The issue of paying taxes in Nigeria has over the years elicited different reactions among citizens. This is because many have come to believe that they do not enjoy the benefits of paying taxes; BENJAMIN UMUTEME writes.
Many were not surprised when the Director General of the Budget Office, Dr. Ben Akabueze, lamented that more than 30 million Nigerians who generate taxable income do not pay taxes. According to him, this complicated the country’s efforts to increase its income.
Speaking last year at an interactive forum with media and civil society organizations in Abuja, the Akabueze noted that out of around 70 million working Nigerians, only around 41 million were in the tax pool.
He also regretted that Nigerians do not pay property tax, adding that discussions about it are uncomfortable as even policy makers own properties.
He said: “Today if you take the demographics of Nigeria there are around 70 million people in the labor force and even if you are just for the unemployment rate there are around 70 million Nigerians who generate taxable income and should contribute to tax”. swimming pool as small as it is.
“But the total number of Nigerians in the tax pool according to the Joint Tax Board record is around 41 million. So there are around 30 million Nigerians who are not paying their fair share.
The question of paying taxes
A survey of tax administrations across the country will easily reveal one thing: citizens’ apathy towards paying taxes. Nigeria’s infrastructure section is the most affected. However, some have argued that due to the country’s low tax base, the authorities continue to struggle to provide much-needed infrastructure that will spur development. Even several programs in the past designed to stimulate tax development have mostly hit a rock due to the perception of what happens to monies collected as taxes.
Each of these programs has failed due to lack of accountability, poor outreach and publicity, poor implementation, and a large informal sector that is not in the tax net.
World Bank data from 2019 revealed that the self-employed in Nigeria constitute 79.8% of the total labor force in the country. Similarly, a joint survey conducted and published in 2019 by the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) revealed that there are 41.543 million MSMEs in Nigeria. 41.4 million micro-enterprises and 73,081 small and medium-sized enterprises.
The disruption, caused by Covid-19, has not only led to job losses, but has also pushed more people into the informal sector. An estimated 20% of Nigerians have lost their jobs due to Covid-19.
Speaking to this reporter, a political economist and development researcher, Adefolarin Olamilekan, said the issue of tax evasion by Nigerians is a sensitive issue that revolves around the political economy of the country. He added that reporting the actual amount collected as tax revenue by revenue-generating bodies also needs to be addressed.
He noted that many Nigerians, especially ordinary citizens on the streets, are alarmed whenever they see the lavish lifestyles of political office holders added to the huge corruption figures displayed daily by the media.
“Another technical angle is to understand the poor nature of data capture of eligible taxpayers in Nigeria, except for workers and those working in the formal sector. In addition to the above, the economic situation of Nigerians who do not see why they should pay taxes when they provide everything for themselves, talk about water, its drilling, talk about security, his vigilante, talk about the road and the drainage, it’s done thanks to the community effort. We can talk about electricity, schools and hospitals. Nigerians bear the cost of all this alone. And ordinarily that’s what tax revenue is supposed to do,” he said.
According to him, Francis Ugwu, a hotelier in Jikwoyi, a suburb of the Federal Capital Territory, said there was no point in paying taxes when he was supporting himself. According to him, he spent a huge amount of money to repair a bad part of the road in the street where his hotel is located.
“Do you expect me to pay taxes after spending 150,000 naira on road repairs? I expected the government to tell us regularly what it does with the tax money it collected. This is the best way to go,” he said.
The informal sector
Data from NBS, the Central Bank of Nigeria (CBN), puts the number of Micro, Small and Medium Enterprises (MSMEs) in Nigeria at around 40 million.
It is regrettable that despite its large and organized number, the contribution of the informal sector to tax revenue has not been significant in relation to its number.
“Again, their contribution in terms of taxation, we all agree, is not significant compared to what they do in the economy. From poor data to government neglect, to insufficient targeted government interventions and incentives, these are some of the discouraging factors that are guilty elements; the informal sector may not be taken into account in the tax net”.
Experts have time and again held that the informal sector is the saving grace of the Nigerian economy due to its sustenance and contribution to GDP, even though there is no official data on this.
“It was the armies of start-ups, cash traps, struggle, hardliners who survive on self-propelled motivation as well as increased cash flow from their savings and friends.
“And the majority of them operate in such a difficult business environment that causes them to respond to anything that would have facilitated their business operations,” Adefolarin said.
Capturing the sector, explanations from the FIRS
Despite the lack of official data for the informal sector, the Federal Revenue Service (FIRS) proposes a tax system that would bring a large part of the informal sector into the tax net. According to the FIRS, it will allow the informal sector to contribute to the construction of a modern society.
Its Executive Chairman, Muhammad Nami, speaking last year in Abuja, explained that the proposed Road Infrastructure Levy to be administered by the Service will provide government with adequate funding for construction, rehabilitation and maintenance. roads, as well as the necessary security for the country’s roads.
“The only way to make the informal sector contribute to building a modern society is to make them pay when they use the roads. That is why we are proposing that the government consider introducing a road infrastructure tax in Nigeria,” he said.
According to him, road users in many jurisdictions pay for the use of roads in such a way that it is not an additional burden on the citizen.
In addition, the FIRS continues to develop new ways to broaden the country’s tax base.
And one of them is his TaxProMax, which he has assumed as a flagship tool that will help him extract data.
“The adoption of technology in tax administration is crucial to improve domestic revenue mobilization given the decline in oil prices to avoid falling into debt crisis. It is against this backdrop that TaxPro-Max has become the efficient filing channel for Naira-denominated tax returns from June 7, 2021,” Nami said.
Dealing with the downsides
As stakeholders in the Nigerian project, the FIRS, according to experts, should not relax their will to bring a large segment of the informal sector into taxpayers.
“With the urgent need for industrialization and development that can only come with developed infrastructure, it behooves the tax agency to create a platform that would integrate both individuals and businesses in the informal sector into a platform that takes notice of these taxpayers. This means that data is essential. Although the FIRS automated system is a great initiative, it must work for all sectors, levels and people in the economy,” Adefolarin told this reporter.
The development researcher also stressed the need for transparency in the use of tax resources, as this would encourage more people to pay their taxes.
“FIRS should work with various groups, unions and MSMEs as well as religious and traditional institutions and CSOs to educate Nigerians on the necessity of tax payment. While we understand that there is a tax club, we also need to have tax players in rural areas beyond urban centres.
“The importance of effective communication and orientation cannot be overlooked. The FIRS and the National Orientation Agency (NOA) must work together on this point.
“In addition, working with the NBS is imperative for data exploitation and deployment. This should be translated into the local language for all related information bulletins and tax matters in Nigeria.
“Finally, we cannot rule out corruption in the system. Thus, the FIRS must intensify its process to combat corruption, maladministration, official laxity and due diligence. We hope that with the FIRS automation system, the tax administration bottleneck will be eased and we will have transparency in the system.