The International Monetary Fund has advised the Federal Government to urgently revisit tax holidays and exemptions given to companies. It specifically urged Nigeria to implement a reform that would see it phase out tax holidays and exemptions eroding the Company Income Tax base.
Successive governments had granted controversial tax holidays and waivers, which were described as forms of corruption.
The Washington-based Fund, through its Senior Resident Representative and Mission Chief for Nigeria, Africa Department, Mr. Amine Mati, also asked the Federal Government to:
- Increase taxes imposed on tobacco and alcohol, emphasising the need for socially responsible fiscal adjustment based on revenue mobilisation.
- Reduce interest payments on borrowed funds to about 30 per cent of the country’s revenue.
- Have Nigerian policymakers move beyond voluntary compliance measures in tax matters in order to mobilise non-oil revenue and increase the fiscal space.
- Embark on full Value Added Tax and broaden it.
- Embrace the recent “de facto” tighter monetary policy stance and stop the financing of the central bank to the government and strengthen the monetary policy framework.
- Concerning exchange rate, the Central Bank of Nigeria, should through its recent introduction of the Investors and Exporters FX window address market segmentation; remove FX restriction; simplify/unify the FX market; and improve operations of the FX market in line with market fundamentals.
Mati noted that the Federal Government’s Economic Recovery and Growth Plan was an important step forward, adding that important policies and steps had been taken but policy action remained urgent.
“Comprehensive policy package is needed, including front-loaded non-oil revenue mobilisation, greater exchange rate stability.”
A former President of the Chartered Institute of Taxation of Nigeria, Chief Mark Dike, has also lent his voice to the issue of tax holidays, describing tax as a compulsory levy imposed by the government on individuals and companies for the provision of public goods and services.
As a result, he said he was of the opinion that the government should:
- Create an enabling environment and provide general incentives for companies, adding that tax waivers and holidays could create a lack of level playing field.
- Reduce the tax rate to enable every company and individuals to pay.
- Give only little tax holidays in order to encourage foreign direct investments and domestic investments in certain sectors.
- However, only give such tax holidays and exemptions for a short and definite period of time, and to only very few credible companies that had proven records.
According to him, tax holiday and waivers have been abused in Nigeria and the government needs to watch the manner such are given.
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