Government, Nigerians, and taxation, by Adekunle Adekoya

LAST week, I discussed here that the governments of Nigeria will have to do more to enable Nigerians pay tax the way the government wants them to pay it. The new tax laws which came into effect January 1, despite the furore over what was passed and what was gazetted is supposed to be a step in that direction. I opined that to enable Nigerians pay the tax, they should be able to earn more, and to earn more, the economy must get a breather.

One of the ways by which I thought the economy could get a breather was to revisit the pricing template of petrol. This is because more than 95 per cent of our foodstuffs are moved by road in vehicles that run on petrol. If the template is revisited, and some items, charged on every litre of petrol are removed, the price of petrol could come far lower than what it is now. This will have the cascade effect of easing prices, especially foodstuffs.

But that is not the only thing that worries me. It would seem that not much thought, by way of intendment of the tax laws, has been given to widening the tax net. As we speak, millions of Nigerians will remain outside the tax net simply because they have structured their economic activities to run independently of the formal system that can be monitored by the tax authorities.

For a long time, not a few people, including trained economists have continued to wonder at the resilience of the Nigerian economy. Simple truth is, the strength of our economy comes from the informal sector. There are legions of traders — buyers and sellers of various commodities — who turn over billions of naira daily. Most of these billions do no go near banks; they are immediately turned over into another venture almost as soon as payment is received for a transaction. In addition are the traditional bankers and thrift collectors.

Many of these people have built their businesses on the reputation that contributors can get their money on demand at any time at the shortest notice. As a result, they do not keep funds collected in banks; they stash them as they know best and secure them with non-formal, traditional systems. It will remain a herculean task for tax authorities to be able to track the earnings of operators like these for taxation purposes. Other revenue-generating ventures exist in places like motor parks, markets, and various traders’ associations.

In motor parks, for instance, all manners of charges are levied on transporters, and are collected mainly by cash, the proceeds accumulated and disbursed similarly. These are operators that have no patience for the formalities of banking system. There are also the artisans. Most of them receive money from clients for jobs; they buy materials immediately, and what is left as their labour charges goes immediately on daily needs.

My fear about the new tax laws is that tax avoidance may be on the rise, as more people remain outside the tax net. To that extent, the situation may remain what it is for many more years — only people with bank accounts and/or are salary earners can be taxed. As has been before, it means it is only those in the formal sector that will continue to bear the financial burden of the whole country in so far as it concerns revenue generation from taxation.

Nigerians, being who they are, and forever thinking smart, will be seen structuring their business operations to operate below the financial thresholds established by law for taxation purposes. One such thresholds, for example, is the exemption for small businesses. The law provides that companies with an annual gross turnover of N100 million or less and total fixed assets not exceeding N250 million are exempt from Companies Income Tax, CIT, Capital Gains Tax, CGT, and the 4% Development Levy. This exemption, however, does not apply to companies providing professional services. You can second guess what my fellow countrymen and women can do with this provision.

With tax avoidance growing, expectations of government will naturally dwindle. But another major problem is the trust deficit that governments already suffer, and will continue to suffer. People may not mind paying tax, if they are sure that their tax is an investment in their own welfare. When hospitals lack drugs and doctors, schools remain without teachers and teaching aids and books, roads remain death traps and insecurity remains intractable, the incentive to be a “good Nigerian” is steadily diminishing.

As it is, one can only assume that the federal and state governments are fully ready and equipped to wage the taxation war. I hope the necessary equipment, by way of software and servers, are already in place and employees of the federal and state revenue services have been trained in their use. I also hope the civil servants that will be doing this work are up to the task. If service delivery by the civil service is anything to go by, governments may be in for a long haul. One thing constantly overlooked in the success of the tiger economies of South-east Asia is the contribution of their civil service. They do their work, unlike here, where they sit in their air-conditioned offices, push files for a few hours and break for lunch. Most don’t return to work after lunch.

In all, I am reserving further comments on the tax laws until experience dictates when to make remarks. TGIF.

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