In times like these, one would say just like was proffered in the text books, that the government should either increase spending and/or reduce taxes. In the case of Nigeria, you really cannot increase spending when revenue has been on a decline since the year began.
Taxes? Tax is a tool for accountability. It is the connection between the governed and the governor. It is a fiscal tool with effects on the economy, be it expansionary or contraction. It is the safest form of funding when compared to borrowing from international organisations.
The normal thing to do in a recession is to reduce tax levy but how can you reduce tax when you’re not even sure of the type of tax that exists in your country. How can you reduce tax when they are not collected effectively? I really don’t know.
According to NBS, the total tax that Nigeria collects from ALL states of the federation totalled N683.6 billion out of which Lagos accounted for N268 billion. Also, total tax revenue collected by the federation from tax agencies totalled N5.5 trillion or $27.5 billion. One would think this figure is large. But on comparing Nigeria to South Africa, which isn’t as populated as Nigeria, in fact about one-third of Nigeria’s population, South Africa generates about $57 billion from taxes alone.
These figures alone rang a bell in my brain and I began asking questions. What could be the problem? Are we taxing every registered business? Is there an effective system for tax collection? What exactly is wrong?
Lagos state generates more than 30 states put together from taxes alone. I started asking again, is Lagos state not in Nigeria? How is it that they generate so much from taxes? One major issue with the tax system in Nigeria is evasion. Tax evasion is a situation where organisations and individuals deliberately do not pay taxes.
Nigerians like evidence. They like to see before they believe. That’s what is happening in Lagos. I’m not saying everything is perfect but everything is “perfect”. Lagosians can see projects carried out by their state government and wouldn’t mind paying their tax.
Generally speaking, Nigerians don’t like to pay tax because they haven’t seen evidence of tax at work yet. They want to see the good roads, clean water, hospitals, bridges and other public goods.
There’s also the issue of ambiguities in the tax laws. According to a survey carried out by PwC, it was discovered that persons do not pay their tax because tax rules are unclear and the compliance process is complex.
Looking forward, to increase revenue generated from taxes, there has to be some form of transparency in utilisation of tax revenue in order to curb tax evasion. It won’t be a bad idea to publish how much is generated monthly by states and agencies and how much was spent. It’s necessary to track all expenses made during the month.
Every Nigerian should be made to understand the tax system and how it works. It should be made simple and easy to understand.
Probably then, the average Nigerian will feel motivated to pay tax, resulting in greater revenue for the country.