Nigeria: 'Taxation Is Key in Infrastructure Financing'

22 May 2019

The Executive Chairman, Federal Inland Revenue Service (FIRS) Mr. Tunde Folwer, has stated that revenues generated through taxation and borrowing would play a key role in supporting State Governments to finance their expenditure infrastructure and social services.

Fowler, who disclosed this yesterday in Lagos at the Maiden Edition of the Nigeria Corporate Services with theme: 'Building A Sustainable Economic Growth Through Quality Corporate Services Delivery," noted that taxation is deemed preferable to borrowing as debt has to be repaid usually with interest and other debt servicing obligations which can sometimes create additional burden on government.

He also stated that tax as a major enabler of generating revenue, adding that in an ideal environment, voluntary compliance by the tax payer would ensure that revenue is made available for improving on the provision of social amenities and services.

Fowler, who delivered a paper titled: 'Due Diligence, Best Practices in Revenue Generation' explained that taxation as a social contract between government and taxpayers, stating that taxation enhances accountability on government, because taxpayers have a greater stake in governance.

He added that when citizens play a significant role in raising revenue, government would similarly have a strong motivation to account for revenues collected and their utilization.

Fowler, who was represented at the event by Mr. Abolade Kehinde, warned that it is important that in actualizing its mandate, revenue authorities must ensure that every effort is made to ensure that tax administration helps and does not hamper the valid interests of all stakeholders.

In building relationship between corporate governance and public sector best practice, Fowler advised that government is expected to determine tax rates and tax laws, while being very careful about simply increasing tax rates and making it difficult for taxpayers to comply.

According to him, "While it is true that higher tax rates trigger higher tax evasion behaviour, there is also evidence that stronger tax enforcement that reduces tax evasion can also result in greater shareholder value. This is because those companies that are more compliant are more transparent and therefore, more attractive for investment.

"A country's corporate governance system affects the degree to which tax changes affect the growth (or not) of tax revenue. So, when it is easy to divert income to avoid tax or when share ownership concentration is too unbalanced, an increase in the tax rate can reduce tax revenues."

"By contrast, in a good corporate governance environment, controlling shareholders will have too little incentive to divert income to avoid tax especially when they are accountable to other investors. This is because they take the personal risk of enforcement by tax authorities but benefits very little from it in terms of shareholder value.

In another keynote address titled: "Ethics, the backbone of quality corporate services for economic growth," the Director General, Lagos Chamber of Commerce and Industry (LCCI) Mr. Muda Yusuf, said services are increasingly important for their direct contribution to Gross Domestic Product (GDP), exports and employment, maintaining that with the change in the structure of the economy from a real sector dominated system to services led economy- "services sector has become the largest sector in the economy, with its share of GDP 52.62% in 2018, in addition to the sector also contributing the largest proportion of employment at 57.4%."

According to him, "Nigeria has made significant progress in its services sector, becoming one of the leading corporate service providers in the continent of Africa- our banks have registered their footprint in many Africa countries, we have a robust Business Process Outsourcing (BPO) and others, providing diverse services to businesses and governments. These are immense economic opportunities we must optimize and unleash for tangible sustainable economic deliverables."

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