Accountability in governance as panacea for raising tax conscious populace

The Minister of Finance, Kemi Adeosun is known for her regular complaints of low tax compliance (especially amongst the elites) in Nigeria. Hence the incumbent administration’s resolve to go after tax evaders.

The Nigerian tax system has undergone several reforms geared at enhancing tax collection and administration with minimal enforcement cost. The recent reforms include the introduction of Voluntary Assets and Income Declaration Scheme (VAIDS), TIN, (unique Taxpayer’s Identification Number which became effective since February 2008), automated tax system that facilities tracking of tax positions and issues by individual taxpayers, e-payment system which enhances smooth payment procedure and reduces the incidence of tax touts, enforcement scheme (Special Purpose Tax officers), these are special tax officers in collaboration with other security agencies to ensure strict compliance in payment of taxes.

A seasoned tax consultant, Adekunle David told TheNewsGuru.com that it is understandable that government, here and in many other jurisdictions, need to resort to extraordinary measures to compel people to pay tax at all, or to pay the appropriate amount. But let it be known that the fact that government has to resort to exceptional measures on tax speaks volume of the people’s attitude to what should be a given citizen’s obligation.

According to him, hardly does anyone, especially in this part of the world, wants to hand over hard-earned income to authorities that, in many cases are peopled by crooked politicians and wasteful public servants.

“Nevertheless, it is most desirable to pay tax; it is a constitutional obligation, a civic responsibility and a moral duty. ‘Tax morality’ implies that, to the extent that a citizen enjoys, and expects more of, the social services provided by constituted authorities, he or she should pay something toward such services. Indeed, it is such payment that accords the right to complain if not satisfied,” he explained.

The tax authority now has autonomy to assess, collect and record tax. This enabling environment which came into being on the basis of (Section 8(q) of FIRS Establishment Act 2007) has led to an improvement in tax administration in the country. The Nigerian tax system has undergone significant changes in recent times.

In a functional representative democracy, paying tax is a crucial element that empowers the citizens to demand accountability from their representatives in government. The 1999 Constitution of Nigeria (as amended) stipulates in Section 24 (f) that it shall be the duty of every citizen to ‘declare his income honestly to appropriate and lawful agencies, and pay his tax promptly.’

But in return, government is obligated to fulfill the fundamental objectives and directive principles of state policy spelt out in Chapter II of the document.

Most noteworthy in this respect is Section 16 (2) (b) that ‘the state shall direct its policy towards ensuring that the material resources of the nation are harnessed and distributed as best as possible to serve the common good.’ So, taxation must come with not only representation but with service.

It won’t be out of place to say that government needs the citizen’s tax to fund its activities and development projects that, by all reasonable expectation, serve the common good. Everyone has a civic duty therefore to pay his tax. It is unpardonable that the very rich who make more out of the system, either by honest or by crooked means, are the tax defaulters and tax dodgers who employ various means, some legal, some not, to achieve their unpatriotic objective.

Besides, the very rich are well connected to often, in acts of corruption, negotiate down their tax liabilities. There is every reason to go after such persons as well as corporate bodies.

Corporate tax fraud in the forms of avoidance, underpayment, the underpricing and transferred pricing of products and services, and many other dishonest methods, denies governments of huge revenue. These must be aggressively pursued and stopped. It is clear from Federal Inland Revenue Service (FIRS) records that so much money is lost through these leakages.

The tax laws are consistently being reviewed with the aim of repealing obsolete provisions and simplifying the main ones. Under current Nigerian law, taxation is enforced by the 3 tiers of government, i.e. federal, state, and local governments, with each having its sphere clearly spelt out in the Taxes and Levies (approved list for Collection) Decree, 1998.

However, despite this improvement, there are still a number of contentious issues that require urgent attention. Chief amongst these is the issue of multiple taxes administered by all the three tiers of government which sometimes imposes welfare cost.

Furthermore, the issue of the poor data base, which contributes to tax avoidance in the country. The issue of corruption is still a perennial issue in the country; this reduces the confidence and trust of the taxpayers in discharging their civic duty. Infrastructural development is also a crucial issue. In Nigeria, the level of infrastructural facilities is in a deplorable state, most of the facilities are often privately sourced, thus a number of people wonder what the taxes collected are used for, hence the tendency to evade tax payment. Furthermore, the problem of the tax language that is legally codified makes it difficult for an average Nigerian to understand.

Recommendations for a tax conscious populace

To raise a more tax conscious populace, government at all tiers should implement the following;

Effective communication strategy:

There is a need for mutual cooperation among different government agencies and parastatals, this collaboration should enhance exchange of information, and reduce the incidence of tax evasion as well as fraudulent tax practices.

Create welfare schemes:

To elicit voluntary compliance, the government should be more responsive to the welfare needs of the citizens. The Nigerian tax system can effectively generate more revenue when the citizens have trust and confidence in the authority. Lagos state in recent times is generating huge revenue due to the fact that many corporate bodies and individuals feel that they can visibly feel the development impact of their contributions

Leadership by example:

There is a need to enhance a positive tax culture; this can be done through the re-branding efforts of the ministry of information. In most developed countries, tax payment is considered a moral and civic responsibility, thus tax avoidance is frowned upon. This implies that our leaders should demonstrate patriotism through leadership that is worthy of emulation by timely payment of their taxes and discharging other civic duties.

Partner religious organisations:

In Nigeria, most of the citizens are religious and faithful people. Thus, with religious provisions that explicitly support fulfilling religious obligations, tax payment could be enhanced. Therefore, tax education can be encouraged to be part of religious education among the adherents. Evoking religious injunctions could elicit more voluntary compliance and reduce tax evasion and avoidance. For instance, the Biblical saying of “Give unto Caesar, what is for Caesar and to God what is for God” is apt and relevant to the Christians while the Qur’an calls on the Muslims thus: “O you who believe, fulfil all obligations” (Q5:1). *Civic education Civic education was part of the educational curriculum in the early 1960s and 1970s; however, this was stopped in the mid-1980s and 90s. A re-introduction of this into the school curriculum would not only improve civic responsibility but also infuse a sense of patriotism and commitment to national ideals and interests. There should be vigorous enlightenment and public awareness about tax payment and its importance in the economy.

Dedicated phone lines/create social media platforms to handle complaints:

There can be dedicated lines or emails, where issues, observations and queries can conveniently reach the authority; this will contribute to the reduction of tax fraud and avoidance.

Elimination of all forms of multiple taxes:

There is a need to harmonize the different taxes that are being levied by the different tiers of government so as to reduce the negative impact on the taxpayer. A situation where an individual pays rates and licenses to local government, pays sales tax and personal income to the state government and at the same time pays VAT is not one that will encourage voluntary compliance.

Use of modern day technology for up to date database:

To be able to track all potential taxpayers In Nigeria, an improvement in our tax revenue can be enhanced through a regularly updated, comprehensive database. This would enable the country to be able to track all potential taxpayers as well as to reduce incidences of tax avoidance.

Elongated tax operation:

In order to maximize the revenue accruing from tax collection and especially to fulfil the principles of convenience and economy on the part of taxpayers, collectors of tax should be made to operate on shift throughout the day.

Simplified/indigenous tax laws:

Tax laws should be codified in simple, non-technical language, if possible in the three major languages: Hausa, Ibo and Yoruba

Judicial support:

An effective judicial process to adjudicate on tax issue.

List of approved taxes and levies for the three tiers of government.

A list of approved taxes and levies for collection by the three tiers of government:

(A) Taxes collectible by the Federal Government

1. Companies income tax;

   (2) Withholding tax on companies;

   (3) Petroleum Profit Tax;

   (4) Value-added tax (VAT);

   (5) Education tax;

   (6) Capital gains tax – Abuja residents and corporate bodies;

   (7) Stamp duties involving a corporate entity;

   (8) Personal income tax in respect of: – Armed forces personnel; – Police personnel; – Residents of Abuja FCT; – External Affairs officers; and – Non-residents.

   (B) Taxes/Levies Collectible by State Governments

   (1) Personal income tax: – Pay-As-You-Earn (PAYE); – Direct (self and government) assessment; – Withholding tax (individuals only);

   (2) Capital gains tax;

   (3) Stamp duties (instruments executed by individuals);

   (4) Pools betting, lotteries, gaming and casino taxes;

   (5) Road taxes;

   (6) Business premises registration and renewal levy; – urban areas (as defined by each state): *maximum of N 10,000 for registration and N5 ,000 for the renewal per annum – rural areas – registration N2,000 per annum – renewal N 1,000 per annum

   (7) Development levy (individuals only) not more than N100 per annum on all taxable individuals;

   (8) Naming of street registration fee in state capitals

   (9) Right of occupancy fees in state capitals;

   (10) Rates in markets where state finances are involved.

   (C) Taxes/Levies Collectible by Local Governments

   (1) Shops and kiosks rates;

   (2) Tenement rates;

   (3) On and off liquor licence;

   (4) Slaughter slab fees;

   (5) Marriage, birth and death registration fees;

   (6) Naming of street registration fee (excluding state capitals):

   (7) Right of occupancy fees (excluding state capitals);

   (8) Market/motor park fees (excluding market where state finance are involved);

   (9) Domestic animal licence;

   (10) Bicycle, truck, canoe, wheelbarrow and cart fees;

   (11) Cattle tax;

   (12) Merriment and road closure fees;

   (13) Radio/television (other than radio/tv transmitter) licences and vehicle radio licence (to be imposed by the local government in which the car is registered);

   (14) Wrong parking charges;

   (15) Public convenience, sewage and refuse disposal fees;

   (16) Customary, burial ground and religious places permits; and

   (17) Signboard/advertisement permit.

   Nigerians might not necessarily need to be specially prevailed on to pay taxes if the evidences of the payment of such are clear for all to see. Therefore, accountability by appropriate government agencies in the disbursement and management of funds is key to raising a tax conscious populace.