Nigeria earned just N49.5 billion from capital gains tax in the last 5 years according to data from the Federal Inland Revenue Service. Capital gains tax are taxes earned from selling assets and properties and attract a 10% tax on the gains made. Property taxes are a huge source of tax revenue in most countries. OECD countries for example earn a property taxes per capita of about $14,000 compared to Nigeria’s $29.
The data further confirms Nigeria’s inability to collect enough taxes from its economy. Gross domestic product from Real Estate in Nigeria was about N7.4 trillion in 2014 and N6.7 trillion as at the third quarter of 2015, yet the government could only muster N49 billion in taxes from sale of assets of which real estate is a part of. Looking at the country’s GDP using the expenditure approach, the National Bureau of statistics recorded zero income from property and entrepreneurial income since 2010.
Companies and indeed the government have exploited ways of avoiding this tax over the years preferring to spin assets into special purpose vehicles and then selling them as shares even though the underlying substance behind the transactions are the assets. The result is that Nigeria loses billions of naira in potential taxes.
Despite the tax avoidance measures, there are still options for the government to earn billions from asset sales. From sale of oil blocs, to the booming real estate market in Ikoyi and Maitama billions are lost in capital gains taxes that the government could have earned over the years.
The Buhari led government has reiterated its plans to broaden its tax base in 2016 and identified it as a means of funding its 2016 budget. According to the Vice President, who spoke in Davos,
“We are looking at increasing our tax coverage, ……VAT, for instance — we have been doing just about 20 percent coverage. We think that just by increasing coverage we could do much more and so we could earn more in terms of local resources,”
While VAT may be easier to collect that CGT, analysts believe the government should be more pragmatic in its approach and has no reason why it can’t collect about N100 billion in CGT this year alone.