The Chairman of the Federal Inland Revenue Service (FIRS), Muhammed Nami, said yesterday that the informal sector in Africa’s economies remains very challenging in tax administration.
He said the sector constituted between 21% – 70% of the continent’s GDP and accounts for between 30-90% of employment in the region thereby making it very important in boosting tax revenues in the various economies Nami gave these figures at the opening session of the 9th Country Correspondent Meeting and the African Tax Administration Forum (ATAF) first Expert Meeting on Taxation of the Informal Sector, with the theme ‘The Taxation of the Informal Sector in Africa’ held in Abuja.
The tax administrator pointed out further that most of the businesses in the sector were also small and fragmented entities thereby making it inefficient for the revenue administrations to enforce compliance. “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” he said.
The FIRS boss noted that although taxing the informal sector may yield low returns in the short run, he, however, said the benefits are worth the effort. He explained further: “Bringing the businesses into the tax net will instil a tax- paying culture in the businesses, thereby ensuring tax compliance when the businesses expand.
Taxing the informal sector is also critical because it will ensure that there is 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”, Nami added According to him, since payment of taxes promote responsiveness by the state, this explains why President Muhammed Buhari, signed the 2019 Finance Act, which seeks to create an environment for ease of doing business in Nigeria especially for the small scale businesses in the country.
The tax administrator told participants that “the Act exempts businesses with annual turnover of 25 million naira and below from charging Value Added Tax (VAT) which has now been increased from 5% to 7.5%. He, however, maintained that the SMEs would eventually enter the tax net through continuous assessments and expressed optimism that the Act would impact positively on the small businesses as well as the Nigerian economy, in the long run. In his opening remarks, the Secretary of ATAF, Logan Wort, said the conference was organised in partnership with the Africa Development Bank (AfDB) to enable country correspondents and the experts on informal sector reflect on the past 10 years and identify priorities for the next decade, and thereafter present a report. The focus of this year’s conference is the informal economy which, according to a 2018 report of the International Labour Organisation (ILO), accounts for 85.8 per cent of employment in Africa.
