Tax compliance, economy and social contract issues
Nigeria is now grouped as one of the countries with lowest tax-to-Gross Domestic Product (GDP) ratio, averaging about four to six per cent. Worrisome too is that its revenue-to-interest payment on loans has bridged a 60 per cent mark.
Granted, tax compliance has become abysmally low, but taxpayers said government has serially failed its development tests as contained in the Social Contract. For example, infrastructure has been a recurring word in national plan for the last 17 years.
From the citizens (taxpayers) perspective, the issue of transparency and judicious use of revenue is sine qua non for payment of tax, as there is the belief that if amenities are put in place, trust in governance would lead to increased voluntary compliance.
Within these years, government has brokered debt deals now worth more than $57 billion. It has also generated from tax collection- a revenue worth more than N40 trillion, averaging yearly about 296 per cent of its capital expenditure.
This means that government generates almost three times its capital expenditure plans from tax collection since 17 years ago. Unfortunately, the country is still in the list countries in the world with huge infrastructure constraint.
The Executive Chairman of Lagos Internal Revenue Service, Ayo Subair, aptly captured the transmission mechanism of taxation, infrastructure development and investments, when he said: “Proper utilization of tax revenue on infrastructure leads to economic development, enabling investment from local and international and in turn, enables expansion of existing industries and establishment of new ones.
“This will enable additional taxes through Company Income Tax, Personal Income Tax, Value Added Tax, among others. Then comes a boost to to tax revenue as it tends to adequacy,” he said.
Subair, at the recently concluded 19th yearly tax conference of the Chartered Institute of Taxation of Nigeria (CITN), in Abeokuta, reiterated that there is a relationship between adequate tax collection and development, adding that the argument over which comes first has remained a case of lack of understanding of the social contract, which rests on civic responsibility and transparency/judicious use of tax revenue.
According to him, Nigeria’s current infrastructure base at 1.95 per cent of GDP over the is a far cry compared with other developing countries in Asia, like China with an average of 12.2 per cent of the GDP between 1992-2017.
The immediate past Dean of the Faculty of Administration, University of Uyo, Prof. Ntiedo Umoren, said government must revert to the fundamental principles of taxation, where the system is seen as a social contract between the government and the people.
Expounding the social contract theory, Umoren noted that when tax is managed properly, the economy grows at an acceptable pace, while social programmes that benefit the poor receive boosts to enhance quality living standards for all.
“It is an organized system of tax collection, which serves as a means of not only funding government, but as veritable harbinger of good governance,” he said.
According to him, there are significant challenges associated with tax administration in Nigeria, including the lack of sufficient political support, as many elites do not even pay tax.
There are large informal sector outside the tax net; multiple taxation; leakage and diversion of tax revenue; lack of accountability for tax revenue and insufficient government impact on citizens.
He said there can be no meaningful tax policy where taxes are assessed without any input from the taxpayer, as it negates the provisions of the basic cannon of equality.
The situation, according to him, will be an arbitrary imposition of an amount that is totally unrelated to the economic status of the taxpayer by the assessment authority.
The President of CITN, Dr. Olateju Somorin, who called on citizens to voluntarily discharge their civic duties, as social contract imposes on the citizens the obligation to pay taxes regardless of their support for the sitting government, however, sought transparency and judicious use of resources as bases for tax calls.
She said that the theme of the conference bothered on reawakening of the consciousness of our public officials and institutions in their performance and conduct to positively impact on citizens.
But Somorin, who noted that states are expected to provide public goods, lamented that in a society where the citizens lack access to basic amenities, there is an obvious display of stupendous wealth by public officials.
Urging a reorientation to tax compliance, she warned that any government that fails to show evidence of tax revenues risks losing legitimacy, mandate and authority as sovereignty resides with the people.
“When taxpayers demand to know how public funds are being utilized, this should be provided, as it is the given right of such taxpayer to try and make sense of government priorities and how those priorities affect them,” she said.
Still, taxation has been described as the catalyst of modern economy, just as resource endowed and commodity dependent countries have been put at near collapse due price volatility.
Ogun State Governor, Senator Ibikunle Amosun, affirmed that government has put greatly, its income plans on taxation, making it imperative for voluntary compliance, and reiterated that it has also become necessary to expand the tax net and block leakages.
Declaring the conference open, the governor urged everyone to support the fight against tax avoidance and outright evasion, reiterating that states cannot do anything now without tax.
“It is a shame that our tax-to-GDP is too low compared to other countries, despite our population and business activities. If you don’t pay, you have no moral right to challenge government. It is in our interest to pay,” he said.
President of the Manufacturers Association of Nigeria, Dr. Frank Jacobs, said the voluntary compliance sought, which is the willingness to obey ‘tax laws’ by declaration and payment of taxes in fulfilment of the requirement of the laws or regulations without coercion, is influenced by psychological factors.
According to him, when taxpayers perceive that tax principles are compromised- it does not promote equitable distribution of the burden; not easily understood and accessible to all; not transparent as related to accountability in collection and utilisation, there would surely be a reaction.
Unfortunately, despite the numerous taxes and the huge business activities in the country, he said, tax performance has been far below potential. He lamented that the manufacturing sector is the most taxed sector in the economy and is currently scourged by multiple taxes and levies coming from the three tiers of Government, which constitute a reasonable proportion of the sector’s overhead.
He claimed that the poor performance of tax in the country is not solely due to non-compliance of taxpayers, but largely due to heavy tax burden, overtaxing and the inability of tax administrators to fully explore the vast potentials inherent in widening the tax net.
“The informal sector provides an untapped potential for tax revenue, provided justiciable strategy are developed and deployed by tax administrators to drag the informal sector into the tax net.
“Government should now encourage citizens to build trust in it by embracing tax accountability and ensure that promises made especially during electioneering campaign are delivered;
“It should create a more effective tax administration which should include strategies related to organizational and institutional reforms; management strengthening; enhanced integrity and reduced corruption;
“Enhance taxpayers and tax community morale by fulfilling obligations to tax payers such as the provision of adequate economic infrastructure and social amenities such as electricity, road and rail as well as potable drinking water,” he said.
The Director-General of the Budget Office of the Federation, Ben Akabueze, said that in efforts to enhance government’s fiscal transparency, the country joined the Open Government Partnership as the 70th member, with UK, United States, Norway, Indonesia, Mexico and Phillipines, among others are founding members.
He said the move to sign on to the international multi-stakeholder initiative group was to focus on how to improve transparency, accountability, citizens participation and responsiveness through technology and innovation.
Speaking through his Technical Adviser, Alfred Okoh, he said that although some countries have gone all the way to the third national action plan, Nigeria had just received approval on it first national action plan.
Under the fiscal transparency in the first national action plan, the country has now committed itself to not only ensure citizens’ participation, but full implementation of open contraction and data standards in the public sector dealings.
It has also committed to several principles bothering on anti-corruption; access to information; and citizenship engagements.