e-Transfer Capable Of Generating N462 Billion In 2021- World Bank
As Nigeria continues to grapple with revenue shortfalls owing to uncertain global oil prices, the World Bank says the country can raise about N462 billion through electronic money transfer (EMT) levy in 2021.
Though the price of crude oil has picked up slowly at 72.61 Dollars per barrel, Nigeria’s economy had been hit hard by the collapse in oil prices in the wake of the coronavirus pandemic in 2020.
According to its Report issued Tuesday, the World Bank said that Nigeria must promptly issue regulations for the imposition, administration, collection, and remittance of the levy if it must shore up revenue to meet up its budgetary requirements.
“The electronic money transfer (EMT) levy is a stable revenue source with potential to raise up to N462 billion in 2021.
“The EMT levy, introduced in the Finance Act 2020, which amended the Stamp Duty Act, taps into the growth in electronic funds transfer in Nigeria and can be administered at low cost.
“To maximize its impact, Nigeria must promptly issue regulations for the imposition, administration, collection, and remittance of the levy.
“While raising VAT rates is not viable in the short term due to the financial burden it would impose on the poorest Nigerians, broadening the VAT base and improving compliance would significantly raise VAT revenue.
“This is because the levy is quite wide in scope and presents interpretation problems, regulations should specify exclusions from the scope and specify in detail processes for administering the levy.
“Enforcement of some elements of the charge, such as inter-bank transfers, could be challenging in view of possible resistance from the banks and could be sub-optimal for overall tax compliance by incentivizing cash transactions,” the World Bank said.
It further advised the Federal Government to be clear and specific on the competent authority to administer transactions between individual VAT reforms which were introduced in the Finance Act 2019 as they can raise the country’s GDP.
“In terms of administration, there is also need for more clarity on who should be the competent authority to administer transactions between individual VAT reforms introduced in the Finance Act 2019 can raise 0.4 percent of GDP in revenue, and another 1.4 percent could come from better compliance.
“The Finance Act 2020 introduced VAT taxation of cross-border business-to-consumer digital supplies to align with the CIT digital tax introduced in Finance Act 2019.
“Proper application of this provision would significantly boost VAT revenues and open up room for future revenue growth as cross-border consumption of digital products continues to grow,” the report said.
Adding that, “An anti-fragmentation rule should be introduced to prevent splitting of business operations into small companies in order to fall below the VAT filing threshold introduced in Finance Act 2019.
“In the medium term, the current 7.5 percent VAT rate, one of the lowest in SSA, can be raised to international levels of 10–15 percent.
“The limited input tax credit mechanism means that the Nigerian VAT operates more like a turnover tax applying at all levels of production and distribution. The mechanism should be reviewed and reformed, with the long-term goal of a broad-based VAT regime with a single rate and a comprehensive input tax credit mechanism. This would be the most efficient way to collect VAT revenue.
The Bank also said that reforms of corporate income tax (CIT) can seal loopholes without raising the tax burden on compliant corporations, potentially raising revenue by 0.7 percent of GDP In the current environment, in which raising CIT rates could suppress economic growth, targeting compliance and rationalization of tax expenditures provides an avenue for CIT-related growth.
It said further that an anti-fragmentation rule could be included in the Corporate Income Tax Act (CITA) to prevent medium and large companies from fragmenting business activity into multiple companies to take advantage of the exemption for small companies with turnover of less than N25 million.
“The definition of “dividends” should be revised to include “disguised” dividends to prevent companies from funneling corporate profits to shareholders without paying tax.
“In the medium term, a technical diagnostic review of the CITA will be necessary to identify loopholes and technical deficiencies in current law and to rationalize costly tax incentives. Any progress toward more compliance in the current environment is likely to be sticky, however, persisting beyond the COVID-19 induced economic crisis,” the World Bank said.
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