Akin Yusuf
When a few years ago Mrs. Omogui Ifueko- Okauru was appointed by the Obasanjo administration to head the Federal Inland Revenue Service (FIRS), which by extension supervises Nigeria’s tax administration, I gave my whole hearted support. This was essentially because knowing Madam’s background and career accomplishments I was convinced that her appointment was yet another round peg in a round whole. Let me immediately add that years after, I have not been disappointed by the impact she has made in that office, for not only has government revenue from taxes increased significantly, some level of sanity has been brought to Nigeria’s tax administration. But this is not to say that we are there yet.
Only last month, in fact at the Conference on “Effective Audit and Investigation for Improved Tax Compliance in Africa 2009”, the FIRS reported that governments expected revenue from taxes in the first quarter of 2009 recorded a short fall of N124 billion. Of the projected tax revenue of N477 billion, only N353 billion was realized. At that same Conference, Remi Babalola, Minister of State for Finance, equally announced that Companies, Institutions and Ministries, including Departments and Agencies (MDAs) owe the federal government over N260 billion and over $260 million in Withholding Tax (WHT), Pay As You Earn (PAYE) and Value Added Tax (VAT). Several reasons were attributed to this phenomenon including collusion between tax Consultants and tax officials to defraud the government of needed tax revenue; negative attitude to tax on the part of citizens; incomplete and inaccurate tax returns; under-assessment by tax officials and submission of tax returns by quack and non-professionals; diversion and conversion of tax payments by banks and other collecting agents like MDAs; as well as competency gaps on the part of revenue officials and inadequate deployments of modern IT tools in tax administration.
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All of these revolve on one thing: Nigeria’s inability to yet put in place a good tax system. A good tax system ordinarily is characterized by several factors prominent of which are: economic efficiency (should not prevent efficient allocation of resources); administrative simplicity (easy and inexpensive to administer); flexibility (capable of responding easily to changes in economic conditions); transparent (tax burden should be ascertainable and tailored to what society considers desirable); and, fairness (comprising both horizontal equity – same level, and vertical equity – the better off should pay accordingly). Most of these are lacking in our tax system. Again, whereas taxes to some extent are used to redistribute income and bridge the gap between the rich and the poor (responding to forces of demand and supply), in Nigeria, the reverse is the case.
Corruption in tax collection administration and management has resulted in the rich paying far less than the poor. In fact, what is collected from the poor is unfortunately used to provide services for the rich. It is because of this apparent inefficiency in governance that several Nigerians often refuse to pay tax. This is aside from the lack of proper awareness, low productive capacity and prevalence of a largely illiterate population. For whatever it is worth, individuals and companies can only pay tax when they are able to earn income, either through salaries or profits made from employment or business activities. This is compounded by the fact that Nigeria’s fiscal regime is characterized by unnecessary complex, distortionary and largely inequitable taxation laws that have limited application especially in the formal sector.
Having said that, countries collect taxes to provide facilities for the citizens, including education and healthcare, pension for the elderly, unemployment benefits and public administration. In fact, taxes are essentially meant to boost developmental activities; assist government to meet day-to-day expenses especially those relating to the maintenance of a free and fair society; provide defense and security; control the economy through fiscal measures; and, change economic behavior of citizens. In Nigeria’s case, taxes also help to augment shortfalls from oil exports. Again, the example of Lagos State presently, shows that citizens are more likely to be forthcoming with their taxes once they are convinced that it will be judiciously utilized.
In the circumstance there is every need to improve Nigeria’s tax system not only to make it more efficient but also to help to redistribute income and create wealth. We should emphasize the collection of fewer taxes that must be broad based and higher revenue yielding. Also, we must shift from direct taxation to indirect taxation, geared towards avoiding multiple taxation by various tiers of government especially on income, property, imports, production and turnover. While doing this, we may also have to re-examine the current focus of the Nigeria Customs Service (NCS) as a revenue agent for government. In a bid to meet its yearly target, the organization has tended to undertake activities that sometimes are inimical to the free flow of goods and services. Nigeria Customs Service should rather function as a trade facilitator ensuring standards and equity in the country’s international trade. Once this is done, it is bound to have multiplier effects by facilitating the speedy movement of goods across Nigeria’s borders. In the end the citizens would be further empowered, while Nigeria will collect additional revenue from indirect taxes.
I also note with satisfaction that the FIRS have recently introduced automation of tax processes and electronic system of tax registration and payments to achieve better results. But this is not enough. The reform process must go further. It is important to widen the tax nest to capture more tax payers, block all loopholes to make all tax evaders pay their worth, make those that pay less than they are due to pay more, while all collecting agencies including tax officials should be made to account for all they have collected. These efforts should be completed by a drive towards empowering Nigerians to make them economically more productive. That way, they will be willing to pay their taxes, while government revenue will also increase.
