Kemi Adeosun, Minister of FInance

Finance minister Kemi Adeosun while speaking at a press briefing held on the sidelines of the just concluded IMF conference held in Washington, announced that government was putting finishing touches to a luxury tax.

The luxury tax planned by the federal government is being finalised now because it cuts across the ECOWAS. There is a legal process you must go through, including the customs union to actually vary the specific taxes

 

Items to be taxed

The Nigerian government had in August this year, signed into law a policy to tax business and first class tickets. Other items to be taxed include private jets, luxury yachts, luxury cars, champagne; wines and spirits as well as residential properties located in the Federal Capital Territory (FCT)  valued at N300 million and above.

Here are 7 reasons why we believe the tax will not work.

  1. Rich people already pay tax

The luxury items that will be taxed, are already taxed through Value Added Tax (VAT). Imposing another tax would amount to double taxation, which is illegal.

2. Nigeria is largely a poor country

For a country of over 170 million people, Nigeria has very few rich people. Individuals with a million or billion Naira tax bill are barely up to a 100.

3. Who are the rich ?

Adeosun did not define the rich people ? A millionaire in Naira terms, would not be classified as rich in dollar terms.

4. The rich are good at tax avoidance

Most of the items to be taxed such as private jets and yachts are not held in the name of the individuals but registered using companies,that already pay taxes. Business and First Class tickets are usually paid for by companies and not the individuals. These taxes are not new and the cost will also be deducted as allowable expenses under computation of company income tax.

5. A previous attempt failed 

Ngozi Okonjo Iweala (former finance minister) introduced the same policy during the administration of Goodluck Jonathan in August 2014, but revenue raised was minuscule, due to the stiff resistance mounted by the elite.

6. What is a luxury good ?

Items that would ordinarily be classified as luxury items in other countries, could be termed as a necessity in Nigeria. Would an expensive SUV be termed a luxury, in a country filled with bad roads ?

7. Political will is lacking

The political will to enforce this action is clearly lacking. The very individuals to be taxed also bankroll elections in the country. Approaching elections, mean government would avoid policies that upset the elite.

 

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

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