AMINA HUSSAINI, Abuja
African tax administrators have said electioneering promises including tax incentives from the political class to the informal sector make it difficult to subject operators to taxation or yield low returns if the efforts pay off.
Political parties draw huge membership from small business owners and artisans who are relied on for majority of votes during elections. Owing to this, they are a ready tool for politicians who will like to repay them after elections by instituting policies that compel their loyalties.
Executive Chairman, Federal Inland Revenue Service (FIRS) Mohammed Nami whose institution faces this challenge said in Abuja Tuesday at the 9th Country Correspondents meeting and ATAF First Experts meeting on taxation of the informal sector, said taxing the informal sector is a policy that may not go down well with the political class.
Nami said “taxing the informal sector is viewed as politically unpopular and politicians are unwilling to risk losing the high number of votes represented in the sector. This is because politicians promise informal workers protection from taxation in exchange for their votes.”
In addition, the FIRS boss said the operators also the operate on a cash basis and maintain poor or no accounting records while most of the businesses are also small and fragmented making it inefficient for the revenue administrations to enforce compliance.
This is taken into consideration in the new Finance Act which removes the burden of income tax from small businesses that are below N25 million income.
At the meeting where tax administrators on the continent under the African Tax Administration Forum (ATAF) discussed ways to bring the operators of informal businesses into the tax net, Nami noted that capturing the informal sector into the tax net may also bring value to the society.
“Taxing the informal sector may also be a way of promoting good governance and political accountability of the State because tax strengthens the social contract between the citizens and the government”.
“Thus, informal businesses that contribute to tax revenues are likely to assert their rights to receive certain services from the government thereby ensuring accountability.”
Paying taxes, he said will promote responsiveness by the state to the needs of the informal sector in a bid to encourage voluntary compliance while also encouraging collective action, collective political engagement and bargaining by the informal sector.
“if Africa is to reduce its budget deficits and increase revenue mobilization, it must widen its tax base and the informal sector provides the opportunity to do so”he stated.
The Executive Secretary, ATAF, Lorgan Watt stated that over the past four years ATAF has helped eight member countries recover $1 billion in taxes $300m of which is already in the bank.
According to him, “today the world is gathering over this period to discuss how to tax the digital economy. Nigeria is a massive market, e-commerce and social media platform is widely used in this country and it is widely used in other continent, mobile cellphone is the biggest on the continent and so what does that mean for revenue and for economic activity, because now companies can do business in our countries without having a presence here.”
ATAF as an organization has in the last 10 years trained 16,000 tax officials who have trained 500 tax auditors, graduated 85 Masters degree students in tax who were trained in English masters degree offered through ATAF.
They have published more than 300 academic policy and administrator academic papers through the African Tax Research Network and have produced formidable tax statistics publication anywhere on African travellers tax statistics he explained.
At the meeting it was revealed that taxing the informal sector may yield low returns in the short run, but the benefits are worth the effort. Bringing the businesses into the tax net they said introduces a tax paying culture in the businesses, which ensures tax compliance when the businesses expand.
Taxing the informal sector is considered critical in ensuring a perception of fairness in the tax system. “Those who operate in the formal sector deem it unfair to have to pay taxes while those in the informal sector do not. This impacts their tax morale and can result in low tax compliance among those in the formal sector.”
furthermore, in some instances, enterprises within the informal sector create unfair competition for those operating in formality. This reduces the income generated by the formal firms and consequently, reduces the taxes paid.”He added.
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