Great feedback on my piece on the need for Nigeria to be careful on raising taxes/fees. Some here have asked what could be done. Sure, I have suggested that many times: focus on expanding the tax base over raising taxes on the few compliant citizens and companies.
As of 2017, only 14 million Nigerians were paying taxes out of about 70 million people which were economically active. In our model, we estimate a total of 17 million (extracting data from National Bureau of Statistics) of both companies and citizens to be tax-compliant (here, at least pays something, not necessarily full).
For a nation of nearly 200 million people, not many Nigerians pay taxes. Indeed, as of May 2017, only 14 million—or one in five—of Nigeria’s estimated 70 million economically active citizens were paying taxes. As such, Nigeria’s government has typically earned much less than it could have from taxes.
Back in June, Nigeria’s finance minister revealed only 214 people in the country pay more than 20 million naira ($55,600) in taxes.
Like several other African countries, Nigeria has seen its economy slow down due to the drop off in commodity prices over the last two years. Africa’s largest economy is under pressure from multilateral organizations like IMF and World Bank to diversify its revenue base away from an over-reliance on oil and gas export revenue. The IMF suggests “better balancing income taxes and indirect taxes, and broadening the tax base to improve the resilience of tax revenues.”
To deal with this issue of lack of tax compliance in Nigeria, we need to return to National Identity Number project which NIMC (National Identity Management Commission) is managing. If you get NIMC working within six months, even Mr. President can from his laptop check Nigerians who are not tax-compliant (sure, he cannot do that due to legal issues; but you get my point!). Simply, the government through the tax agency, FIRS, can put tax liens on the assets (bank accounts, lands, businesses, etc) of tax defaulters.
But we are not doing that – a reason since 2007 NIMC has not covered 100% of Nigerians. So, if we raise taxes on the few compliant citizens and companies, we may tax them out of Nigeria as I noted in my article: “Stripe Atlas” clone for Africa with destination Ghana. As I noted in my Platform speech, people willingly pay taxes when taxes are working in their lives. Yes, some can pay the current rates but if you jack them up, Ghana becomes a playbook for Nigerian companies especially the digital platforms.
Comment from Community
I received this even better perspective on this topic.
The Muhammad Buhari led administration is seeking to generate revenue internally to deliver on his ”Next-Level” campaign promises.
This is evident in the rise of VAT from 5% – 7.5% come next year and the revenue target given to revenue generating agencies. This move is not sustainable and its effect will be huge on the economy and unemployment at large.
The way out is TAX CUT!
High tax rate would make it impossible to build capital in any country. Nigeria inclusive. With Nigerians been one of the lowest paid workers in the world, building capital would be practically impossible.
We cannot cut the rate of unemployment down with oppressive tax rate and expect foreign investors to be attracted to our economy. Taxes strangle start ups and stagnate the economy.
Taxes have killed any possibility of economic development.
What is the supposed need for high tax?
– To fund the budget (Capital and recurrent expenditure).
– To pay back loans,
– Debt servicing (Pay back loan) and perhaps
– Boost foreign reserves.
Taxes cannot raise any money if we kill the economy with unnecessary tax. So, it turns out to unintended consequences. A gruesome economic depression.
If we don’t urge our leaders and policy makers to cut down the tax rate, they will never grow the Nigeria economy.
People will live a lifetime of unemployment, disease will be rampage, poverty will permanent and the population will be hungry.
No amount of Bill and Melinda Gate Foundation input, it will never be enough.
1. Advance your career with Tekedia Mini-MBA (Sept 13 – Dec 6, 2021): 140 global faculty, online, self-paced, $140 (or N50,000 naira). Click and register here.
2. Click to join Tekedia Capital Syndicate and own a piece of Africa’s finest startups with a minimum of $10,000 investment.3. Register and join me every Saturday at Business Growth Playbooks w/ Ndubuisi Ekekwe (Sept 4 – Oct 23, 2021), Zoom, 4.30pm WAT; costs N20,000 or $60.