Nasir El-Rufai, governor of Kaduna State on Thursday at the ongoing 22 annual tax conference organized by the Chartered Institute of Taxation of Nigeria (CITN) in Lagos, pointed out the guiding principles for achieving development with taxation.
The principles include forming and running an efficient and effective government with strong policies, institutions, and executive capacity; performance-based budgeting enhanced effectiveness in the utilization of government revenue; prioritising expenditure to intervene in sectors that accelerate national economic growth and performance; and Building autonomous institutions that reduce uncertainties and transaction costs, influence socially responsible choices and compel rational actions.
He said only a minority of Nigerians pay income tax and the majority of this minority have their income deducted at source, citing an example of formal sector employees, public sector, and the likes, perhaps from the colonial experience.
“We are living in a country where paying tax is treated as an illegitimate imposition, voluntarily comply with the obligation to pay income tax remains a major challenge,” El-Rufai said.
According to him the major challenges for taxation in Nigeria include low accountability, lack of awareness of the general public and the citizenship imperative and benefits of taxation, corruption and connivance of tax officials, tax evaders and evasion, high tax rate, and poor methods of tax collection.
It highly surprising that many of the States and Federal governments are not collecting as much tax as they should, he said.
He noted an IMF report that says Nigeria’s tax mobilization is the lowest in the world, reflecting weaknesses in tax administration and systemic non-compliance – less than six percent compliance by corporate taxpayers and only two percent compliance by individuals.
El-Rufai said the current VAT system suffers from a number of challenges including a low rate, 7.5 percent, which he said is still less than half of the regional average in ECOWAS, and the absence of many features of modern consumption tax.
Today the Federal budget is largely financed by debt and the mobilisation of revenue sources, which remains insufficient to fill the refinancing gap.
The constitution and the laws of the land confer the government the power to tax people. This power can also help in a campaign to persuade citizens to contribute to domestic revenue mobilisation, he said.
Compliance with tax rules should be promoted as a definition of modern citizenship. This means that membership of the political community is defined as those residents that pay their taxes, in other words, tax citizenship.
“When our government came to office in Kaduna State, we decided to abolish indigene settler dichotomy. We resorted to citizenship and tax citizenship. We said that anybody who lives in Kaduna can contribute to the development of the State. Around that is the issue of tax evasion. We are registering all our residents and giving them I’d cards, and about that will form our tax net”.
He said Lagos has one of the best tax institutions in the country. “Government must build fiscal capacity across its economic and political institutions. When the government has a larger stake in the economy through a developed tax system, it has a stronger motive to play a productive role in the economy”.
“We should be proactive and not look at the shock and start developing our tax extraction capacity,” El-Rufai said.
One significant factor is poor administration and sub-optimal collection of taxes despite tax reforms and policies such as payment scheme, tax identification number and tax avoidance legislation, voluntary asset and income declaration, and so forth.
