“Pay your tax!” “Pay your tax!!” This is a usual mantra from government officials. This is good but there is a “but”. Just yesterday, the FIRS Chair visited the Lagos state Governor and among the other things that filtered out to the press were calls for citizens to “pay their tax” as though we have not been reminded enough. The FIRS chair also stated that he and his team has been given a target of N8.5tn for the year and his visit to Lagos was to solicit support and a data base of taxable organizations so that they can meet their target. This is good but again, there is a “but”
To drive home the point I wish to stress in the article, it is important to first compare Government and Governance to something I believe we are all used to – Cooperatives (aka Osusu) either in the workplace, market place or among any group of individuals. The system is run in such a way that those who sign up pool their own monies together and appoint, either by election or consensus, a person(s) to manage the funds. The task of those so appointed include managing of the cooperative account, provide statements of account as agreed by members, ensure that funds are safe and available when demanded for by cooperating members. This is quite harder than I make it sound but government and indeed governance is built on this principle.
Like members of a cooperative, representative democracy is a social contract between citizens and their elected President, Governor or Chairman of a Local Government Area. Among the civic duties required by the electorates (citizens) is the payment of tax which is the most reliable means of revenue generation for most serious governments across the world. The duties of those elected include management of the revenue, utilizing of same for the purposes for which they are meant to be used for (we will get to that in a bit), being accountable to the electorates are required by extant laws, etc. and every other thing mentioned above.
For the record, I pay my taxes as I am deducted from source since I started working in Lagos so I have every right to comment on this subject and to express my opinion on it. If my taxes were not deducted from source, the other reasons I would have paid them would include the fact that it is a divine civic responsibility and that as a Teacher, I have taught that it was the right thing to do. So I probably have more than one reason to pay my tax at any given point in time. But this is not so for many people including SMEs, big companies and individuals who have to choose for themselves when and how to pay their taxes. Apart those who fall within my category of deduction from source and are thus constrained to pay, many individuals evade paying taxes and in most cases, the deducted taxes don’t get to the revenue agencies either at the federal or state level. This leave a huge deficit in taxation drove.
The following issues bug our taxation drive in Nigeria and I wish to highlight them quickly
- Tax Evasion and Multiple Taxation. Whereas many taxable companies and individuals evade the tax net, more already taxed companies and individuals are experiencing multiple taxation. What happens then is that the government never get enough to run. Multiple taxation also happens in situations where a single individual is taxed by the federal, state and local governments sometimes for the same item. This surely is no longer taxation but a reap off.
- Lack of Tax Dividends. As explained above, the social contract in a representative democracy is such that we contribute a percentage of our earning to a central purse which in turn takes care of our collective needs. The fact that some persons are paying their taxes and yet don’t get a feel that their lives are better for it is a major disadvantage.
- Lack of Transparency in Governance. It is sad that more than twenty (20) years on in democracy, the government of Nigeria still carry on as though they are the boss of the people and the people still carry on as though they are the servants of those in government. During elections, politicians come begging for votes, bribe and rig their way to office and jettison the people for whom governance is meant and who are on the other side of the social contract – a major stake holder. As such, they do not feel the need to be accountable to the people especially in areas of financial earnings and expenditure. It is a well-known fact that average politician seek public office not for service but to have access to public treasury. What is sad is that they do this with so much reckless abandon that it has become the norm. Every year we hear budgetary allocations to projects running into trillions and we don’t see these things. We hear or read of FAAC meetings and sharing and still the more we look the less we see. Our government is a “secret cult” across the tiers. If I don’t know how you manage our collective patrimony, how will I continue to trust you with same?
- Profligacy by Those in Government. Again, this is a major discouraging factor in the taxation drive especially in Nigeria. Our country seem to have been handed over to a set of hungry and wanton set of political elite whose lifestyle can barely be maintained by the meagre earnings of the country. A look at the annual national budget suggests that after servicing our debts and allotting huge sums to maintain those in office, there is little left for developmental drives that affect the electorate. So what happens in real sense, as against the way it supposed to be, is that these sets of political elites collect our money and spend them on themselves. How can anyone be encouraged to continue paying tax in such atmosphere?
- Other Streams of Income. As mentioned earlier, in most developed countries, taxation is the major source of government revenue. However, I Nigeria, what has happened over the years is that government has relied on oil revenue at the expense of other means of government revenue including solid minerals and agriculture (all of which we have in abundance and untapped). Note that it is a blessing for anyone, including government to have multiple streams of income but to neglect one for the other is a recipe for catastrophe as we are experiencing today. Nigerians have gotten used to either paying little or nothing at all as tax that any mention of the word today is seen as anti-people. A case in point is the recent increase in VAT which many have explained as still being one of the lowest in the world. It is the fact that other revenue sources (in this case oil) is failing that has forced government to look at that area.
To solve these self-inflicted challenges of our taxation drive and encourage more persons to (willingly) turn in their tax returns, the following needs to be done as soon as possible:
- The government and indeed the revenue service or tax men must seek ingenious ways of ensuring that tax evaders are brought into the tax net. Pundits have opined, and I agree, that the solution to low tax returns is not increasing taxes but increasing the number of taxable individuals in the tax net. This is a job for those who currently sit in the saddle of Internal Revenue Service nationwide. They must also find ways to reduce the tax burden of those who are currently experiencing multiple taxation./ The tax laws must be harmonized is such a way that federal, state and local revenues are clearly identifiable and are not intertwined to create multiple taxation for any single individual or organization. The new Finance Bill recently signed into law by Mr President which allows for tax exemptions for some categories of organizations (depending on income levels) is a commendable step in the right direction and should be harmonized across states.
- The government at federal, state and local tiers must as a matter of urgency use the taxes collected for what they were promised or meant for – social amenities. Situations where I pay my tax and yet go ahead to provide my own power, water, private security, patronize private education and hospitals, clear drainage, even fix roads is tantamount to multiple taxation and failure in government. And since government is a social contact, if one party breaks its own part, there should be consequences. Government or tax agencies are quick to remind the citizenry of the consequences of defaulting in tax returns. How about telling them what happens when government fail to provide all the things that my tax should provide for me. The argument that some people are not paying hence, social amenities cannot go round is lame and unacceptable. That has been addressed in point 1 above. Government and its tax agencies should get their acts together or get out of the way for more serious people to do the job.
- Why is it difficult to know how much our government earns in any given sector of the economy? Why does it seem there is so much secrecy in government earnings and expenditure? And this does not apply only to taxation. Word on the street is that NNPC, the government owned Oil Company is the most secretive and corrupt agency of government. In fact, it has running battle with the national assembly over its non-remittance to government purse. Whereas we have a Treasury Single Account (TSA) and Freedom of Information (FOI) Act it is still difficult for anyone to know what government earns and spends on any given time. As explained earlier in the analogy, it would be unacceptable for any person(s) to keep our money without an agreed periodic book keeping or transparent audit.
- Government officials must retrace their steps and as a matter of urgency stop the looting of public funds, curb their wantonness and excessive lifestyle. If for nothing, for the mere fact that the country can no longer sustain their high taste. Nigeria is endowed with resources both human and natural that are all money spinners in every way we look at it yet we are one of the poorest countries in the world and hardly ever get enough to run the country. The reason for this is credited to the twin monsters of inefficiency & corruption government.
- Even with the recent increment in VAT, as stated earlier, ours is still one of the lowest in the Africa. This is an indication that government is still dillydallying in the subject of taxation. However, the robust finance law may suggest otherwise as analysts say it creates room for increased revenue for government. While I am not necessarily advocating for increased taxes, if points 1 – 4 above are addressed conclusively, it will restore the fast eroding (if not already eroded) confidence in government that is vital in maintaining this social contract called democracy.
I am sure every reasonable citizen wants their country to work. I am also sure if engaged appropriately and persuaded with information is=instated of threats every taxable individual will gladly pay their taxes IF all that have been discussed above are addressed by those in public office.
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