in the Tertiary Education Tax to 3%.
- Expansion of the current tax base to include a tax on digital assets, income in convertible currencies from tourists in hotels, and life insurance annuities; increase in Company Income Tax for gas flaring companies to 50%.
- Tax credits of 5 and 10% respectively for investments in associated and non-associated gas utilization.
- Import levy of 0.5% on all eligible goods imported into Nigeria from outside Africa; exemption of companies engaged in upstream and midstream gas operations (along with Agro Allied businesses and manufacturing companies) from the annual restriction of capital allowance utilization to two-thirds of assessable profits.
- The repeal of the investment allowance for qualifying expenditure on plant and equipment as well as the rural investment allowance.
- All services, including but not limited to telecommunication services, provided in Nigeria to be liable to excise duty at rates to be specified via a Presidential Order.
- The proposed amendment to the sharing formula for revenue from Electronic Money Transfers from the current 15% for FG and 85% for States to 15% for FG, 50% for States and 35% for LGs.
We have nothing against the government expanding its tax base, especially as the country’s public debt and spending have soared within the last few years. However, our concern over changes made in the Nigeria Finance Bill is with regard to the sustainability of these changes. While some of the changes like the increase in CIT for gas flaring companies have both long-term economic and environmental benefits, others such as the repeal of the rural investment allowance are perhaps a bit short-sighted when considering the need for increased development in our rural areas.
Nigeria is plagued by the “3 Inabilities”. First, we are not producing enough goods and services to generate commensurate tax levels. Second, we are not collecting tax from areas where we should be collecting from (the informal sector is still largely tax-free) and Third, we have leaky pockets. Even when tax is duly collected, our remittance levels are low.
The gains as a result of changes to the Nigeria Finance Bill 2022 should not be short-term. We believe that in addition to expanding the current tax base, priority and emphasis should be placed on raising our human capital stock. We need to get more Nigerians to produce more goods and services. More efficient means of tax collection and remittance also need to be employed if we are going to generate the revenue required to adequately fund our economy.