Your use of this website is subject to the terms and conditions governing it. 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. Tax Identification Number (TIN) In Nigeria, every citizen of Nigeria working with the Government, the private sector or owns a business in operation or with an intent to start up one is expected to obtain a Tax … The informal sector will remain a major feature of economic activity in Nigeria. Regardless of the form of taxation i.e direct or indirect, a good tax system is founded on equality, certainty, convenience and economy; these are still largely relevant in today’s economy. It is however a known position that we 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. 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). 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. Cookie Notice, Effective taxation of the Nigerian informal sector. 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. Nigerian Informal Sector and Tax Challenges . In particular, the Addis Ababa Action Agenda outlines that … 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%. 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. 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. Terms & Conditions | 2. Some of the issues plaguing the proper taxation of these businesses include: c. How should they be assessed for taxation? Please read these terms and conditions before using the website. Look out for in-depth analysis on some of these topics in the next edition of our newsletter. 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. 2. Companies in Nigeria pay 30 percent of their worldwide profit while foreign companies pay 30 percent of only the profit made in Nigeria. The operators in that sector are usually more focused on improving and growing their businesses rather than keeping proper records. Should businesses in the Informal Sector be taxed? 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. Ekpo and O.J. Basically, effective tax collection is a function of accurate information. Income under this tax regime may be estimated by: 10. The effect of this information is two-fold. 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. Despite these efforts, the general level of tax compliance in Nigeria is still quite low. 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. The economic activities in the Informal financial sub-sector include the Ajo/Esusu, informal money lenders among others. 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. 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 effect of this information is two-fold. Amaka skillfully links economy with knowledge and ties both around intellectual property. principles of good tax system. 3. While voluntary compliance is a benefit of this tax regime, the “imprecise” nature of the tax assessment could pose hardship to the business owner. Your email address will not be published. The average business person within the informal sector does not consider himself a taxable person. 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. This edition marks the beginning of Volume 2 of our quarterly newsletter. The informal sector refers to the economic activities that function with limited government regulation and usually unstructured. 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. 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. 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. 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. 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). Our guest writers too were not left in the action. Taxing the informal sector is also critical because it will ensure that there is a perception of fairness in the tax system. 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. It would appear that this assessment can be determined based on best judgement. The Nigerian tax authorities have been making efforts aimed at increasing the level of tax collections and improving government revenue generation from taxation. The need for government to capture the informal sector into the tax net has never been more urgent. 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. 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. The size of the informal economy of Nigeria as at 2018 is 67% of the GDP. Therefore, the effort of all players should be to evolve a tax system that works well for all parties and the economy. 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. 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. Accountability and good governance have been identified as the key to achieving effective informal sector taxation. The featured articles seek to expand the frontiers of our Intellectual Property laws and Corporate-Commercial law and practice as we know it. We have introduced a section that captures some other recently trending topics in the IP sphere in Nigeria. Challenges for tax collection in the Informal Sector Thus, Alex in a deeper evaluation presents us, with the possibility of a relief at common law. Government is unable to capture the existence of these businesses and cannot therefore include them in its tax dragnet. Commodity prices have remained volatile globally, diversification into other better paying natural resources require massive investment income which government does not have readily. 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. 7 This fund is expected to target 10,000 women per state. the check list or keys steps to follow when 4 These are: credit policies and strategies, management and technical training, and enabling environment strategies. The ingenuity of such thought in the present economy of Nigeria cannot be over-emphasized. More significantly is the fact that we have welcomed articles from guest-writers from other law firms. In this wise, it envisages frequent interactions and engagements between the various stakeholders to ensure seamless administration of tax regimes. Government on its part has over the years attempted to implement programs which are designed to support the operation of this sector. (Principal Partner & Group Head). The enlightenment must also seek to demystify the process leading up to taxation which is needlessly shrouded in complex financial jargons. 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. Government support are of three categories, some of them are interwoven in concept and operation. TAXATION IN THE INFORMAL SECTOR IN DELTA STATE. 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. Required fields are marked *. View Academics in Taxation and Informal Sector in Nigeria on Academia.edu. The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the Nigerian economy. 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. For Genevieve, the Tax policies and government income perhaps, can further be improved if the informal sector of the economy is considered. a. 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. 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. Published On - April 15, 2020. 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. It would appear that the intent of both tax regimes is to develop a flexible plan to enhance voluntary compliance and minimize tax evasion. The educational charge is pegged at 2 percent of the assessable profit while a 10 percent withholding tax is deducted … The assessment is based on three major indicators; total tax rate, number of payments and compliance time. 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. 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 … It is also common occurrence for them to mix their personal funds with that of the business. It is however not the focus of this paper. Agencies have also been established to administer government assistance. April 14, 2020. 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taxation of informal sector in nigeria

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