TAXES - ACCOUNTABILITY & REVENUE IN NIGERIA

Wednesday, November 18, 2009

The concept of paying taxes, be it federal or state, is relatively foreign to many Nigerians. Unlike some parts of the world where almost everyone, regardless of their position or income pays some form of income/revenue/property taxes on a regular basis, taxes are only collected from some Nigerians and some businesses. Many argue that this reality contributes to a lack of political accountability on the part of officials and consequently, diminishes the impact of democracy on average Nigerians. But, just as important, the lack of a formal tax structure means that many state governments, like Kano State, over rely on the federal government for income and as such, the amount needed to cater to citizen's needs is limited.  This is undoubtedly a serious problem during the current economic slowdown. However, the Nigeria Governors Forum has announced that come fiscal year 2010, state governments will begin to collect taxes from many more residents.



TAXES GENERATE MUCH NEEDED REVENUE
State governors are now committed to increasing their Internally Generated Revenue (IGR) as a way to create a relatively reliable stream of income that will help states finance its needs and withstand some of the fluctuation in the global economy and oil markets. Some states already have varied ways of generating income. For instance, in 2007 Lagos State achieved a GDP of N3.68 trillion ($29.028 billion) and according to Governor Fashola, the state's IGR grew from N600 million monthly to N14 billion monthly since 1999. That is more than double what the state typically receives from the Federation Accounts and was gained solely from te formal sector. The governor of Cross River State, Liyel Imoke, said his state's IGR increased from under N500 million per month in 1999 to about N6.5 billion currently.

TAXES & POLITICAL ACCOUNTABILITY
During the Nigeria Governor's Forum recently held in Abuja, Adams Oshiomole, the Governor of Edo State appealed to fellow governors to be responsible with revenues colllected via taxes. Specifically, he stated,
"If the peoples' votes count, they will willingly pay their taxes because they trust their leaders. But if the leaders are not the true representatives of the people, they will resist whatever tax imposition. They will tell you that we didn't put you there..."
Oshiomole adequately addresses the issue of ownership that develops when individuals pay taxes and can voice their opinion on how their money is spent. The development of a state tax culture will likely embolden and empower citizens thus increasing the benefits of democracy and improving the political system. Oshiomole also went on to advocate that the wealthy should be taxed "heavily".

BUT, QUESTIONS REMAIN
While it is good to learn that state governors are commited to increasing IGR and that they plan to do so beginning Fiscal Year 2010, one cannot help but wonder what the exact plan is. How are various states going to achieve their objective? How will they manage to tap into the obvious goldmine that is the informal sector in their states? What model will they be using? Furthermore, Oshiomole's statement that the wealthy should be taxed heavily only furthers the questions about how certain states will organize their tax scheme, particularly as a one size fits all approach is bound to fail, if applied. What percentage of income will governors and other public office holders pay to their home states in taxes? Also, how will large multinational businesses be taxed by the state? These and many other questions could have been answered if the Nigeria Governors Forum website (http://www.nggovernorsforum.org/) was working, but alas, as of the date of publication for this article, the website was not functioning. Essentially, it is crucial for those states newly creating a state tax system to do so properly and most importantly, efficiently. There might not be many hances to make mistakes in this process because doing so could squander the goodwill of citizens and further convince many that such a scheme is not worth their time. That would not be beneficial to any state seeking to overcome their reliance on federal funds.

Nigeria's state governors have historically overrelied on their portion of federal income to finance local needs. This push by the Nigeria Governors Forum to increase Internally Generated Revenue is a step in the right direction towards financial autonomy for states, and possibly, true federalism. Only time will tell, however, if many states will take the adequate steps to create a transparent and efficient tax stystem that will be deemed legiimate by residents and thereby supported. One thing is for certain, a tax system that works at the state level will empower citizens and increase state revenue, potentially a bonus for everyone.


What do you think about these plans to increase revenue through taxing state residents (businesses and individuals)?

From the Archives:
- Overreliance On Oil Leads To...
- Nigeria's Oil Revenue Cut In Half
- Nigeria's Oil Expiration Date Draws Near
- No Longer King of African Crude?
- Nigeria-List of Intolerant Nations



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snazzy said...

Nice write-up. I just wanted to make a clarification on the tax structure in Nigeria. The state governments cannot impose an income tax on its citizens unilaterally.

There are basically three types taxes that individuals pay.

The first is the PAYE tax which is a progressive tax that tops out at 20% of taxable income. This is the tax that accrues to the state government, and I'm sure the Comrade Governor would like to increase it but there is no political will for that as it is centrally determined.

The second tax is the tax on investments. I'm not sure who gets this, but I think it is a national tax. This is the 10% withholding tax on dividends and interest income. There is a capital gains tax on property (that the buyer almost always pays). However there is no capital gains tax on securities like stocks and bonds.

The third tax is the VAT which is paid by individuals but collected by the businesses on behalf of government. The proceeds of this generally go to the state though some of it is shared to the chagrin of states like Lagos.

The main issue for a lot of the states is that the company taxes (CITA) go to the Federal purse. This is why they try to slap as many levies as they can on businesses.

There is a Joint Tax Board that has been set up to harmonise the various taxes at Federal, State and Local levels, but this has been frustrated to some degree by the states and local governments in order to be able to keep taxing anyhow they like. Lagos is a prime example of this overcharging.

IGR is a necessary goal, but most governors are trying the shortcut version which is raise taxes as high as possible on the current people you can collect from. The good parts of the Lagos model is a blueprint. Work on increasing the tax base by collecting the minimum tax from people to get them on the rolls. Then build the local economy and benefit from the increased taxes that this brings.

Sorry for a comment that was longer than the post :D

NaijaBabe said...

Taxes. Hehehe Isnt this the reason why a lot are running back home? So they dont pay taxes?

I hope its taken seriously, hopefully not to break the camel's back, but to increase the country's revenue

Akin said...

Hello,

I just finished writing a comment and whilst previewing after fiddling with the restricted profile list, I lost my long comment.

Agrgh!

If inspired again, I would try again. :)

Rrgards,

Akin

Sugabelly said...

I REFUSE to pay tax to the Nigerian Government be it state or federal.

Why? Because in Federal Government Secondary schools people sit on the floor... or ten people share one bench and the teacher never comes.

Because Nigerian undergrads have no clear idea of when they are going to graduate (if ever) because everyone is striking because they haven't been paid.

Because nobody in Nigeria flips a light switch with the expectation of seeing light.

Because everybody in Abuja knows somebody who knows a Hausa water boy (the ones that carry jerry cans in trolleys)

Because the potholes in the road on the way to Anambra are bigger than the cars.

Because that idiot Yar'Adua spends most of his time plotting how to sue newspapers that write the TRUTH about him instead of running the country.

And most importantly of all, because the presence of all my reasons proves that the Nigerian government has FAILED to manage all the money it made from oil. If the Nigerian government cannot manage the mountainous oil revenues that it has received ever since we discovered oil and use them to develop the country then bloody why in the seven hells should I hand over even one kobo of money that I gave my sweat and blood for?

They can implement their tax all they want. I will NOT pay. And I will tell them why I will not pay.

Until my tap runs 24-7. until there is light permanently, until our schools are useful, until the roads are safe, they can stick their tax collection paper where the sun doesn't shine.. up my ass.

Sugabelly said...

Implementing a tax system now is like giving them a pat on the back for wasting all that oil money.

Nigerians cannot be taxed right now, we don't even make enough as it is.

The Nigerian government should be forced to produce all the missing oil revenue and put THAT to its proper use.

rethots said...

As long as the citizens paying these taxes (which forms a great part of the IGR) can see (& by implication feel) the positive outcome, no one will complain.

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