Nigeria needs taxpayers to pay their taxes
Paying taxes? Well, what’s the point? The treasury is a joke to the vast majority of taxpayers in Nigeria, where corruption is rampant and services are virtually non-existent. But Africa’s largest economy is now trying to convince its people to put their hands in their pockets.
For decades, “the government pretended to put taxes in place, and taxpayers pretended to pay them,” as one Nigerian bank manager explains.
In the end, this laissez-faire attitude suited everyone because the task seems insurmountable in a country of 180 million people, where the vast majority live in the informal sector or on subsistence farming and where the tax windfall is ultimately borne by only a few tens of millions of people.
But the government of Muhammadu Buhari, a former general who is not known for his laxity or sense of humour, has decided to put its treasury in order.
While the rest of the world’s top candidates promise to lower taxes, Buhari, who has announced his intention to seek another term as president in February 2019, has promised to double the country’s overall tax burden by 2020.
Nigeria, which is struggling to return to growth after going through its worst recession in 25 years, sorely needs this.
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According to the International Monetary Fund (IMF), Nigeria’s overall tax revenue to GDP ratio is the lowest in the entire sub-Saharan region.
In 2016, only 241 individuals paid more than 20 million naira in income tax (47,000 euros), the finance minister recently revealed.
That’s a tall order, when you consider that Lagos alone, the country’s economic capital, had 6,800 millionaires and 360 multimillionaires (in dollars, of course), according to a 2017 AfrAsia Bank report.
To be fair, middle- and upper-class earners have every reason to be such poor taxpayers. Infrastructure is degraded or non-existent. Roads are crumbling. Nigerians pay private companies for their water or electricity (when they have it).
Transparency of public funds
Endemic corruption is largely responsible for this situation, laments the Emir of Kano Sanusi II, a huge traditional figure in northern Nigeria and former head of the country’s Central Bank.
“We need to make the management of public funds more transparent if we want to increase tax revenues,” he said this week at an African Development Bank meeting in South Korea.
“Ensure that taxes go to the government coffers and you won’t have so much leakage,” the emir said.
In Lagos State, a megalopolis of 20 million people and the commercial capital of West Africa, tax revenues account for more than a third of the revenues collected in the 36 federal states that make up Nigeria, according to the local anti-corruption organization BudgIT.
This significant financial windfall has enabled the development of numerous rail and road transport projects across the city, which are the pride of Lagos.
At the national level, Finance Minister Kemi Adeosun has launched an amnesty program against former tax evaders. In exchange, Nigerians are required to keep up to date with the treasury or face up to five years in jail, fines or asset recovery.
At the same time, the government is setting up a digital register of assets and is trying to track down undeclared assets by their owners, thanks to financial detective firms such as Kroll Associates.
But repression is not enough. We need to change people’s minds. In Lagos, a huge illuminated billboard in the middle of a busy traffic circle thanks the good performers by telling them that the road was made possible by their efforts.
In May, the finance minister boasted that she had increased the taxpayer base from 14 million in 2016 to 19 million in 2018.
It’s a small step for the country’s revenue, but it’s a step in the right direction, notes Yomi Olugbenro, a tax specialist for Deloitte in Lagos.
“In fact, it’s a vicious circle,” the tax expert continues. “The government needs money to do projects, but because it doesn’t do them, taxpayers don’t want to pay.”
“In fact, they mostly need to be convinced that their money is being used for something.”