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Luigi Einaudi was the president of the Italian republic shortly after the Second World War and a prominent economist best known for his advocacy of presumptive taxation. He argued that tax should be levied on average, and not actual incomes. One advantage of such a system would be that all taxpayers have the incentive to work hard since above-average income would be free of tax. Another would be administrative simplicity.
Presumptive income tax (PIT) is applied in different forms in many jurisdictions. The authorities could assume that individuals and companies enjoy income equivalent to a set percentage of their net worth. Alternatively, they could assess a company’s tax liability as a set proportion of its gross receipts, making adjustments for the specific industry. In developed economies, the collection agency could assess the PIT due from a large landowner on the basis that he/she made the full productive use of the land. For other taxpayers, the agency could make a demand based upon visible signs of wealth. The permutations are numerous yet they share the advantage for the authorities that the taxpayer has to challenge the assumptions underpinning the demand.
In Nigeria the Federal Inland Revenue Service (FIRS) has expressed an interest in the principle of PIT. It is not difficult to see why. Federally collected revenue amounted to 7.4 per cent of GDP in 2018 according to provisional data from the CBN.This is less than half the rate achieved in Kenya and about one third of what is posted in South Africa. Some numbers quoted in January by Zainab Ahmed, the federal finance minister, are revealing. The gross oil revenue/oil GDP ratio stood at 39.0 per cent, and that for the non-oil economy at just 4.2 per cent. We may conclude that the oil industry … Read More...