AFRICA: Nigeria, Others Move to End Tax Incentives, Waivers to High Net Worth Individuals, Businesses.

As published on thisdaylive.com, Wednesday 2 November, 2022.

The federal government of Nigeria and the African Tax Administration Forum (ATAF) have announced their resolve to stop tax waivers and incentives to high-net-worth individuals (HNWIs) and multinationals in Nigeria and other African countries.

The Executive Secretary of the African Tax Administration Forum (ATAF), Mr. Logan Wort, and the Executive Chairman, Federal Inland Revenue Services (FIRS) Muhammad Nami disclosed this yesterday at the 7th ATAF General Assembly where tax professionals and stakeholders converged to discuss ‘Rethinking Revenue Strategies: The Human Face of Taxation.’

They both agreed that the continent was in need of funding to cater to its various budget deficits and funding for critical infrastructure across the continent.

They also noted that resources from tax are better alternatives than borrowing to fund deficits, adding that ATAF has created an automated information-sharing mechanism to expose high-net-worth individuals and their companies’ direct and indirect assets in a bid to tax them appropriately.

Speaking on the sidelines of the event, Wort said: “On tax incentives, it is true that tax incentives are responsible for a lot of leakages and a major cause of illicit financial flows out of Africa. It puts it at 3.5 per cent of GDP that Africa loses in tax incentives.

“There are things on the horizon. Firstly, the discussions on the inclusive framework dealing with a digital economy have proposed a global minimum tax of 15 per cent and should that come into play, all companies will have to pay a minimum of 15 per cent.

“So, when an African country gives a tax incentive of zero to a company, that company will have to pay 15 per cent of tax to someone in the world. So, if we give zero per cent tax incentive, that 15 per cent will simply go to another country. So, we are now being discouraged from doing these tax incentives.

“Secondly, we are developing a proposal for an African minimum domestic tax. We are proposing to the African Union (AU) that we introduce on the continent a minimum domestic tax so that nobody pays zero tax. Those are the two ways in which we think the issue of tax incentives will be dealt with.”

Speaking further multinationals and high-net worth individuals, Wort said: “If you focus on taxation such as value-added tax (VAT) and others, you are regressively taxing poorer people more, but if you tax wealthy people more and better, you bring them into the net, your ability to collect and to make tax pay is better.

“High net-worth individuals and multinational companies largely have their businesses and their money outside of the country. Now that is legal, and that is fine, but the tax burden and the tax obligations are in the national jurisdiction.

“And how do you find out how high net worth individuals and multinationals type of transactions, what type of dividends, and what types of shares and assets they have on which they should pay tax in your national sovereign is done by a treaty, a double taxation treaty between countries and you also do that through signing an automatic exchange of information agreement.”

On his part, Nami pointed out that the country could benefit more from stopping tax waivers, saying it would be a better option to continuous borrowing.

He said: “On incentives that we give to businesses, it is not as if incentives are bad, but tax waivers are what is exactly the issue. The global best practice today is not for us in Africa to continue to give tax waivers to companies because when you give these waivers to them here, they go back somewhere else to pay the taxes and we follow those same people to go and collect loans for purposes of funding our budgetary requirements.

“So, the best practice today is for us to mobilise these resources from these taxpayers and apply it to build infrastructure where necessary, to grant loans to SMEs where necessary so that we’re able to grow the economy instead of taking loans.”