Despite her huge population in excess of 200 million, Nigeria has failed to reap maximally from the figure via tax collections. Public apathy and absence of confidence in the tax system stall the opportunity available to improve tax earnings, ABDULWAHAB ISA reports
Despite her ranking as Africa’s biggest oil exporter and most populous nation in the black continent, Nigeria remains among the world’s poorest countries. About 87 million of its 200 million people live on less than $1 a day. Ironically, a lesser economically endowed nations with smaller population outclass Nigeria in the area of infrastructure development and enhanced living standards for the majority of the citizens. Nigeria’s failure to translate her population size to wealth creation is rooted in a poor tax base and citizens’ apathy.
Tax morale is abysmally low in Nigeria. The citizens’ loss of faith in government’s inability to utilise collectable tax revenue to fix infrastructure and create essential services is premised on past experience. Tax revenue collections had been mismanaged and unaccounted for in the past. This leaves tax administrators struggling with a few eligible tax prayers on the tax net in a country of over 200 million people.
Paradox of huge population, poor tax base
The Federal Inland Revenue Service (FIRS) is the Federal Government’s tax revenue collector. The lamentation by the agency on the low number of eligible taxpayers on tax net and quantum collected reflected the unimpressive level of tax collection in Nigeria. The figures unmatched progress recorded in tax collection by smaller nations with lesser populations. Executive Chairman, Federal Inland Revenue Service, Muhammadu Nami, last week, gave an overview of the state of tax collection in Nigeria during the 2022 budget breakdown held at the instance of the Ministry of Finance, Budget and National Planning in Abuja. Government is facing a revenue challenge in implementing her obligations. Nami confirmed that only 41 million Nigerians pay taxes out of 200 million population. This leaves an untaxed 159 million gap population.
It’s a massive loss by every standard. He drew an analogy between Nigeria and South Africa. Nami lamented that despite the 41 million eligible taxpayers in the country, compared with South Africa’s four million taxpayers, Nigeria earned far lower than what South Africa generates from Personal Income Tax. While Nigeria earned Personal Income Tax of N1 trillion, South Africa generated N13 trillion from a meager four million taxpayers.
“Our total tax payers today is in the region of about 41 million people and the total personal income tax paid last year was less than N1 trillion by 40 million people. “If you also compare that with our own brother, South Africa, where they have a total population of about 60 million people, with just four million taxpayers, the total personal income tax paid in South Africa last year was about N13 trillion. You can now see that these things are not adding up. “The number of billionaires in Lagos alone are more than the number of billionaires in the whole of South Africa, but yet what we generate as Personal Income Tax by Lagos State government is less than N400 billion. “So, if we don’t pay these taxes, there is no way government will be able to provide the social amenities required, the critical infrastructure required for the wellbeing of the country,” he said.
To drive home more the pitiable tax situation in Nigeria, the FIRS boss said only N4.2 trillion was generated from taxes in September this year. “The total collection we have up to September 31, which we have not fully reconciled with CBN and the Nigerian Customs Service, is about N4.2 trillion, and from this amount, oil related taxes accounted for only 22 per cent, which is N950 billion only,the non-oil taxes we have generated within that period is N3.3 trillion. “Secondly, to discuss the taxes that are being paid in the country and to say whether they are adequate or not, I want to believe one, they are not adequate. “People are not willing to pay; even when people are appointed as agents of collection, whatever they have collected on behalf of government, they find it difficult to remit.
“When you compare Nigeria as an oil producing country to a small country of Saudi Arabia that the minister (of finance) pointed out, we are still not there. “We assume that we are a rich country, I don’t think that is correct. “We only have the potential to be rich, because one, we have a very huge population of about 200 million.
We have an issue to discuss and to talk about how to solve our own problems. “If you look at it from the rate of taxes paid, In Saudi Arabia with a population of ten million people, the VAT rate is as high as 15 per cent and what we have in Nigeria is just 7.5 per cent,” he said. According to tax data, the tax-to-GDP ratio in South Africa in 2016 was 29 per cent, Ghana 18 per cent, Egypt 15 per cent and Kenya 18 per cent. The average for OECD members, which include all the advanced economies, was 34 per cent. Nigeria’s tax-to-GDP ratio in 2016 was just 3.4 per cent.
The wide gap between Nigeria’s huge population and tax revenue available to it shows apathy and absence of confidence in the tax system. Findings showed many Nigerians are reluctant to pay taxes because of concerns that such money raised from taxes may be siphoned instead of being spent on health, education and other public services. Lack of trust in the tax system is the biggest dilemma. The low level of tax compliance in the country can be attributed to a number of factors, including incoherent fiscal policies, the cumbersome and inefficient tax administration system, high level of tax evasion,. ambiguities in the tax laws and lack of transparency regarding the utilisation of tax revenue for social services.
To change the tide of public apathy for tax collection and secure their buy-in, government and, by extension, the FIRS, needs to engage the public in confidence building. The public will need to be assured that their taxes would be accounted for. Government must be committed to investing tax proceeds on health, education and other public services. More eligible taxpayers will enlist into the tax net voluntarily if they can repose confidence in government being accountable for tax collected. The International Monetary Fund (IMF) suggested to the Nigerian government to carry out more comprehensive tax reforms. Doing so, the Fund noted, could help increase the tax-to-GDP ratio to a reasonable percentage.
The custodian of tax proceeds – the government and, by extension, FIRS, needs to commence advocacy and enlightenment campaigns aimed at building public confidence in accountable utilisation of tax proceeds. The public must see the evidence of tax they pay in form of physical infrastructure development, good roads, hospitals and other essential services.