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Nigeria's chaotic tax system – Punch

By The Citizen


A report in March by Financial Derivatives, a financial services consultancy, on tax evasion, highlights once again the chaos in the country's tax administration, in spite of the introduction of the new National Tax Policy on April 5 last year. That up to N85.2 billion was lost through tax evasion in the automobile industry alone in four years is bad enough. But even this is paltry compared to how much Nigeria is being short-changed in legitimate tax earnings through a combination of incompetence, corruption and fraud. Yet, a state is run on tax revenues and Nigeria must get its act together and start behaving like a proper modern state.

The FD report said the losses arose from 'grey market' operators in the automobile industry, who, over the past four years, evaded the Nigeria Customs Service net to the tune of N85.2 billion. Bismarck Rewane, CEO of FD, explained that the grey market involved the inappropriate importation of goods into the country without the manufacturers' consent, thereby short-changing both the authorised dealers and the government through evasion of customs duties. His assertion that the loss was equivalent to 4.5 per cent of the total exports of Kenya or four per cent of Ghana's total exports is worrisome. He went further: 'This amount (N85.2 billion) could fund the construction of one petroleum refinery or a modern power station with 1,000 megawatts capacity.'

This is just one area where our government fails in the fundamental responsibility of the state to maximise all revenue sources through taxation. Just as experts believe that the NCS can do much better than the N850.87 billion it realised in 2012 and the N1.2 trillion target for 2013, the treasury is also believed to be losing trillions through the Petroleum Profit Tax, the Companies Income Tax and other levies and tariffs. Major foreign airlines in Nigeria once admitted to the non-remittance of the five per cent Passenger Fuel Surcharge on their tickets to the Nigeria Civil Aviation Authority as required by global aviation practice. According to the Nigerian Extractive Industry Transparency Initiative, major oil companies and, ironically, the state-owned Nigerian National Petroleum Corporation, routinely underpay taxes and statutory remittances due to the government. The House of Representatives recently identified several state enterprises that had been defaulting in filing tax returns.

No serious government toys with tax revenues and parliamentary institutions in advanced democracies grew out of an overriding desire for popular control - through the direct representatives of the people - over tax income. The rallying cry of the rebellious 13 colonies that overthrew their British overlords to form the United States of America was, 'No taxation without representation!'  Neither the American system nor the British version tolerates tax evasion as stiff fines and jail terms are imposed on defaulters, no matter their status. Unfortunately, in Nigeria, our most senior political office holders openly hobnob with known tax evaders. Just as no one-established how much tax the mega donors at the launch of the Olusegun Obasanjo Presidential Library in 2007 that fetched N7 billion and their companies paid as tax, no agency has scrutinised the tax returns of those individuals and firms that raised N6 billion for a church in Otuoke, President Goodluck Jonathan's village.

The government should immediately begin to tighten the laws on tax evasion and severely punish tax officials that collude with individuals and organisations to fleece the treasury. Greater efforts should be made by the various governments to spread the tax burden beyond the few captured by the Pay As You Earn system and ensure that all taxable adults are captured in the Personal Income Tax regime. The fraud-ridden CIT and waivers should be streamlined to plug the leakages and their rampant abuse.

The trend around the world is to tax the rich and provide safety nets for the poorest and most vulnerable. In Nigeria, the rich actually pay much less than their share while openly living in opulence. One sure redress is to impose a luxury tax as France and many other countries have done, as well as a realistic property tax. Those people building mansions around the country, importing exotic furniture and bullet-proof vehicles, should have such assets valued at prevailing market prices and appropriately taxed. Elsewhere, governments tax such frivolities very highly but give tax breaks for investment and philanthropy. Our moneybags should be similarly encouraged to shun waste and ostentation and invest in business and charity.

The Federal Government should ensure the implementation of an equitable and efficient tax system. This is the challenge the acting chairman of the Federal Inland Revenue Service, Kabir Mashi, must address immediately. What is required is actually the will to follow up on reforms begun by the FIRS under Ifueko Omoigui-Okauru  that generated N21.7 trillion for the government in the 11 years to 2011 and got five of the bills it proposed passed by the National Assembly. FIRS can easily surpass the N5 trillion it collected in 2012 if Jonathan's Economic Management Team prioritises tax reforms.

The major problem, however, is attitudinal. The Nigerian federation is structurally abnormal; instead of being a state run on production and tax revenues, it relies mainly on the collection of crude oil and gas revenues - 91 per cent of external earnings - and their monthly sharing by the three tiers of government. Such a corruption-driven system is not sustainable. Nigeria must join the modern world by diversifying its revenue sources and transforming into a tax-driven economy. All tax laws should be rigorously implemented and no punishment should be considered too harsh for high-networth tax evaders.