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Eben Joels Discusses Impact Of Multiple Taxes, Levies On Nigerian Businesses

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Eben Joels

Eben Joels is the managing partner of Stransact Chartered Accountants and Auditors, a Nigerian RSM correspondent firm. In this interview with ROLAND OGBONNAYA, he discusses tax reforms in Nigeria, President Bola Tinubu’s one-year administration, and what the federal government needs to do to put the country on a path of progressive growth and social development.

Tax reform is a hot topic in Nigeria. What do you think the government should focus on in terms of tax reform?

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If President Bola Tinubu remains in office for another eight years, his tax reform efforts in Nigeria should focus on broadening the tax base and improving tax collection efficiency, as well as lowering tax rates. Expanding the tax base should entail establishing a tax system that requires every Nigerian to file a tax return with the government. I intend to propose a modest federal income tax for individuals and require states to share data with the Federal Inland Revenue Service. This will improve the effectiveness of the state’s Internal Revenue Services. I will abolish all other taxes disguised as levies for specific purposes, including the Education Tax, Police Trust Fund, NITDA levy, and so on. All of these levels have resulted in our corporate tax rate being one of the world’s highest. For instance, Russia recently increased its corporate tax rate to 25%. That is a country with a war economy. However, ours is around 34%. These special causes taxes I mentioned are primarily used to offset the administrative costs of the bureaucracy they support, or they are largely stolen. I would rather have a lower tax rate and a larger tax base.

 

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There are more radical tax proposals. For example, given that Nigeria is a republic, I do not understand why the President and Governors are exempt from paying taxes. This is absurd, given that even in a monarchy like the United Kingdom, where the King and Prince of Wales are exempt from taxes, they choose to voluntarily pay them to the state. If the President of the world’s largest economy, the United States, is not tax-exempt, I do not see why a relatively poor country like ours should exempt certain offices from taxes.

 

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Finally, I hope the President dares to implement an inheritance tax system in Nigeria. Most advanced countries levy a high estate tax, sometimes exceeding 40%, when they are passed down. This tax is one way for capitalist nations to ensure that wealth is redistributed in some form. The tax only applies to the extremely wealthy. In the United Kingdom, the threshold is estates valued at more than GBP325,000. The system provides significant relief to anyone who chooses to donate to a charitable non-profit. This is another way to grow the charitable non-profit sector. Consider this: anyone inheriting assets worth N5 billion or more is required to pay 40% to the state, or 20% if they donate a specific amount to charity. There are many benefits. However, I hope that such a system reduces the incentive to steal large sums of money and leave them for your heirs.

 

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Diageo, the owner of Guinness PLC, is exiting Nigeria and selling a 58% stake to Singapore-based Tolaram. What are your thoughts on this, and how does it affect the immediate future?

 

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Diageo’s decision to exit Nigeria and sell its stake in Guinness PLC to Tolaram indicates that it sees better opportunities elsewhere or that the challenges in Nigeria outweigh the potential benefits. This move could point to a strategic shift in Diageo’s global portfolio or a rethinking of its investment priorities. Diageo has devised a more profitable way to generate revenue in Nigeria, avoiding the harsh business environment.

Tolaram Group is likely to see this acquisition as an opportunity to strengthen its presence in Nigeria. They already have operations in Nigeria, primarily through subsidiaries in a variety of industries, including Dufil Prima Foods Plc, which produces popular Indomie instant noodles, and the Lekki Deep Sea Port Project. The acquisition of Diageo’s stake in Guinness PLC demonstrates that they value the Nigerian market and are willing to invest in it. Tolaram may bring a fresh perspective and strategy to the table, potentially leading to changes in how Guinness PLC operates in Nigeria. It may also indicate increased competition or consolidation in Nigeria’s beverage industry. While Diageo’s exit raises concerns about the Nigerian market’s appeal to multinational corporations, Tolaram’s investment demonstrates continued interest and opportunities for growth in the region.

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Kimberly-Clark, an American multinational and baby product manufacturer, Huggies, GlaxoSmithKline Consumer Nigeria Plc, Sanofi-Aventis Nigeria Limited, and Procter & Gamble are among the multinationals that have recently discontinued operations in Nigeria, either entirely or partially. Some international oil companies (IoCs), such as Shell, ExxonMobil, and ENI, are said to be actively selling assets to exit Nigeria. Should we be concerned about multinationals leaving Nigeria?

 

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The departure of multinational corporations from any country, especially those of the size you mentioned, should normally cause concern. These exits may affect employment, economic growth, and overall stability. These multinational corporations are among the few places that offer best practices in employee recruitment, training, and compensation. They are one of the few companies that do not tolerate graft. Many Nigerian-owned businesses do not follow best practices. However, it is critical to understand why these exits occurred. They are influenced by a variety of factors, including economic challenges, regulatory issues, and security concerns, which lead to companies exiting the market through strategic business decisions. Addressing these underlying issues may help attract and retain multinational investments. To mitigate the negative effects of multinational exits and encourage future investments, the government should prioritise improving the business environment, increasing security, clarifying regulations, and promoting economic diversification.

 

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Some provisions in the new bank recapitalisation plan have sparked heated debate. Do you believe the Central Bank of Nigeria has good intentions for the banking sector?

Overall, whether the CBN has good intentions for the banking sector is determined by the balance it strikes between ensuring financial stability, promoting competitiveness, and meeting the needs of the economy, businesses, and consumers. Open dialogue and collaboration among the CBN, banks, regulators, and other stakeholders are essential for overcoming these challenges and achieving positive outcomes for the banking sector and the economy as a whole. Overall, I am hopeful. The previous round of capitalization fueled the capital market and stimulated the economy. I hope this produces the same results.

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Despite the CBN’s efforts to reduce non-performing loans, many banks still have a large percentage on their books. What can be done to help banks become solvent and reduce their debt burden?

 

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To address the ongoing problem of high non-performing loans (NPLs) in Nigerian banks, a multifaceted approach is required. To begin, banks should prioritise proactive risk management practices such as comprehensive credit assessments and stringent monitoring mechanisms to detect potential defaults early on. This includes restructuring loans for distressed borrowers and implementing effective recovery strategies to reduce losses. Simultaneously, regulatory bodies such as the Central Bank of Nigeria (CBN) should improve supervision and enforcement of prudential regulations, ensuring that banks have enough capital to absorb potential losses and remain resilient in the face of economic volatility. Furthermore, improving credit information systems and encouraging economic diversification away from volatile sectors can help reduce systemic risks and improve bank stability, resulting in a lower debt burden and a healthier banking industry. Most importantly, the CBN should mandate regular stress tests. It is recommended to report impairment indicators regularly.

Do you believe Heritage Bank’s licence revocation was timely? Some believe it may spark a run on other banks, causing panic.

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The timing of Heritage Bank’s licence revocation by the Central Bank of Nigeria (CBN) is an important decision with far-reaching consequences. While the CBN’s motivations for taking such action are likely to be specific, such as concerns about the bank’s financial stability or regulatory compliance, the timing must consider the overall impact on the banking sector’s stability. The revocation of a bank’s licence can cause concern among depositors and investors, potentially leading to a run on other banks and panic in the financial system. As a result, the CBN must carefully manage communication and transparency to prevent spillover effects and restore trust in the banking sector. To prevent widespread panic and systemic disruptions, the CBN should continue to reassure affected depositors about its commitment to financial stability.

 

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The Central Bank of Nigeria (CBN) has disbanded the boards and management of Union Bank, Keystone Bank, and Polaris Bank. What distinguishes these banks’ cases from those of Heritage Bank?

 

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The CBN appointed new management teams to stabilise the banks and safeguard stakeholders’ interests. In contrast, Heritage Bank did not face a similar intervention from the CBN; instead, its licence was revoked. I believe this is due to Heritage Bank’s poor financial health and governance, which may make it unsalvageable.

 

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The Naira has faced the most difficult challenges since it was declared legal tender in Nigeria four decades ago. The value has been completely eroded due to the unprecedented drop in the foreign exchange market. Do you believe the CBN has done enough to protect the Naira against the dollar so far in its recovery strategy? And will these efforts be sustained?

 

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The Central Bank of Nigeria (CBN) has taken several steps to protect the Naira against the dollar, including foreign exchange market interventions, monetary policy rate adjustments, and the implementation of various forex management policies. Despite these efforts, the Naira has continued to depreciate significantly, indicating that current strategies may be insufficient to address the root causes of the currency’s value. Structural economic challenges, such as reliance on oil exports, limited foreign reserves, and a large import bill, particularly the continued importation of petroleum products, keep the Naira under pressure.

 

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Stabilising the naira will require a multifaceted strategy that goes beyond short-term interventions. To reduce its reliance on foreign exchange, the CBN must prioritise economic diversification, increased domestic production, and an improved business environment. Furthermore, policy consistency and open communication are essential for rebuilding investor and market confidence.

 

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Access to credit remains a major concern for businesses, particularly SMEs, due to the high-risk factor. What can be done to alleviate the burden on businesses so that they can easily obtain credit with low interest rates?

 

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The government and financial institutions must implement a variety of strategies. First, the CBN can strengthen its existing credit intervention programmes, such as the Anchor Borrowers’ Programme and the Micro, Small, and Medium Enterprises Development Fund (MSMEDF), by increasing funding and streamlining application processes. These programmes can be expanded to include more sectors and lower interest rates. Furthermore, financial institutions should be encouraged to develop tailored financial products that cater to the unique needs of SMEs, such as flexible repayment terms and lower collateral requirements.

 

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Furthermore, improving Nigeria’s credit infrastructure is critical. Creating and maintaining a comprehensive credit registry system to track a company’s credit history can help lenders reduce perceived risks. Strengthening credit guarantee schemes can also give banks more security, encouraging them to lend more to SMEs. For example, I am not aware of any credit insurance companies in Nigeria. On a broader level, maintaining a stable macroeconomic environment with low inflation and consistent policies will help to reduce the overall risk profile, allowing businesses to obtain credit at lower interest rates.

Nigerian graduates frequently complain about a lack of opportunities and the need to know a well-connected person to get a job. What can we do as a country to encourage job growth among young people?

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To increase job opportunities for Nigerian youth, an enabling environment that promotes entrepreneurship and helps small and medium-sized businesses (SMEs) is required. We live in a society that worships powerful men regardless of their source of wealth. We define success as having a large sum of money in your bank account, regardless of whether it originated from a criminal enterprise. As a result, many young people today are interested in making quick money. It is not so much about learning to sell. As a result, we generate a large number of unemployed individuals. People with the wrong values.

I believe that there is always room for merit. For example, we are a popular destination for the best-graduating students from most local universities, and you do not need to know anyone to work with us. You only need to be competent and have the right mindset, which is one of continuous learning, along with the right values.

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The nearly 40% inflation rate has had a significant impact on people’s standard of living due to the exorbitant cost of goods and services. What measures can be taken to mitigate this?

A multifaceted approach is required. Tighter monetary policies have proven ineffective in reducing the excessive money supply. Raising interest rates and increasing bank reserve requirements have also been ineffective. I believe the government should focus on stabilising the exchange rate by increasing foreign reserves and reducing reliance on imports. This is the time to strengthen the agricultural sector by providing subsidies and support programmes to improve local food production, which will allow us to enjoy lower food prices.

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On the fiscal policy front, Nigeria’s government should increase public spending efficiency and reduce waste. Investing in infrastructure, particularly transport and energy, can lower business costs as well as product and service prices. Implementing social safety nets and targeted subsidies for essential goods can help low-income households deal with their immediate financial burden. Encouraging competition in critical sectors such as telecommunications and energy can also drive down prices through market forces. Creating an environment that encourages local manufacturing will lead to more jobs and higher wages.

Among the challenges that businesses in Nigeria face is the proliferation of taxes and other levies at the subnational level, making the entire idea and concept of ease of doing business a mirage. What concrete steps can be taken to simplify business operations while increasing productivity and efficiency within the country’s business ecosystem?

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To address the issue of a slew of taxes and levies impeding Nigerian businesses, comprehensive tax reform is required. The government should simplify the tax system by consolidating various taxes and levies into a single, more straightforward tax regime. This can be accomplished by implementing a unified tax policy at the federal, state, and local levels, thereby eliminating overlapping and redundant taxes. Creating a centralised tax collection system would reduce administrative burdens on businesses, making compliance easier and more efficient. Additionally, providing clear guidelines and ensuring transparency in tax policies can help businesses understand their tax obligations and plan accordingly.

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Furthermore, the government can make it easier to do business by simplifying regulatory frameworks and reducing bureaucratic red tape. Nigeria can increase productivity, attract investment, and, ultimately, drive economic growth by making its business environment more conducive.

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Nigeria’s infrastructure is in disarray, with the country constantly dealing with power outages and other intractable problems. How much money does the government need to invest in infrastructure to put the country on a path of long-term growth and prosperity?

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The government must make significant investments in infrastructure. According to estimates, Nigeria will need to invest approximately $3 trillion in infrastructure over the next 30 years to close existing gaps and support its growing population. Immediate priorities should include significant investments in the power sector to address the chronic power outages that impede business operations and daily life. Investment in renewable energy sources, national grid upgrades, and increased electricity access have the potential to transform the energy landscape, boosting industrial growth and improving people’s quality of life.

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In addition to power, the government should invest in transportation, healthcare, and education infrastructure. Modernising and expanding the road, rail, and port networks will enhance connectivity, reduce transportation costs, and boost trade efficiency. Similarly, improving healthcare and educational institutions is critical for creating a healthy and skilled workforce. Public-private partnerships (PPPs) can help raise capital and ensure that projects are completed efficiently. By committing to comprehensive infrastructure development, Nigeria can improve economic conditions, attract foreign investment, and achieve long-term social progress.

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The administration led by President Bola Tinubu has been in power for one year. In your opinion, what has he done correctly or incorrectly, and what are the low-hanging fruits he can easily pick to make things right?

 

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President Bola Tinubu’s administration has made significant progress in his first year in office, including prioritising economic reforms. He should be more aggressive in combating corruption. His efforts to boost foreign investment through improved business policies have been met with cautious optimism. The administration’s emphasis on infrastructure projects, such as road construction and increased power generation, is intended to address critical issues affecting economic growth. However, there have been concerns raised about the speed with which these initiatives are implemented and their immediate impact on the lives of ordinary Nigerians. The administration has also struggled to effectively manage the country’s security situation, with ongoing conflicts and insecurity in multiple regions.

 

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President Tinubu can focus on low-hanging fruit, such as improving the agricultural sector with targeted subsidies and support programmes to boost food production. They can also focus on simplifying the tax system to reduce the burden on small and medium-sized businesses (SMEs). They can address power shortages through quick-win projects like deploying renewable energy solutions in underserved areas. By focusing on these attainable goals, President Tinubu can build public trust and lay the groundwork for long-term development.

 

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Nigerian organised labour recently called a strike and reduced their minimum wage demand to N250,000 per month, while the federal government offered N60,000. What do you believe the minimum wage should be?

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Setting a fair minimum wage in Nigeria requires balancing workers’ needs with the economic realities of businesses and the government. Given the significant disparity between organised labour’s demand of N250,000 per month and the Federal Government’s offer of N60,000, a compromise must be reached. A reasonable minimum wage should consider current inflation rates, the cost of living, and the need to keep businesses running without causing undue financial strain. A new minimum wage is ineffective unless it is accompanied by policies that promote economic growth and productivity, which can lead to higher long-term wages. Implementing inflation-reducing measures, such as stabilising the exchange rate and increasing domestic production, can help to sustain wage growth. Improving social services like healthcare and education can also help to alleviate workers’ overall financial burdens. Nigeria can foster a more equitable and sustainable economic environment for its workforce by implementing a comprehensive strategy that includes a fair minimum wage and supportive economic policies.

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Nigeria’s economy, which was said to be Africa’s largest in 2022, is expected to drop to fourth place by 2024. “What caused this and how can it be reversed?”

 

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A variety of factors can cause the slip. Persistent issues such as political instability, insecurity, and corruption have slowed economic growth. High inflation, a weakening currency, and inadequate infrastructure have all contributed to a challenging business environment. These factors, combined with the slow implementation of economic reforms, have eroded investor confidence and stifled growth across a wide range of industries.

 

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To reverse this trend, Nigeria’s economy must diversify away from oil dependence by investing in critical sectors such as agriculture, technology, and manufacturing. It is critical to implement policies that promote economic stability, reduce corruption, and strengthen governance. Improving the business environment through infrastructure, particularly in power and transportation, will encourage both domestic and foreign investment. Improving education and vocational training can lead to a more skilled workforce, boosting innovation and productivity. By focusing on these areas, Nigeria can build a more resilient economy capable of maintaining growth and regaining its position as Africa’s largest economy.

 

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