Towards creating a tax-paying culture in Nigeria

Since the new reality of low oil prices, Nigeria has been mulling new ways to raise tax revenues in the country that had hitherto tacitly discouraged or whittled down its capacity to enforce tax payments. Consequently, beyond the Personal Income Tax compulsorily collected at source from workers in the formal economic sector, few Nigerians voluntarily pay their fair share of taxes. Nigerians have gotten used to not paying tax or have devised means of beating an opaque take-collection system.

Some time back, Finance Minister, Kemi Adeosun returned to the theme when she revealed government’s resolve to step on big toes to get wealthy Nigerians to pay their tax accordingly. According to Adeosun, only 214 people pay personal income taxes of over N20 million. At the current “Pay as You Earn” (PAYE) rate, it means only 214 people earn N105 million annually or N9 million monthly. Obviously, this is paltry. BusinessDay identified at least 1,000 people in the oil and financial sectors that earn over this amount, as deduced from their company financials. “Despite having some of Africa’s wealthiest people, our tax revenue is too low and we are prepared to step on big toes to bring an end to that,” Adeosun said at the recent Nigerian Stock Exchange and Bloomberg CEO roundtable in Lagos. “The solution to our rising debt service cost is not to stop borrowing, but to raise revenue and tax is a low hanging fruit. We will not stop borrowing, because we need to invest in infrastructure,” the minister said.

Nigeria’s tax revenue to GDP is one of the lowest in the world at 6 percent. This compares poorly with South Africa’s 27.5 percent and an OECD average of 34 percent. Corroborating the minister’s claim, Taiwo Oyedele, a partner and head of tax, at Price Waterhouse Coopers (PWC), said of the 214 persons that pay over N20 million annually, only two are resident in Ogun state, with the bulk coming from commercial hub- Lagos. “This means that all the other 34 states of the federation don’t have people who earn as much as N100 million annually.

That is certainly not true and only shows that some high networth individuals are not paying the taxes due to them. A recent study estimates that at least 5,000 Nigerians earn N50 million yearly and are eligible to pay N10 million in PIT.

The need to bolster tax revenue has necessitated a fresh injection of 7,500 community tax officers to educate people about tax issues to achieve better compliance. There will also be aggressive monitoring of companies that generate profits in Nigeria but shift taxes to countries of jurisdiction where little or no tax is payable, according to the minister.

Nigeria realised N3.3 trillion tax revenue in 2016, according to the Federal Inland Revenue Service (FIRS).  Nigeria is said to have a National Tax Roll of 14 million. The country expects non-oil revenues- largely comprising Companies Income Tax, Value Added Tax, Customs and Excise duties, and Federation Account levies- to contribute N1.373 trillion in 2017, as outlined in the budget.

Indeed, the government is right in trying to develop smart and effective means to compel Nigerians to pay their fair share of taxes. Indeed, taxation is the most concrete expression of the social contract between the people and the state and citizens, like in other parts of the world, must be made to perform their duties to the state. However, the state must also realise that the social contract is, as well, an interplay of rights/privileges and duties/obligations. Just as much as it demands from citizens to perform their duties, the state is also obligated to perform its duties to maintain a healthy contractual union between citizens and the state.

Sadly, that is where the problem comes from. Successive Nigerian governments (both military and democratic) have had a history of dereliction of duty. This contributes partly to the problem of low tax compliance in Nigeria.

Nigerian businesses operate in a terrible environment and continue to exist in spite of and not because of the government. Nigerian business men and women are therefore loath to support a government that exist to make things difficult for them and cripple their businesses rather than help them grow.

We think the very first step in the administration’s drive in enforcing tax compliance is to improve the business environment in Nigeria. Once this is done and businesses thrive, the state will have the moral rights to compel these businesses to pay their fair share of taxes.