MANY NIGERIAN MILLIONAIRES PAY AS LITTLE AS N40,000 TAX PER ANNUM - EZE
Chairman, Chartered Institute of Taxation of Nigeria (CITN), Ikeja District, Mr Chukwuemeka Eze, a lawyer and a chartered tax consultant, has bemoaned multiple taxation in Nigeria, saying that the phenomenon discourages investments, while encouraging tax evasion. He believes that because the citizenry would find excuse in the fact that the taxes are too many for them to pay, they would evade tax.
'They may contend that if they pay this, the authorities will demand for that, thus it is better not to pay any tax at all. But the meaning attached to the term 'multiple taxation' by the uninitiated is most times different from the technical meaning,' Eze said.
He suggested the enlightenment of the citizenry on the issue of multiple taxation because taxes regarded as multiple at times are not really so.
With regard to the federal system of government, there is the temptation of regarding as multiple taxation, taxes collected by the three tiers of government, that is, by local, state and federal governments on different items. It will only amount to multiple taxation if the taxes are being collected on the same items.
Advising Federal government on the increase in Value Added Tax (VAT), Eze said Federal Government should take certain fundamental things into consideration if they want to increase VAT from 5 per cent to 10 per cent as they have proposed through the VAT (Amendment) Bill now before the National Assembly. Excerpts:
Tax evasion and voluntary compliance
My view on tax evasion is accentuated by the Abuja phenomenon whereby every month, all state commissioners of finance assemble in Abuja with the Minister of State for Finance (and sometimes the Minister of Finance) under the auspices or umbrella of the Federation Accounts Allocation Committee (FAAC) to share our common patrimony, that is revenue from oil, which is a natural resources, for which citizens have not made any contribution.
So, it's like sharing the national cake, and this has caused many of our leaders to engage in stealing spree. This scenario has encouraged tax evasion because the citizenry see their leaders, politicians whom they elected, who pay so little or nothing as tax, control a large portion of the common wealth. So, you are moved to ask the question, 'Why should I pay tax when these people are taking a huge chunk of the national wealth without paying anything? So, the attitudes of our leaders do not encourage the citizenry to pay tax.
This is what has made implementation of tax laws very problematic, therefore leading to tax evasion. Telling people to pay tax by our leaders is like a pastor preaching to his congregation to keep the commandment whereas some pastors are not keeping to the commandment or partially keeping to it.
So, hardly do you see the rich declaring their tax status. There are some millionaires who pay as little as N40,000 as personal income tax per annum.
While this is so, there are others who are not too financially enamored but who receive assessments for personal income tax running into millions of naira; and this seems very discouraging. Meanwhile, the monthly revenue sharing at Abuja has made many state governments to adopt laissez faire attitude towards taxation and other forms of internally generated revenue. Majority of the citizens have caught this laissez faire bug. The picture seems to be changing on the part of the Federal Government and some state governments since the world economic draw back recently.
Although many state governments are more serious now on the issue of revenue generation, yet some have not demonstrated the required seriousness. For instance, any state that wants to be pragmatic in this area must grant autonomy to its Internal Revenue Service or Board of Internal Revenue. Only a few states have done this, namely: Lagos, Sokoto, Adamawa, Taraba, and Bauchi.
The Federal Inland Revenue Service is also autonomous. It is only autonomous boards of internal revenue that can professionalise tax assessment and collection because they will stop being appendages of politicians who see them as cash cows. Such a policy will also reduce the perception that those who work in tax offices are the wretched of the earth.
When we professionalise tax practice in Boards of Internal Revenue by having a salary structure that will attract the best professionals, I look forward to seeing professors and Ph.D. holders working in such places and O.N.D. should be the least qualification for employment there. Then, the rich should be compelled to pay tax and this will rob off on other citizens, who are in the majority. That is not to say that one is encouraging tax evasion but I just analyzed the limiting factors to voluntary tax compliance. However, voluntary tax compliance is engendered when tax proceeds are utilized for the benefit of the citizens. Lagos, Rivers and Edo states are some of the states where many believe that tax proceeds are being ploughed into beneficial ventures.
Some states have gone beyond reliance on internally generated revenue by floating bonds at the bond market. Notwithstanding the benefits derivable from bonds, these states cannot ignore taxation as a veritable source of funding their budgets. I think, therefore, that the right attitude, the right tax administrative body, and proper utilization of the proceeds of taxation through provision of amenities would go a long way in reducing tax evasion and promoting tax compliance in our society.
Advice to government on increase in VAT
My advice is that the federal government should take certain fundamental things into consideration if they want to increase VAT from 5 per cent to 10 per cent as they have, proposed through the VAT (Amendment) Bill at the National Assembly. The increase should not be made for its own sake but there must be justification for it. Of what benefit will the increase be to citizenry? This is a fundamental question that must be addressed.
For example, in Ghana, records have it that VAT is charged at 15 per cent with 2.5 per cent devoted to their National Health Insurance Scheme, through which no Ghanaian will be denied medication in a hospital as a result of inability to pay hospital charges. Our government can learn a lesson from Ghana by making our national health insurance scheme funded through the envisaged increase. Once Nigerians realize that the increase will be used to improve health care, they will certainly drop their opposition. A situation whereby many people die in hospitals because they had little or no financial capacity to meet their medical needs is quite embarrassing.
Beyond Ghana, there are other countries having a VAT rate of more than 5 per cent with different level of variation in their social safety net system. If we must emulate those countries in terms of high VAT rate, we should also emulate them in terms of provision of social benefits to the citizenry. Otherwise, the VAT should remain at the current rate of 5 per cent of value of goods or services supplied.
Should Nigerians continue to pay tax when government is not providing amenities?
Yes! Nigerians should continue to pay tax.
It is wrong to say that government is not providing amenities. It does, but it is not providing enough or sufficiently at par with the resources in the possession of government. Tax payment is not conditional in any way; it is supported by law and citizens are obliged to obey the law. In fact, it is when citizens pay their taxes, that they become involved. There are connections between payment of tax and political enlightenment cum economic development.
When people don't pay taxes, they stand aloof. I will give you an example. If you pay your tax regularly, you will ask questions or protest when you see your local government chairman with an entourage of 10 cars or your state governor with an entourage of 70 cars. The citizens are not holding their leaders accountable; everyone seems to be on his own. We need to pay our taxes and ask questions on how taxpayers' money is being spent. The fact that we are not asking questions, or that we are asking insufficiently, is a by-product of non-payment of taxes. So, Nigerians should pay their taxes and put Government on its toes in terms of accountability, which will, on the other hand, compel the Government to be transparent.
This explains the attitude of the average American who likes to ask questions because he/she can confidently exhibit evidence of tax payment. It is common occurrence in America for poll agencies to gather poll, opinion polls and vox pop of citizens, which are published for the consumption of leaders in order to influence government policy on a particular subject, be it social, economical, political, etc.
The 'I don't care' attitude of Nigerians will minimize when our citizens pay tax. I will never advocate that people should stop paying taxes because there are no amenities. Rather, there are no amenities because we avoid paying taxes. Again, if we pay our taxes, we would be in a position to challenge the government on why there are no amenities.
No government will like to incur the wrath of its citizens. See what is happening in the Arab world where their citizens have begun to ask questions thereby prompting monarchies like the King of Morocco to attenuate reform. One is not advocating a revolution but our people must learn to challenge a system when it ceases to represent their avowed interest. This culture of protest or challenging the system can only be useful when we pay our taxes. In doing that, we can confidently flaunt our tax papers and say, 'we pay our tax.'
Nigerian tax laws
My view on Nigerian tax laws is an aggregate of my view on our laws generally. I frown at the delay in amending our laws by the legislature. Many of these laws in our statute books have become 'Stale' (as used in journalism) or obsolete to such an extent that they are incapable of providing justice as originally intended. A vivid example is the Personal Income Tax Act, Cap. P8, Laws of Federation of Nigeria, 2004, which was enacted as Act No. 104 of 1993. The process of amending this Act, which began around 2005, has just ended at the National Assembly but it is yet to receive presidential assent.
Therefore, the Personal Income Tax Act of 1993 is still in force, eighteen years after its enactment. In this Act, for instance, child allowance deducible from gross income is N2,500 while a maximum of four children, who are not adults, can benefit from this allowance. Now, considering this allowance of N10, 000 for four children within the reality of the time is unrealistic but that is the law of the land on the subject. As for dependant relatives, you are only entitled to N2,000 each for a maximum of two of such relatives who are dependent on you for their living.
Knowing that we are Africans (and not Europeans) who keep large families comprising of many relatives including extended family members, how reasonable is this sum of N4,000 in a year?
I advocate for a tax law that will allocate a specific percentage of gross income as relief or allowance instead of fixing specific sums, which will become nonsensical or unreasonable in the years to come. This mistake of fixing particular sums has also been committed in the amended bill waiting for presidential assent. For instance, a consolidated allowance of 20 per cent plus N200,000 of gross income has been proposed. If this sum remains as proposed, no one knows how realistic it will be in about 15 years when the next amendment may likely be proposed. Considering our double digit inflation, which is almost perennial, the proposed consolidated relief of N200,000 has not fundamentally changed the provisions of PITA, Cap. P8, LFN 2004.
I am surprised that we don't apply the same dexterity in legislative amendment of our laws as our English counterparts where we received our laws. Except for Appropriation laws, every other legislation suffers in ordinate delay in its amendment. I am therefore critical about our laws generally in the same manner that I am critical about our tax laws. I have just given you an example and I can go on concerning company law, petroleum law, value added tax, and so on.
Dangers of multiple taxation
It discourages investment; it encourages tax evasion because the citizenry will find excuse in the fact that the taxes are too many: they may contend that if they pay this, the authorities will demand for that, thus it is better not to pay any tax at all. But the meaning attached to the term 'multiple taxation' by the uninitiated is most times different from the technical meaning. With regard to the federal system of government, there is the temptation of regarding as multiple taxation, taxes collected by the three tiers of government, that is, by local, state and federal governments on different items. It will only amount to multiple taxation if the taxes are being collected on the same items. The three tiers of government have constitutional powers to collect different taxes.
The local government is empowered to collect revenue in the form of park fees, market stall levies; liquor fee, etc. while the State Government are to collect personal income tax, withholding taxes in some transactions, property tax such as land use charge, stamp duty and capital gains tax on state land.