Paying tax in Nigeria has always been a political hot potato. Apart from the formal sector employees captured in the Pay-As-You-Earn platform, a majority of self-employed, wealthy individuals and corporate outfits simply evade paying tax. Concerned by this, the acting President, Yemi Osinbajo, has launched an amnesty plan that will allow tax defaulters to regularise their status by voluntarily paying their arrears within a nine-month window. The Voluntary Asset and Income Declaration Scheme is ambitious. If the government wants to succeed with it, we recommend the template being operated by the tax authorities in Spain.
At 6.1 per cent, Nigeria logs one of the lowest tax-to-GDP ratios in the world, according to World Bank estimates. Conversely, South Africa (26.9), Egypt (15.8), Botswana (35.2) and the Organisation for Economic Co-operation and Development countries (38.8) all have better ratios.
So, how did Nigeria find itself in this sorry pass? Beguiled by cheap oil wealth, Nigeria neglected its tax collection system. It was a fatal economic error when oil prices collapsed in mid-2014. The federal and a majority of state governments are struggling to pay salaries and are unable to finance their budgets.
The Federal Inland Revenue Service, which is targeting an income of N5.2 trillion in 2017, says that out of 70 million taxable adults, only 14 million are paying. Worse, 96 per cent of them are on the PAYE system. This means the wealthy and self-employed people who pay tax in Nigeria are very few (four per cent). Only 214 of them pay annual tax of N20 million and above, with all residing in Lagos. It suggests rather falsely that only 214 people make N80 million per annum as income in Nigeria, as Osinbajo averred. FIRS crunched the numbers further, saying that only 914 Nigerians pay annual tax of between N10 million and N20 million. Two of them stay in Ogun State; the other 912 in Lagos.
Yet, there are many wealthy people in Nigeria. They own big businesses, yachts, aeroplanes and most expensive cars in the world. At the weekend, Babatunde Fowler, the FIRS chairman, said that there were 29 Nigerians and Nigerian businesses that used South Africa to register their private jets in order to evade paying tax in Nigeria. Such people also have choice properties in the United Kingdom, United Arab Emirates, America and South Africa. Often, they hide their stupendous wealth away in tax havens like Panama and Belize.
With oil prices unlikely to rise significantly again, the Muhammadu Buhari Administration could copy what Spain is doing to extract tax from high net-worth people to recover what belongs to the Nigerian state. Already, high-profile international football stars have been convicted in sensational tax trials. In 2016, Lionel Messi of Barcelona FC was convicted of defrauding Spain of €4.1 million in taxes from his image rights. He was accused of hiding the income in Belize and Uruguay; and was jailed for 21 months. Jorge, his father, who manages his finances, was also convicted in the case, bagging a sentence of 15 months, though he still paid back some arrears. Their saving grace was that, for a convict to be sent to jail in Spain, the sentence must be up to 24 months. In that country, it is about the law; it does not matter who is affected.
Messi’s trial is not the only one making headlines in Spain. Other famous football stars like Javier Mascherano and Neymar are also in trouble in the European country. Likewise, Angel di Maria, during his time at Real Madrid, and Radamel Falcao have been cited, but the most recent high-profile cases involve Cristiano Ronaldo and Jose Mourinho. Ronaldo, the richest sports star in the world, faces accusation of defrauding Spain of €14.8 million over a two-year period. In spite of throwing tantrums that he would quit Madrid FC, the authorities have insisted on his prosecution. Mourinho, who managed Madrid between 2010 and 2013, is in the net for allegedly evading tax of €3.3 million from 2011 to 2012.
Modern economies run on efficient taxation systems. So, countries crack down hard on tax offences. In the United States, several icons like baseball star player and manager, Pete Rose; acclaimed Fugees singer and Grammy winner, Lauryn Hill; Richard Pryor, a comedian; and Darryl Strawberry, a baseballer; have been sentenced to various jail terms for tax evasion. India, over the past week, inaugurated the Goods and Services Tax, a comprehensive new scheme targeted at generating higher tax income from corporate organisations and high-end goods.
Taxation not only generates income for government, it is a means of redistributing income. For instance, those who earn less than £11,500 per annum pay zero tax in the United Kingdom. In France, citizens pay tax only if they earn above €5,963 a year and €5,165 in Spain. The rate is €8,354 in Germany. However, a common thread in all these countries is that taxation is progressive as income rises. Therefore, wealthy Nigerians should be made to pay appropriately, too.
The government should enable technology to gather relevant data. It has to build a virile tax system, targeting the self-employed and corporate citizens. A good start will be the strict enforcement of the tax law after the government’s nine-month moratorium for defaulters. However, the government must put tax income to optimum use, deploying it to infrastructure and social services.
