By Ozioma Izuora
The Law Reform Commission held a workshop on 24 May, 2023, with a view to reforming Nigeria’s Capital Gains Tax Act, (CGTA) CAP. C1, LFN, 2004.[1] The background to the study to the call for reform was premised on the need to move Nigeria away from almost total dependency on oil as the sole source of revenue for the country. There is no gainsaying that no country can function without taxes. With the uncertainty surrounding oil revenue, there is no doubt that a mono-economy that is almost totally dependent on oil is an endangered one. The study then went into a foray of examining prevailing tax regimes in other countries of the world, including Africa. It found that at 10% capital gains tax regime, Nigeria’s capital gains tax was only higher than that of Kenya which is at 5%.
At this point, one must explain what capital gains tax is, in order to discuss the propriety of increasing or decreasing the percentage payable on it. We already know that a tax is a mandatory ‘monetary charge imposed by the government on people’s entities, transactions or property to yield public revenue.’[2] Taxes payable in Nigeria ‘include personal income tax, petroleum profit tax, companies’ income tax, value added tax and the capital gains tax’.[3] ‘Capital gains’ are, roughly speaking, taxes payable on gains made from the sale of assets. These could be land, plant or machinery, good will of businesses and other disposable assets. Even though the law does not define the word ‘assets’, unlike VAT whereby the buyer pays indirectly on consumption, for capital gains, it is the seller who pays. Capital gains tax is payable by both individuals and corporate entities.
The Working Paper goes on to give the history of capital gains tax in Nigeria, dating it back to 1967, when on the cusp of the civil war, Nigeria badly needed to raise funds for rebuilding and reconstructions. It was pegged at 20%.[4] According to the study, it originally only applied to Lagos Capital territory, but by 1975, it became applicable throughout the country. The current CGTA came into being in 1993, and with several amendments later, it subsists as the CGTA, 2004. ‘The Investments and Securities Decree No. 45 1999 amended the rate of capital gains chargeable from twenty per cent (20%) to ten per cent (10%) with effect from 1st January, 1996 and is currently backed by the Capital Gains Tax Act (as amended)’. This was how Nigeria arrived at the current rate chargeable on capital gains. There are several anomalies identified by the CGTA, 2004, that have hampered the operations of the law, based on which several proposals have been proffered. Beyond the law itself, the multiplicity of tax laws and the lack of clarity as to the exercise of jurisdiction in tax matters by states and matters regarding the appropriate venue for dispute resolution are came up for discussion at the workshop among others.
This brief opinion, from the point of view of the International Federation of Women Lawyers (FIDA), an international organization that cares for the welfare of indigent women and children, relates to the suggestion that the rate of 10% payable in Nigeria is too low. Presenters at the conference suggested a raise of as much as 25%, while other voices urged for a reduction to 5% in consideration of the prevailing state of citizens who cannot afford to be made to bear added burden. The Working Paper suggests:[5]
that section 2(1) of the Capital Gains Tax Act should be amended to provide for category or levels of capital gains tax, i.e. 10% for individuals capital gains and 15% and above for companies capital gains to increase the revenue generation capacity of Nigeria.
Clearly, the intention of the reform proposal is that compared to other countries, Nigeria is not generating enough revenue from capital gains taxes. In parts of the paper and other presentations made at the conference, references are made to how government would take steps to improve on its operations and other measures to ease the burden on the citizens. However, the feeling is inescapable that it appears that Nigeria has come full circle to that awful period – the end of the civil war – where she is frantically casting around for creative ways to raise funds! Some presenters rightly pointed out the gross inefficiency, corruption and lack of infrastructure for transparent handling of taxes in Nigeria, insisting that raising the percentage of taxes would not translate to improved economy for the country. On the contrary, they point out that the higher the taxes, the more likely that people will devise more nefarious ways for tax avoidance and related crimes.
FIDA capitalized on the advantage afforded by democracy, unlike the military era, for citizens make inputs into the making of laws. This writer would like to draw attention on the state of poverty and insecurity in the land, and to opine that times are too hard for raising taxes on gains made from disposing assets. Not to be misunderstood, this writer does not totally object to the proposed amendment made by the Working Paper, while totally rejecting the higher figures proposed by some presenters. In fact, the idea of ‘category levels’ is a welcome idea. Considering the fact that businesses suffer so much from poor infrastructure, Nigeria should not delude her tax rate with taxes paid in the US and Canada etc. In fact, Kenya which has 5% is more realistic than Congo at 30%.
This writer, on behalf of FIDA, therefore suggests three category levels as follows:
- Corporate entities, depending on its size, capital gains tax 10%
- Individuals at 5%
- Women, SMEs and people loving with disabilities to be waived
The justification for seeking to waive payment for the third category is that poverty is endemic at that level. Most often, if such people have assets to sell, most likely it would be so they can raise funds for other pressing social needs. It would be insensitive to again tax them on the little they have been able to lay their hands on. This writer believes that what Nigeria needs is to improve infrastructure, combat corruption and improve on security, not to be imposing taxes that have punitive effect on the already stressed out citizens. Successive governments have not shown that the little taxes exerted on citizens are being put to good use, to assure ‘the security and welfare of the people …(which constitute) the primary purpose of government’.[6] This paper concludes by stating that the efforts should be concentrated on fixing the other many flaws on the tax system thrown up at the conference. The writer believes that effective collection of taxes generally, and proper management of the funds towards improving the life of citizens would yield a more prosperous nation than a draconian rate of taxes where citizens go through hell to provide basic amenities for themselves. All good efforts must work together, or nothing will work.
[1] Law Reform Commission, Working Paper on Reform of Tax Laws in Nigeria: The Capital Gains Tax Act (CGTA), 2004.
[2] Ibid, citing B, Black’s Law Dictionary, (8th Edition, Thompson West, New York, 2004)1496, Footnote 17 [8].
[3] Ibid, [9].
[4] Ibid, Decree No. 44 on the 19th of October 1967, with retrospective effect from 1st April, 1967 [11].
[5] Working Paper, [28].
[6] S. 14(2)(b), Constitution of the Federal Republic of Nigeria, 1999.