Nami urges African taxmen to pay attention to the informal sector

By Odimmegwa johnpeter/Abuja

The Executive Chairman of the Federal Inland Revenue Service (FIRS) and Chairman of the African Tax Administration Forum (ATAF), Muhammad Nami has urged tax administrators in Africa to pay close attention to the taxation of the informal sector, saying that governments of Africa lose a lot of revenue neglecting the sector. This is contained in press statement signed by Abdullahi Ismaila,

Director, Communications and Servicom, Department, Federal Inland Revenue Service. 

Nami said, apart from the fact that proper taxation of the informal sector would raise the governments’ revenue across Africa, it would also improve the perception of tax justice in the continent.

Declaring open the 9th Countries’ Correspondents Meeting of ATAF in Abuja on Tuesday, Nami, who is also the Chairman of Nigeria’s Joint Tax Board (JTB) said the tax administrators could redeem their respective countries from budgetary deficiencies when proper attention is paid to the taxing the informal sector.

“If Africa is to reduce its budget deficits and increase revenue mobilization, it must widen its tax base and the informal sector provides an opportunity to do so. That is why recently, the President of Nigeria, Mohammadu Buhari signed the Finance Bill into Law.  The Finance Act, 2019 seeks to create an environment for Ease of Doing Business in Nigeria especially for the small-scale businesse. This Act is expected to impact positively on the small businesses as well as the Nigerian economy, in the long run”, he said.

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Mr Nami also  said bringing the businesses in the informal sector into the tax net instils a tax paying culture in the businesses, which ensures tax compliance when the businesses expand.

“Taxing the informal sector is also critical in ensuring a perception of fairness in the tax system. Those who operate in the formal sector deem it unfair to have to pay taxes while those in the informal sector do not. This impacts their tax morale and can result in low tax compliance among those in the formal sector. 

“Furthermore, in some instances, enterprises within the informal sector create unfair competition for those operating in formality. This reduces the income generated by the formal firms and consequently, reduces the taxes paid”, Wort said. 

Addressing ATAF delegates from 35 countries in Africa and other tax professionals, Nami said despite the potential in the informal sector, tax administrators find it difficult to navigate the terrain properly, adding that the ATAF meeting would provide opportunity for the taxmen to compare notes and find a way forward.

“As at 2017, Africa’s tax to GDP ratio averaged around 17%. This marks an improvement over time. However this ratio is the lowest in the world and it has resulted in budgetary deficits in most countries in Africa. 

“It is therefore necessary to reduce and eventually eliminate these deficits if Africa is to meet its development needs.  The low tax to GDP ratio has been attributed to, among other things, low tax capacities and tax inefficiencies. This is made worse by tax avoidance, tax evasion and a large informal sector. 

“It is estimated that the informal sector in Africa constitutes between 21% – 70% of the GDP of African countries and accounts for between 30 – 90% of employment in the region. Yet despite its large size, the sector remains one of the most difficult sectors to tax, with most of the businesses operating in the sector concealing their activities from the tax authorities. Such businesses also operate on a cash basis and maintain poor or no accounting records. 

“Most of the businesses in the sector are also small and fragmented making it inefficient for the revenue administrations to enforce compliance”.

Nami said taxing the informal sector may also be a way of promoting good governance and political accountability of the state because tax strengthens the social contract between the citizens and the government. 

“Informal businesses that contribute to tax revenues are likely to assert their rights to receive certain services from government, thereby ensuring national development and accountability. Paying taxes is likely to promote responsiveness by the state to the needs of the informal sector in a bid to encourage voluntary compliance. It is also likely to encourage collective action, collective political engagement and bargaining by the informal sector”, said Nami.