Advocacy: Tax Compliance in Nigeria

On September 17, the federal government asked Nigerians who own bank accounts to obtain and complete self-certification forms, to be issued to them by their banks. And why? The statement read, “The forms are required by the relevant financial institutions to carry out due diligence procedures in line with Income Tax Regulations 2019”.  Expectedly, social media was set on fire. A day after, the federal government backtracked on this statement, saying the notice did not apply to everyone.

The drive for tax revenue continues…

Oh you must know the quote already. That one about death and taxes? Benjamin Franklin? Yeahhh. The only things certain in life are death and taxes. Somebody defined taxes as a debt owed by citizens of a country to their government. Hardcore eh? Taxes may be direct or indirect. Regardless, remittance is essential to governments and their budgets. Yes, this is why the government takes it personal. 

Tax compliance refers to the extent to which the tax paying population of a particular country complies with its tax laws and policies. Ideally, tax compliance involves timely and complete fulfillment of tax obligations. According to the World Bank Group, the importance of taxes and tax compliance lies in the need for a sustainable source of funding for social programs and public investments. Eventually contributing to a country’s economic growth and development. 

In Nigeria, tax compliance is increasingly a big deal. Well, it should be. Crude oil accounts for 70% of the country’s revenue base. And oil revenues are falling, so the country is going broke. Meanwhile, tax evasion has had its way for too long. In 2018, the Federal Inland Revenue Service (FIRS) found that over 6,700 billionaires do not pay taxes in Nigeria. Haha, wave your hand if you did not know we had that many billionaires in this economy. 

Also, the informal sector of the economy remains largely untaxed. In 2019, the FIRS generated about N5 trillion, relatively high numbers, but N3.7 trillion below its target for the year. Nigeria’s tax to GDP ratio is a sad 6%. To offer comparison, the tax to GDP ratio in a prosperous country like Norway is a staggering 54.8%.

And so our country remains the poverty capital of the world. Over 82.9 million Nigerians are poor. In the second quarter of 2020, the nation’s economy contracted by -6.10 percent. As it stands, the country will have to borrow record numbers to fund its 2021 budget. The need to raise tax revenue is iminent. Tax compliance must improve. But how?

What are the factors responsible for non-compliance in Nigeria? Well, the demographic makeup of the country, citizens’ unresponsive behavior towards taxation, as well as the faulty tax system. Nigeria 

needs to revisit (and modify) the policies and laws governing the tax system. Perhaps they should be more just. Wealthy Nigerians are barely taxed. Perhaps an introduction and enforcement of a luxury tax will improve the situation?

Then, tax registration and payment processes should be made simpler. Perhaps some more digitization should be employed. It is tax, why should payment be difficult? Also, tax laws should be made easy to understand. People should be able to ascertain their obligations easily. 

However, the most important point is transparency in the tax administration system. The Federal Inland Revenue Service should be made accountable to the public. The government too. The social contract theory is not a superstition. The payment of taxes should cajole the government into doing the needful for citizens. If people see their revenue being put to productive use, they will be more responsive! 

They should be.