Expanding the tax base in Nigeria

BY TUNDE ESAN

A constant refrain of tax administrations in Nigeria is the low tax to gross domestic product (GDP) ratio of approximately 6.1% as opposed to the 44.6% obtainable in France, 39% in the United Kingdom and 11.5% in “lowly” Burkina Faso.

It is constantly a source of lamentation that tax revenue should contribute such low figure to the revenue basket of the government.

The approach of tax administration is to engage in aggressive drive to have more individuals, businesses entities and transactions caught in the tax net.
The argument can be had that lack of trust by the citizenry that the government will judiciously utilize tax revenue is the primary reason they refuse to voluntarily subject themselves to the tax net, the question is: what really is the quality of revenue that can be derived if all of the individuals that should be in the task net are caught in the tax net? What is the quality of economic activities that is available to meet the expectations of Government to have tax revenue as the driver of economic growth?

Outside of the extractive industry and the pay as you earn system, where tax revenue leakages are minimal, what really are the untapped sources of income that can boost our tax to GDP by the over 20% more that Mr. Tunde Fowler, the executive chairman of Federal Inland Revenue (FIRS), yearns for? What really is the cost/ benefit analysis of expending resources to get the roadside hawker into the tax net? Will that not be a case of the cost of tax administration being higher than targeted revenue?

Are there readily available sources of tax revenue that the tax administrations can readily exploit? There is for instance the billions of naira accruing to the National Union of Road Transport Workers (N.U.R.T.W.) from what ordinarily ought to be road taxes.

We are not talking of legitimate check off dues paid to the union by its members but money collected by foot soldiers of the union from individuals and entities engaged in any form of commercial transportation whether by usage of motorcycles, rickshaws and vehicles of all descriptions for usage of roads built with taxpayers’ money.

The Taxes and Levies (Approved List for Collection) Act (1998. No.21) is very clear in its PART II paragraph 6 that road taxes are to be assessed and collected by the state government only while in PART III of the same
act, motor parks’ levies are to be collected by local government.

The huge sum generated by this union on a daily basis from commercial transportation on roads built with taxpayers’ is money that should ordinarily go into the government’s coffers.

Nigerians are also avid users of social media platforms. Despite the hue and cry of the United States, France has recently imposed a digital tax of 3% on revenue generated by the tech giants within its territorial space up to a certain sum.

The question then is that given the huge usage of social media platforms in Nigeria, can the requisite tax administrations develop the gumption to tax the tech giants for monies generated within its territorial space? Can we follow the French example and impose a digital tax on the tech giants for income made in Nigeria?

In the same light, can we look at the Uber Tax? This is a ride sharing app which has caught on in Nigeria and millions of Naira is made on a daily basis from this and our tax administrations are still caught in a definition crisis as to whether Uber is an app or a transportation business while millions of Naira is lost as tax revenue ditto for crypto currency.

While Facebook is pressing ahead with its Libra crypto-currency, our central bank is still hiding its head in the sand by declaring trading in crypto-currency as illegal while trades in the said currency, which could be subject to tax, goes on daily in Nigeria tax free.

The biggest question however is what is our plan concerning marijuana, given that by nature, this is a plant that grows wildly and freely in Nigeria and one which has become decriminalized and continues to be decriminalized in many parts of the world.

While we continue to burn hectares of plantation under the fact that its cultivation is prohibited by law, transactions running into billions of dollars are made in respect of its trade in countries where they have been decriminalized. This article does not address the moral question and the consequences, if any of decriminalizing cannabis, but raises the question of tax revenue running into hundreds of millions that could be made from it as luxury tax on annual basis under the strict supervision of the government.

Can we also raise the quality of jobs done by the citizenry? Can we produce high-skilled technicians who command high salaries which translate to more tax revenue from personal income tax? Do we consistently have to outsource high-skilled jobs attracting premium salaries to foreigners? Can our schools be integrated into the tax-goals by having them offer and train their students in works which will necessarily command high salaries translating to more tax? How much can a hundred artisans really pay in terms of tax as opposed to us producing aeronautical engineers and space scientists?

It is easy to quote the tax to GDP ratio in the United States of America for instance but have we studied the quality of income being earned and the quality of tax being paid thereon.

We can also amend our tax laws to make liability to Companies Income Tax subject to operations, administration and income generated rather than place of registration while also understanding e-commerce more and the revenue lost from failure to tax income generated in the online space adequately and efficiently.

Whilst encouraging everyone to pay their taxes as it is a legal, not just a civil obligation, the tax administrations ought to look at points of tax leakages and consider some of the proposals contained in this article in meeting its goals of significant increment in the tax to GDP ratio, both in the short and long term.