April 20, 2021
One of the major impacts of the COVID–19 pandemic on the global economy is the drop in crude oil prices and the slowdown in economic growth and international trade. For Nigeria, this has translated into a drastic drop in government revenue, the onset of a second economic recession in five years and other negative effects on the economy. In response to this challenge, the Federal Government has attempted to expand potential sources of revenue by creating new taxes or levies. Thus in the Finance Act 2020, an Electronic Money Transfer Levy was introduced along with an Unclaimed Funds Trust Fund. Previously, the Police Special Trust Fund had been created in 2019 and a presidential directive was recently issued for the implementation of the National Agency for Science and Engineering Infrastructure (NASENI) levy. These steps taken by the government were in line with the prescriptions in the Strategic Revenue Growth Initiative to identify and introduce new taxes / sources of revenue. They have however, raised concerns amongst stakeholders and the public about the possibility of the government adopting more aggressive revenue generation options, including the likelihood of an increasing recourse to earmarked taxes. This article discusses the meaning and types of earmarked taxes, it also examines the issues that are likely to arise if the government makes recourse to such an option and the implication of such a move on businesses and the Nigerian economy.
Earmarked taxes refer to any dedicated taxes that are introduced by the government to generate revenue for a specific programme, project or sector of the economy. Generally, earmarked taxes are introduced in situations where a particular sector of the economy needs special funding to address a challenge or for developmental purposes. Some examples of earmarked taxes under Nigerian law are as follows –
ii. Education Tax, (now the Tertiary Education Trust Fund Tax), which is imposed at 2% of a company’s assessable profits;
iii. Niger-Delta Development Commission (NDDC) levy created by the NDDC (Establishment) Act and imposed at 3% of the total annual budget of any oil producing company operating onshore and offshore in the Niger Delta area, including gas processing companies;National Information Technology Development levy created by the NITDA Act and the applicable rate is 1% of the profit before tax of relevant qualifying company;
iv. Nigerian Social Insurance Trust Fund (NSITF) levy, imposed by the Employee Compensation Act 2010 and computed at 1% of total emoluments cost of employees (basic salary, housing and transport);
v. Industrial Training Fund Levy created by the Industrial Training Fund Act and which is computed as at 1% of employee payroll;
vii. National Housing Fund levy, which is 2.5% of monthly basic salary of all Nigerian employees;
viii. Nigerian Content Development levy assessed at 1% of the contracts awarded to any company involved in any project, operation or transaction in the upstream sector of the Nigerian oil and gas industry;
ix. Cabotage levy, which is is imposed by the Coastal and Inland Shipping (Cabotage) Act at 2% of the contract sums earned by vessels engaged in coastal trade in Nigeria and is administered by the Nigerian Maritime Administration and Safety Agency (NIMASA); and
x. National Agency for Science and Engineering Infrastructure (NASENI) levy is imposed at 0.25% of the turnover of companies having a turnover of ₦4m (which has now been increased to ₦100m);
Given the large number of earmarked taxes and levies collected by government agencies, there is a viewpoint that government should be circumspect in introducing any such taxes or levies. On the other hand, these taxes are viewed as an easy or quick means by which government can fund relevant agencies or projects, without creating a burden on the general revenue purse of government.