Like its predecessors, the Muhammadu Buhari administration is careless with tax administration and the criminality of tax evasion. Although it needs huge revenue to service its rising recurrent expenditure, debts and infrastructural deficit, Nigeria is unable to collect trillions of naira owed by tax defaulters. In a fresh insight, a former Director-General of the Budget Office, Bode Agusto, identifies low tax compliance among the wealthy as a major impediment to the country’s economic growth. With the unstable oil revenue – from where Nigeria gets the lion’s share of its resources – it is necessary for the Buhari regime to devise solid mechanisms to recover the arrears.
Agusto’s revelation is alarming. Income generation from non-oil sources is unusually low simply because some very rich Nigerians, whom he puts at 200,000 or 0.1 per cent of the population, do not pay their taxes. Consequently, the current income profile of the Federal Government, he says, is N10.4 trillion, which is far below what is needed to meet fiscal obligations.
If the rich and other defaulters pay up and the tax-to-GDP ratio rises, Agusto says Nigeria could make an extra N14.4 trillion annually. That income is far more than the 2020 budget of N10.59 trillion. This puts pressure on Buhari to act on tax compliance, which he estimates at 4.0 per cent of the GDP. In substantiation, the World Bank estimated Nigeria’s compliance figure at 3.4 per cent in 2016 and 4.8 per cent in 2017, though the Paris-based OECD has a slightly higher mark of 6.0 per cent.
Whichever way, all the rates are just too abysmal, and portend a perilous future. The World Bank posits that for any economy to achieve growth and reduce poverty, it requires a minimum tax-to-GDP ratio of 15 per cent. At this low rate, Nigeria is unable to meet its revenue projections and resorts to reckless borrowing.
Disturbingly, the OECD states that tax-to-GDP ratios in other African countries are far higher. It is as high as 29 per cent in South Africa, and at 15 per cent in Egypt, 18 per cent in Ghana and Kenya each, it is much better than what obtains in Nigeria. In the developed economies, the rate was 34.3 per cent in 2018, with Sweden on 43.9 per cent, Denmark on 44.9 per cent and France 46.1 per cent. Out of 65 million taxable Nigerians, the World Bank estimated that only 30 per cent of them paid taxes as of 2016, which is condemnable.
Nevertheless, it is not that the incumbent regime is utterly indifferent to the quagmire. It has marginally pushed up the compliance rate. From 13 million payees in 2015, the figure inched up to 14 million in 2017 and 17 million in 2018. Initially, in 2019, the payees climbed to 19 million and later to 20 million. Yet, this is far short of 65 million obligors.
In this respect, it launched an amnesty project – the Voluntary Assets Income Declaration Scheme – in 2017. Defaulters were given a window to pay up and escape prosecution. It failed woefully: only 8.0 per cent defaulters utilised the opportunity. At that time, the then Minister of Finance, Kemi Adeosun, said only 226 defaulters accounted for N20 billion of the amount realised from VAIDS.
The Buhari regime has missed its targets in non-oil revenue generation since 2015 by at least 45 per cent. Data computed by the National Bureau of Statistics reveal that, in 2016, the Federal Inland Revenue Service realised N3.3 trillion out of its N4.2 trillion target; N4 trillion out of the expected N4.8 trillion 2017 and N5.3 trillion from the N6.7 trillion for 2018.
Unfortunately, the political will to enforce tax compliance among the elite is substantially weak. The federal, state and local governments shoulder the blame. The rich flaunt their wealth without being compelled to fulfil their tax obligations to the state. This is outrageous, and the government runs from pillar to post, attempting to borrow money from China.
All along, the government’s cluelessness has been evident. Just 20 wealthy Nigerians and big corporations owe the Asset Management Company of Nigeria 67 per cent of the N5 trillion debts on its books. These dodgers own visible assets within and outside the country, but irrationally, government dances around the issue. It cannot collect Value Added Tax revenue, which it has just increased from five per cent to 7.5 per cent. This hurts the economy.
Vice-President Yemi Osinbajo bewailed this in 2017. He stated that only 914 Nigerians, 912 of whom reside in Lagos and two in Ogun State, paid taxes of between N10 million and N20 million annually. The figure of 200,000 dodgers by Agusto exposes the damage the rich are doing to the collective.
With oil prices going below the 2020 budget market of $57 per barrel because of the novel coronavirus pandemic, the Buhari regime should act immediately. Through technology, the FIRS should trace all the wealthy defaulters, prosecute them and recover the arrears. It should tighten the laws, making it difficult for the offenders to evade taxes.
The Buhari regime needs to respond strongly to the crooked practices. Governments all over the world run on taxes. On Tuesday, HM Revenue and Customs demonstrated this in the United Kingdom. It stated that it was investigating a record 330 footballers, 55 clubs and 80 agents, up from 173 players, 40 clubs and 38 agents in January 2019, over tax evasion. “We are clear that everyone must pay what they owe under the law – regardless of their wealth or status,” it said. Already, it has recovered £396 million from the industry since 2015. The level of enforcement is not different in Spain, where wealthy sportsmen are prosecuted for tax evasion.
Corruption and tax evasion distort development. Both represent a diversion or leakage of financial resources away from public budget towards private spending. Addressing corruption and tax evasion should be part of government’s strategy of alleviating poverty and promoting rapid economic development. The FIRS should know that transparency, public accountability and citizen empowerment are powerful weapons for lifting the cloak of secrecy used by elites to stash their gains and avoid or evade taxes. Tax returns of all wealthy individuals and large corporations should be made publicly available. And as Agusto suggested, Buhari should lead by example, making his annual tax returns public and demanding the same from his officials. This will give his regime the ammunition to identify, apprehend and prosecute defaulters and improve the treasury.
