There are insinuations concerning the incidence of double taxation being experienced in some quarters by persons or groups within our economy. Those being affected by this menace are seriously lamenting as a result of the repetitive nature of taxes and levies that they have been forced to be exposed to or suffer more than once just for the mere sake of setting up and operating a business venture within our domain.
These double taxation incidences range from capital gains that accrue from shareholdings being taxed a second time, bearing in mind that this form of a firm’s earnings have already been subjected to income tax computation ab-initio.
Aside from the above instance, a tax being applied to the collective estate of either an individual or company could also create a form of double taxation on the income of such persons or groups, as the case may be, and subsequently lead to the shift of such income to the heir apparent at the occurrence of death.
“In simple terms, double taxation connotes the practice of subjecting the same income to tax twice or more instead of the idle one-off taxation.”
This principle of repetitive taxation of the same source of income more than once is termed double taxation in normal accounting practice. What, then, is double taxation? We may wish to ask further.
Double taxation is a form of tax that arises when either an individual or corporate entity is subjected to a second level of tax assessment on the same income or revenue by more than one tax authority within the country. Further to the above, it could refer to the assessment of taxes on the same line of income, revenue, assets, or financial transactions by two or more tax authorities at different ends of an economy. In simple terms, double taxation connotes the practice of subjecting the same income to tax twice or more instead of the idle one-off taxation.
Types of Double Taxation
It is imperative to state that the incidence of double taxation could either be classified as “economic double taxation” or “juridical double taxation.”
- Economical double taxation: It is a form of tax that is levied on an individual’s or corporate entity’s shareholdings, earnings, or dividends after such have already been taxed under the corporation’s income at the onset.
- Juridical double taxation: This form of taxation arises when a taxpayer is subjected to tax on the same income in more than one country, say Ghana and Nigeria.
A closer look at the principle of double taxation reveals that it is a menace causing more harm than good to the business environment. It inhibits the ease of doing business in several ways: by preventing the free flow of the factors of production (capital, entrepreneur, land, and labour) from one location to another; by hindering the principle and practice of international trade between different geographical regions; and by greatly discouraging foreign direct investment (FDI) from flowing into a nation’s economy. Additionally, double taxation imposes a significant burden on taxpayers, which can ultimately lead to higher prices for goods and services. This increase in prices is likely to trigger inflation and an inflationary trend within the affected economy.
The practice of double taxation further conflicts with the principles of “fairness” and “equity,” which are the basics and components of the canons of taxation. Above all, double taxation prohibits investment opportunities across geographical boundaries, to mention but a few.
Before I conclude, I wish to commend the efforts of the current administration, led by His Excellency President Ahmed Bola Tinubu GCFR, in addressing the various bottlenecks in our tax system and collection processes. This administration has taken significant steps through the establishment and inauguration of the Presidential Fiscal Policy and Tax Reform Committee, headed by Mr. Taiwo Oyedele, FCTI, FCA. Among other recommendations, the committee has proposed the full harmonisation of the numerous taxes and levies, currently numbering over sixty, collected by the three tiers of government. The goal is to reduce these to about eight taxes, as discussed in last week’s consultation workshop with relevant stakeholders.
As an individual, this is a welcome development, I must confess, if it is finally approved or endorsed at the end.
Kingsley Ndubueze Ayozie, MSc (Finance) Lagos, MBA , ACSI (UK), FCTI, FCA. is the Principal Partner with the firm of Messrs Kingsley Ayozie & Co (Chartered Accountants).
