Ongoing manoeuvres by the federal and Lagos State governments reveal the inefficiencies of our tax administration system and the urgency for effective reforms. While the Federal Government says it is set to nab and prosecute corporate and individual high net worth tax dodgers, Lagos is warring with property owners and the business community over its new land use charges. The greatest challenge, however, remains unsolved: how to bring all eligible adults into the net and rescue the nation’s parlous revenue base.
The good news is that dwindling revenues, high debts and recession have forced the Muhammadu Buhari government to confront the urgent need for tax reforms. Months of planning and sensitisation by the Federal Ministry of Finance and the Federal Inland Revenue Service will, it is believed, culminate, beginning from April 1, in the scrutiny of 130,000 already identified high net worth individuals and the prosecution of identified tax evaders. This follows a nine-month “amnesty” window that gave tax defaulters an opportunity from July 1, 2017 to March 31, 2018 to voluntarily file in and pay their taxes. The carrots include waivers of all penalties and interests normally levied on late filings, shelving of investigations or further tax audits for past liabilities and waiving of prosecution.
In Lagos, though Governor Akinwunmi Ambode has reduced the rates, the business community and property owners are still locked in a bitter spat with the state government over the newly introduced Land Use Charge law that raised rates by as much as 400 per cent and higher in some cases. In an effort to sell the bitter pill to stakeholders, Ambode reeled out the parlous state of revenue collection versus the recurrent spending, the massive ongoing infrastructure projects and aspiration for a mega city status.
But the real quagmire and challenge, in our view, lay in the chilling tax compliance statistics reeled out. Of the estimated 23 million people in the state, he disclosed, with eight million taxable adults, only two million submitted tax returns. Maddeningly, “only 700,000 paid taxes last year,” he said. This means that only 8.75 per cent of taxable adults are bearing the burden.
Nigerian government at all levels should get serious with taxation. As bad as the Lagos figures are, in percentage terms, the picture is better than those of most states where tax-to-Gross Domestic Product ratios are worse than the national ratio of 6.1 per cent. Quoting data from the Joint Tax Board and the National Bureau of Statistics, a report by PwC found that of the 10 million persons registered in 2015 for tax purposes in the 36 states and the Federal Capital Territory, 46 per cent filed with the Lagos Inland Revenue Service, leaving an average of 153,000 or 1.5 per cent per state! Leaving out Ogun, Delta and Rivers states, Lagos’ internally generated revenue in 2015 was more than those of the 32 other states and FCT combined, per NBS data.
In truth, Nigeria has not joined the development train as tax revenues drive today’s successful economies, not volatile commodity sales. Unlike some oil-rich Gulf Arab states with high oil production levels and revenues, but small populations, our large numbers of 193 million have condemned us to per capita income of $2,177.9 compared to United Arab Emirates’ $38,436 for its 9.26 million inhabitants.
Can the government match its words with action? For Kemi Adeosun, the Finance Minister, and Babatunde Fowler, Executive Chairman of FIRS, it is imperative to ensure that the 77 million taxable adults of the population pay their taxes, a task that they must coordinate effectively with the laid back 36 states, most of which have become addicted to the monthly allocations from the Federation Account. The government should muster the political will to bring defaulters to book, especially the influential, beginning with the 130,000 identified HNWIs. The recourse to deploying advanced technological tools alluded to by Adeosun is long overdue and should be pursued with vigour.
The country is awash with persons who live in luxury, including public officials, but pay very little or no taxes, such as the person Adeosun cited owning a private jet and homes in Nigeria and abroad but paying only N480,000 in income tax annually. Government has all the tools to identify and enforce compliance; those who hide their assets in the names of companies should not be spared. If companies buy jets, luxury homes and vehicles for their executives, they should also be ready to pay commensurate taxes on their behalf.
To become a true mega city, Lagos must deploy resources, technology and ingenuity to bring the 7.3 million people who are not paying into the tax net. It should not continue to overburden the few already in with more. One claim against the new land charges is that the 300,000 persons the government says are affected are mostly compliant taxpayers. Those outside the net should also be made to pay up.
Tax paying citizens not only promote development, they also take a greater interest in how they are governed and demand accountability from officials, a major deficit in our flawed democracy. Experts see a correlation between effective tax jurisdictions, civic participation and high human development indices. OECD nations, for instance, combine high income taxes with effective taxation policies and enforcement and boast the world’s best economies.
Our continental rivals, South Africa and Egypt, boast tax-to-GDP ratios of 26.9 per cent and 15.8 per cent respectively, while our total federal tax revenues of $27.5 billion in 2015 came short of South Africa’s $57 billion that same year.
Another test looms for the Buhari government: it should pursue the tax reforms with uncommon commitment and ruthlessness. If it could rake in N23 billion from the Voluntary Assets and Income Declaration Scheme, the pickings from resolute enforcement of tax laws and the proposed special tax courts will be rich indeed. Lagos and all other states should follow suit.
