This is spearheaded by the Federal Inland Revenue Service (FIRS) and the other State Internal Revenue Services. The need for government to capture the informal sector into the tax net has never been more urgent. It is important to note that the informal sector has emerged to absorb the shortfalls of the formal sector, unemployment as well as provide a means of livelihood for the semi-skilled and unskilled unlike. 4 These are: credit policies and strategies, management and technical training, and enabling environment strategies. Cookie Notice, Effective taxation of the Nigerian informal sector. 2. The recent International Monetary Fund (IMF) country report shows that only about 10million people, out of a labor force of about 77million people, are registered for taxes in Nigeria. Disentangling the Effects of Ethnicity and Social Intermediaries on Informal Sector Tax in Lagos, Nigeria Project Researchers: Adrienne LeBas, Jessica Gottlieb & Janica Magat In this project, we aim to investigate the role ethnicity plays in shaping attitudes toward taxation and the state. September 4, 2020. The Informal Productive subsector involves economic activities relating to production of tangible goods such as agricultural production, small scale manufacturing, building & construction, furniture & garment making, wielding etc. Those who operate in the formal sector deem it unfair to have to pay taxes while those in the informal sector do not. 2. Should businesses in the Informal Sector be taxed? The establishment of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) to primarily assist, promote the growth and development of micro, small and medium scale enterprises. Our guest writers too were not left in the action. Terms & Conditions | This makes it difficult for an independent party to accurately evaluate the financial position of the business in order to determine the amount of tax payable. There has been a lot of focus on the fact that Nigeria’s tax to GDP ratio of about 6.1% is quite low and appears to remain unchanged despite all the efforts of the tax authorities to improve collection. Andersen Tax LP is a Nigerian member firm of Andersen Global, a Swiss verein comprised of legally separate, independent member firms located throughout the world providing services under their own name or the brand “Andersen Tax” or “Andersen Tax & Legal.” Andersen Global does not provide any services and has no responsibility for any actions of the member firms, and the member firms have no responsibility for any actions of Andersen Global. In the first place, it would appear that it means an increase in per-capita income as well as improved standards of living. This may be visible, irregular, non-structured, backyard, underground, subterranean, unabsorbed or residual. ~Afam Nwokedi This category of taxable persons appear to be predominant in the informal sector. The above remain germane points in the ongoing debate on government’s morality in taxing or levying businesses in the informal sector or the implementation of tax holidays for such businesses. For those who may have read our earlier work on Image Rights (Vol 1, Issue 3), one cannot resist a further and deeper evaluation of Image Rights in the light of present decisions of courts and constant media-cum-image issues around the world. The latter effect which is the focus of this paper is worthy of note. Admin Cdd Press Release. The study investigates the effect of informal sector tax proceeds on capital development in Lagos Metropolis. It is however a known position that we This edition marks the beginning of Volume 2 of our quarterly newsletter. It would appear that this assessment can be determined based on best judgement. It is noteworthy that government efforts would appear albeit minimal given the robustness of the informal sector, it would appear that quite a number of businesses are left out of these schemes thereby creating two germane difficulties for government; i. For Genevieve, the Tax policies and government income perhaps, can further be improved if the informal sector of the economy is considered. Taxing the Informal Sector (IS) and its taxpayers’ compliance level has become a focus of attention in recent times by scholars and policy makers because of IS contribution to the country. The informal sector They typically operate at a low level of organization, with little or no division between labor and capital as factors of production. Look out for in-depth analysis on some of these topics in the next edition of our newsletter. According to the NTP, “the Presumptive Income Tax Assessment will require less documentation from the tax payer and also result in a quick and effective method of providing an assessment”. The study adopted Ex-post facto design to obtain secondary data, covering 20 years (2000–2019) from the Lagos State Internal Revenue Service and the Ministry of Budget and Planning. This low level of tax registration certainly creates a narrow tax base from which the Government is able to collect taxes and therefore impacts Government’s ability to generate revenue through taxes. Taxation of the informal sector is assuming centre stage in the drive for revenue by governments at all levels. An example of such support is the N1.6 billion special intervention fund – National Women Empowerment Fund aimed at supporting grassroots women operating informal businesses by providing start up and scale-up credit for them. In particular, the NTP notes that PITAS would help the tax authorities deal effectively with the taxable persons who have historically failed to comply with the tax laws due to their size or lack of business address. Nigeria has generated a total of N7.8 trillion from company income tax (CIT) from January 2015 till end of last quarter (Q3 2020), an analysis of relevant data has shown. They typically operate at a low level of organization, with little or no division between labor and capital as factors of production. However, a recent study by Chatham House Royal Institute of International Affairs indicated that the Nigerian informal sector constitutes as much as 64% of Gross Domestic Product (GDP). In this wise, it envisages frequent interactions and engagements between the various stakeholders to ensure seamless administration of tax regimes. The effect of this information is two-fold. The economic activities in the Informal financial sub-sector include the Ajo/Esusu, informal money lenders among others. www.ajol.info, Aisha Alhassan, Former Minister of Women Affairs and Social Development showcases President Buhari’s government’s empowerment programmes at UN event www.businessdayonline.com, Affordable Credit for Grassroots Businesses www.nationonlineng.net, “Lagos Tax Agency To Go After Informal Sector Tax Payers” on Nigeria Real Estate Hub; www.nigeriarealestatehub.com, Embuka Anna, Presumptive Tax: Equalizing the Distribution of Tax Burden www.vanguardngr.com. 3. This impacts their tax morale and can result in low tax compliance among those in the formal sector. It also places significant burden on the existing taxpayers who in some instances, already have a high level of compliance, as the tax authorities continues to focus on these known taxpayers for audits and tax drives. While we continue to lament on the dwindling economy which we operate in Nigeria, a lot of solutions to the menace are being presented, a very important known means to sustain and grow any economy is taxation. Government is unable to capture the existence of these businesses and cannot therefore include them in its tax dragnet. On the other hand, it would appear that government is losing potential income which would otherwise be revenue for it. Accountability and good governance have been identified as the key to achieving effective informal sector taxation. The biggest challenge is that most of the businesses operating in the informal sector do not keep proper records of their day-to-day transactions. Umoh, The Informal Sector, www.onlinenigeria.com, G.T. Basically, effective tax collection is a function of accurate information. GENDER AND TAXATION IN NIGERIA: AN ANALYSIS OF DIRECT AND INDIRECT TAXES By Professor Christiana E. E. Okojie Department Of Economics and Statistics To this end, the informal sector can be explained as the sum total of income generating activities outside of a government regulated contractual relationship of production.1, The informal sector may be subdivided into Productive, Service and Financial sectors. The informal sector which accounts for more than sixty percent of economic activities in Nigeria has been noted to be a limiting factor in the revenue base of the country. This research project was undertaken between January and February, 2017 by Int'l centre for women empowerment and child development. This is all in a bid to stimulate economic growth and create an enabling environment for more investment. Nigerian Informal Sector and Tax Challenges . The size of the informal sector in Nigeria is estimated at about 65% and consists of activities that range from agricultural production to mining and quarrying, small … Taxation of the informal sector2 The formalisation of informal sector activities has received some particular attention in the international development agenda, and taxation is often regarded as a key ingredient (Joshi et al., 2014). Privacy Policy | PRESS RELEASE ON TAXATION OF WOMEN IN NIGERIA’S INFORMAL SECTOR. Nigerian informal sector is described as any commercial activities from all sector of the economy that operate outside the purview of government regulation (Ekpo and Umoh, 1996). The informal economy is described as the sum total of economic activity that happens outside state regulation, which is neither taxed nor represented in a country's GDP. Page 6 of 7 9th ATAF COUNTRY CORRESPONDENTS’ CONFERENCE AND 1ST EXPERTS MEETING ON TAXATION OF THE INFORMAL SECTOR Abuja, Nigeria: 4 – 6 February 2020 Transcorp Hilton Hotel, Abuja AGENDA Day 3: Thursday 6 February 2020 09h00 – 10h00 taxation in the African continent, i.e. There has been a lot of focus on the fact that Nigeria’s tax to GDP ratio of about 6.1% is quite low and appears to remain unchanged despite all the efforts of the tax authorities to improve collection. More significantly is the fact that we have welcomed articles from guest-writers from other law firms. Agencies have also been established to administer government assistance. Taxing the informal sector can be through registration and formalisation to push these firms and individuals into the tax net, or it can be through taxing them indirectly. This puts Nigeria in a class of its own as the United Nations assessments suggest that for developing economies the average percentage composition of GDP by informal sector ought to be 41% and for countries in transition; 38%. Government support are of three categories, some of them are interwoven in concept and operation. Abuja, Nigeria. ©Andersen Tax LLC and Andersen Tax LP. the check list or keys steps to follow when Required fields are marked *. The educational charge is pegged at 2 percent of the assessable profit while a 10 percent withholding tax is deducted … It remains incontestable that the law mandates tax payers to pay their taxes regardless of whether or not government provides infrastructure to support economic activities, it would however be a moral victory for government to fulfill its duty to its citizens, in order to motivate/demand the citizens to fulfil their civic duties. In line with the agenda for the reform of tax rules aimed at realising gender equality in Nigeria, the Centre for Democracy and Development (CDD) has released a report on women’s participation in urban governance through effective taxation. An estimated assessment of the tax payers’ income based on indicators specific to a given business; Net worth and assets of the tax payer (this does not take into consideration intangible assets), Ugochukwu U. Ikeije, LekanAkomolafe & Chinwe O. Onuba, Labour Practices in the Informal Sector of Nigerian Economy: A Critical Analysis (published by European Centre for Research Training and Development UK www.eajournals.org), I.A.H. The Informal sector, which is the focus of this paper is also known as the “grey economy”. Ani Ubon critically examines the much controversies and deception surrounding the appellation ‘Alternate Director’ and presented us with a heavy recommendation – that the appellation be expressly expunged from the Company & Allied Matters Act. The LIRS stated that it has begun the process of overhauling its informal sector operations to ease voluntary compliance by tax payers. Given the operations of the informal sector, information gathering would be a herculean task. TAXATION IN THE INFORMAL SECTOR IN DELTA STATE. Thus, Alex in a deeper evaluation presents us, with the possibility of a relief at common law. Government support are of three categories, some of them are interwoven in concept and operation. ii. Some of these businesses are operated by liquid cash; Absence or inadequate accounting/book keeping records; Absence of a database in view of the non-registration of businesses within the informal sector; Difficulty in identifying the appropriate tax base; Our tax operations are more suited for the direct sector further necessitating the need for a system which makes voluntary compliance easy; Tax payer’s defiance to tax remittance in the face of what they consider to be failed government support. (ICWECD) in collaboration with Civil Society Legislative Advocacy Centre (CSLAC) an Abuja based non- governmental and non-pro t organization founded on the vision of a Nigeria where citizens are participating in … a. Unlike the self-assessment system of tax wherein a taxpayer prepares and submits its audited account and tax computations which is subject to acceptance or rejection by the relevant tax authorities upon review, the presumptive tax regime assesses a tax payer on perceived income in view of its lack of documentation. April 14, 2020. It means that they do not maintain proper books of account which should enable them produce audited accounts and compute the appropriate tax payable for the period. The informal sector will remain a major feature of economic activity in Nigeria. The operators in that sector are usually more focused on improving and growing their businesses rather than keeping proper records. Please read these terms and conditions before using the website. In response to these challenges, government must develop smart solutions unique to this sector and the Lagos State Internal Revenue Service (“LIRS”) 9 offers a good reference point because of its approach. The sector widely acclaimed for its wealth creation function, as well as its personal income generation capacity, through a variety of small-scale/entrepreneurial activities is a largely unstructured interface among/between unincorporated entities in any economy. Hence the National Tax Policy (“NTP”) recognised the potential of this sector vis a vis revenue generation for government and this would be disclosed below. It is also common occurrence for them to mix their personal funds with that of the business. The NTP in recognizing the different stakeholders in the Nigerian tax system, identifies the taxpayers as the single most important group while reiterating the need to ensure strict compliance with the tax laws at all times. Your email address will not be published. In between the FIRS, Joint Tax Board, JTB, the states and local governments, there is still lacking a clear, coherence and systematic policy on how to The average business person within the informal sector does not consider himself a taxable person. Income under this tax regime may be estimated by: 10. The assessment is based on three major indicators; total tax rate, number of payments and compliance time. A significant catchment of potential taxable persons that must be brought within the tax net therefore are those operating in the informal sector of the Nigerian economy. This puts Nigeria in a class of its own as the United Nations assessments suggest that for developing economies the average percentage composition of GDP by informal sector ought to be 41% and for countries in transition; 38%. Therefore, the effort of all players should be to evolve a tax system that works well for all parties and the economy. (Principal Partner & Group Head). Your use of this website is subject to the terms and conditions governing it. This includes using the same bank accounts for both business and personal transactions, subsidizing the business with personal loans and taking money out of the business for private use without proper documentation. While PITA relies on the Prescriptive tax regime as means of taxing on the informal sector, the NTP on the hand relies on the Presumptive Income Tax Assessment and it is apparent that these tax regimes have the same intent. Despite these efforts, the general level of tax compliance in Nigeria is still quite low. We have introduced a section that captures some other recently trending topics in the IP sphere in Nigeria. Also Read: Best Accounting Software For Small Business Owners In Nigeria. Taxation is a viable and long-lasting solution to government revenue shortfalls. It is based on a taxpayer’s supposed income given the fact that most participants in the sector do not keep proper records of account. 3. The mass of economic activities can be categorized into formal and informal sectors. Media, Entertainment, Technology and Sports (METS) Law, Photo Privacy and Media/Image Rights in Nigeria, The Status and Role of an Alternate Director Under the Nigerian Corporate Governance. The effect of this information is two-fold. A standard assessment i.e apportioning an aggregate sum to tax payers doing the same kind of business. Tax avoidance and evasion have become the culture of some individuals and businesses operating in Nigeria.One of the latest indexes, “Paying Taxes 2015”, which compares tax systems across the world, ranked Nigeria the 3 rd worst globally in tax compliance. Abuja — The Executive Chairman of the Federal Inland Revenue Service (FIRS), Mr. Muhammad Nami, yesterday said Nigeria and the rest of Africa must exploit the potential in the informal sector of the economy to reduce budget deficits and increase tax revenue collection. Beneria and Floro (2006); UNRISD (2010) argued that, informal sector typically earn less income, have unstable income, and do not have access to basic protections and services and for such reasons believe that, informal sector lacks the potential for growth. The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the Nigerian economy. Taxing the informal sector The informal sector consists of firms and individuals who are not fully registered and regulated, and therefore not in the standard tax net. Commodity prices have remained volatile globally, diversification into other better paying natural resources require massive investment income which government does not have readily. In partnership with the United Nations Industrial Development Organization, it birthed the Sub–contracting and Partnership Exchange (SPX) to link domestic enterprises in developing countries to the supply chains of large domestic or international companies 5 with the grant of credit and investment facilities in 1999. Upon recognizing the huge revenue stream in the informal sector, the LIRS had earlier in the year classified the tax payers in the informal sector to be: market men/women and artisans; micro, small and medium scale enterprises (including professionals); and household domestic staff. In particular, the Addis Ababa Action Agenda outlines that … For obvious reasons, the topic has become Companies in Nigeria pay 30 percent of their worldwide profit while foreign companies pay 30 percent of only the profit made in Nigeria. The NTP, an initiative of the Federal Government driven by the Federal Ministry of Finance sought to set the direction for Nigeria’s tax system as well as provide the basis for tax legislation and administration in Nigeria. Abstract. Given the fact that to access government support, business owners are required to undertake some form of registration with it, inter-agency collaboration would even helpful to at least identify these potential taxpayers. While voluntary compliance is a benefit of this tax regime, the “imprecise” nature of the tax assessment could pose hardship to the business owner. Published On - April 15, 2020. The enlightenment must also seek to demystify the process leading up to taxation which is needlessly shrouded in complex financial jargons. The sheer size of the sector makes it practically difficult to ascertain the actual membership and activities of the sector. The informal sector refers to the economic activities that function with limited government regulation and usually unstructured. Also, established in recent times is the MarketMoni – the Government Enterprise and Empowerment Programme (GEEP) established through the Bank of Industry (BOI), a parastatal of the Ministry of Industry, Trade and Investment is a no interest loan scheme, which is accessible provided there is confirmation of membership of accredited market associations and the provision of Bank Verification Numbers (BVNs).8. Amaka skillfully links economy with knowledge and ties both around intellectual property. Your email address will not be published. The NTP encourages through innovative policy directions i.e a shift from direct taxation to indirect taxation, reduced direct tax rates (Personal Income Taxes and Companies Income Taxes alike) & increased indirect tax rates. The featured articles seek to expand the frontiers of our Intellectual Property laws and Corporate-Commercial law and practice as we know it. Specifically, the size of the informal economy in Nigeria ranges between 47 and 67 percent from 1970 to 2018, and averages 56 percent of the GDP over the same period; and that the nation, on average, losses 56 percent of her potential tax revenue yearly to informality, with the estimated tax revenue loss … Ifeanyi presents us with the possibility of an un-explored area of intellectual property – a difficult dialogue, a thought, nay, a reality which intellectual property lawyers, lawmakers, businessmen and directors all over the world may be interested in. She paints a unique picture of intellectual property and its prospects for a developing economy. b. Taxing the informal sector is also critical because it will ensure that there is a perception of fairness in the tax system. It is however not the focus of this paper. There has been a lot of focus on the fact that Nigeria's tax to GDP ratio of about 6.1% is quite low and appears to remain unchanged despite all the efforts of the tax authorities to improve collection. Given the significant size of the informal sector in the economy, it is safe to say that the tax to GDP ratio will not significantly improve until this huge and untapped section of the economy is effectively subjected to tax. 7 This fund is expected to target 10,000 women per state. The ingenuity of such thought in the present economy of Nigeria cannot be over-emphasized. It is however advisable that a massive tax enlightenment for participants of the informal sector be embarked upon to reiterate that tax payment is part of their civic duties. principles of good tax system. Challenges for tax collection in the Informal Sector Activities in the Informal Service sub-sector include traditional birth attendants, menial labour, traditional healers etc. Some of the issues plaguing the proper taxation of these businesses include: c. How should they be assessed for taxation? Arosanyin and G. T Ijaiya: Government Assistance for Informal Sector Enterprises in Nigeria. The Barcode is a Grid Creative Newsletter Website by Stillwaters Law Firm. This edition is unique as the articles featured herein are not only educative but they are evolutional. In essence, the above provision mandates that the income of a taxpayer from the informal sector shall be taxed in accordance with the prescriptive tax regime. Prior to this, Section 6 of the Personal Income Tax Act (Amendment) 2011 (hereinafter referred to as “PITA”) provides for a new sub-section (6) to Section 36 of the Principal Act which states: “(6) notwithstanding any of the provisions of this Act, where for all practically purposes the income of the taxpayer cannot be ascertained or records are not kept in such a manner as would enable proper assessment or income, then such a tax payer shall be assessed on such terms and conditions as would be prescribed by the Minister in regulations by order of gazette under it prescriptive tax regime”. These businesses do not benefit directly from government support program but survive and grow solely due to the persistence and ingenuity of their owners. Accountability and good governance have been identified as the key to achieving effective informal sector taxation. CISLAC Policy Brief on Expanding the Tax Base in the Nigerian Informal Sector. 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