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Ensuring New Fiscal Equity in Tax Administration

ABUBAKAR JIMOH

The French Declaration of the Rights of Man and of the Citizen of 1789 once said “common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equitably distributed among all the citizens in proportion to their means”.

The Chairman of the Federal Inland Revenue Service (FIRS), Mrs Ifueko Omoigui recently announced new tax regime which is a product of the Personal Income Tax (Amendment) Act, and came into effect on June 14, last year. The policy compels the president and his vice as well as governors and their deputies to pay tax on their earnings; as this will help to bridge the gap between the rich and the poor in the country.

The newly introduced tax regime is a progressive tax system that has been described as a type of income tax system in which persons or corporations are assessed at a greater percentage of their income according to the theoretical ability to pay. In this case, people with a higher disposable income suffer larger percentage of their income in taxes than those with low or moderate earning power in the country.

Hitherto, progressive tax has been reported to appeal to the average person’s sense of fairness, equity and equality, it also has been the basic drivers for countries of the world that has adopted the system. For instance, in China the tax brackets under the progressive tax system range from 5% for the poorest citizens to 45% for the country’s elite; from 5% to 40% in Japan; from 0% to 45% in Australia; between 19.5% and 49% in New Zealand; while in the United Kingdom, progressive taxes range from 20% to 40% of a person’s taxable income.

Under Nigeria’s new income tax rate, a first earning of N300, 000 will attract 7% tax, while subsequent income of the same amount will be taxed at 11%. Those who earn N500, 000 would be made to pay 15% of the income as tax in the first instance, while 19% would be charged on subsequent earnings of the same amount; earnings of N1.6m will attract 21% tax, while income above N3.2m will attract a tax of 24%.

The fresh rates will mark a new era of equality in Nigeria tax administration as it reflects largely on take home pay of those political office holders previously excluded from tax obligation. That is, the President earning N1.171million, Vice President earning N1.010million, Minister earning over N650 thousands, Senate President earning over N724 thousands, Deputy Senate President earning over N673 thousands, Senator earning over N1m, Speaker earning over N412 thousands, Deputy Speaker earning over N381, Members of House of Representatives earning over 792 thousands, State Governor, Local Government Chairman earning over N295 thousands naira are liable to pay higher aggregate as tax than common civil servant whose monthly minimum pay is N18, 000.

The system will not only control individual spending behaviour, but also guarantee their protection during recession since they will fall into lower income bracket when their income drops.

The ongoing emphasis on taxation imposed at all levels will mark a new outlook for National Income diversification and discourage mono-economic practice in the country. For instance, taxes provide the most important revenue source for the Government of the People’s Republic of China. As the most important source of fiscal revenue, tax is a key economic player of macro-economic regulation, and greatly affects China’s economic and social development.

Just as the progressive tax is used in advanced economies, Nigeria can use its new tax regime as a tool for economic stimulation and development. The United States government for example, has a number of tools available to influence the economy and secure the well being of its citizens. Fiscal policy allows the government to utilize spending and tax revenue on projects the government chooses to support.

These actions of the government to achieve economic goals are enacted through legislation which has marked the initial action taken by the FIRS while proposing the new tax system. Also, the US government has used economic stimulus legislation to support those affected by the events of September 11, 2001, and more recently, to support the financial and automotive industries; which Nigeria can exploit towards the resuscitation of its socio-economic capacity.

In low economy situation, the government can take positive action through economic stimulus bills. These bills or legislation specify the allocation of funds to specific areas of need. These areas could be general in scope and their recovery beneficial to the majority of the population. They could also be targeted or specific, as in natural disaster relief without seeking for much external grants or debts.

Progressive taxation is often considered as an overall system since tax codes have many interdependent variables. For example, progressive income tax in Australia is the most important revenue stream within the Australian taxation system. It is levied upon three sources of income; individual taxpayers, business income and capital gains. These account for 66% of federal government revenue and 57% of total revenue across the three tiers of government.

Besides, the new development will help to curb illegal manipulations surrounding the system to as far as grassroots level; this is because the local government area councils power regarding tax collection has been ceded to the state government. This will primarily enhance central co-ordination, reduce cost of tax administration collection and eliminate multiple tax burdens on the people.

However, for the new tax regime to achieve its main objectives, the Joint Tax Board must ensure competence, transparency, fairness and justice in the collection and administration of tax in the states. This can be achieved by giving administrative powers to tax authorities in the States with the provision of statutory qualifications for appointment as chairman and members of state Boards of Internal Revenue and provisions of basis for funding through the retention of a percentage of tax collected.

Abubakar Jimoh is a member of NYSC at Revenue Mobilisation Allocation & Fiscal Commission (RMAFC), Abuja. abujimohoh01@yahoo.com

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