The Federal government has been trying to dispel the notion that Nigerians are paying multiple taxes but findings from a new report by SBM Intelligence, a Lagos-based geopolitical risk analysis firm, disputes this claim.
According to experts, multiple taxations occur when various unlawful compulsory payments are collected by local and state governments without appropriate legal backing through intimidation and harassment of the payers.
The report titled, ‘Under the Hood, A Look into Taxation in Nigeria’s Informal Sector,’ states that Nigerian businesses are confronted with multiple layers of tax collectors who are backed by government agencies.
“Multiple taxations are recorded across all the business types. There was no business group that had not experienced multiple tax collections by different groups. More so, the process of these tax collections are arbitrary, backed with violence, and with record spans that do not exceed one day,” the report states.
In 2018, during a session with the federal executive council, Babatunde Fowler, the former chairman of the Federal Inland Revenue Services (FIRS), stated that the country does not really have a situation of multiple taxations.
“You only have multiple taxations when you pay the same tax to different tiers of government. What we have found out is that a lot of people categorize any payment to the government as a tax,” Fowler says.
Data from the report was collected through a survey research method. A total of 999 respondents were selected for the study from nine states namely Anambra, Bauchi, Cross River, Delta, Kano, Lagos, Oyo and Rivers, and Nigeria’s Federal Capital Territory.
The main categories of informal business participants covered in the survey were open market traders, bus drivers, dressmakers, okada (motorcycle-taxi) riders, hairdressers, and vulcanisers (tyre-patchers). These occupations constitute the bulk of informal businesses that have daily interactions with consumers.
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A breakdown of the report shows that 45 percent of the respondents pay on a daily basis which is the most prevalent payment time- frame, followed by 33 percent of respondents who pay on a yearly basis, 17 percent pay on a monthly basis while five percent paid on a weekly basis.
Also, the payment time frame differs by business type. Businesses like that bus drivers and okada riders pay most of their taxes on a daily basis due to the fact that they are mobile, with no specific office or address than businesses that are stationary, while most dressmakers, hairdressers, and vulcanisers made their payments on a yearly basis because of the stationary nature of their businesses.
One of the respondents, an okada rider in Surulere, Lagos, explains the burden of multiple taxes on his business. According to him, different areas have different “lords” and tax collectors and your tax cover only a part of the town, if a trip took a rider away from the area his tax covered, he’d have to pay another tax and so to avoid harassment and being limited to a particular area, he pays multiple area taxes.
The report noted that there were four prevalent tax groups that businesses pay to, namely, state governments, local governments, market organizations, and unions.
“Most (58 percent) of the informal sector participants pay taxes to one group, followed by those who pay taxes to two groups (29 percent), nine percent pay taxes to three groups while four percent pay taxes to more than three groups.”
The location of the informal sector participants and the type of business that a respondent is involved in determines the number of tax collectors they may encounter.
On business location, responses show that all participants in Bauchi paid taxes to only one group, while in Delta and Lagos, there is a significant number of respondents who pay taxes to more than three groups.
On the type of business, bus drivers are more likely to pay taxes to more than three groups than those in the other forms of business.
Damilola Adewale, a Lagos-based economic analyst said it is not surprising that businesses in the informal space face multiple levies.
“Perhaps that’s why most of them don’t want to formalize their business because they know it will escalate their statutory obligations. I would say this multiple levies challenge reflects how tough doing business is in Nigeria,” Adewale further added.
The report also highlighted that taxation in the informal sector is characterized by arbitrariness and not largely determined by income. For example, bus drivers in Lagos (67 percent) and a pocket in Rivers (seven percent) pay the highest taxes that are N3, 000 and above daily, followed by drivers in Delta State where a majority (89 percent) pay between N2, 010-N3, 000.
“Bus drivers in Kano have a majority (92 percent) who pay the lowest tax rates betweenN50-N200, followed by those in Oyo where 77 percent pay between N210-N500,” the report stated.
Most respondents complained that these multiple taxes have an effect of slowing down their financial gains and reducing their disposable income, which might have benefited other sectors of the economy.
One of the respondents puts it more succinctly: “after work, I end up going home with nothing much because of the taxes that I pay.”
This is the sentiment shared by more than 70 percent of the respondents. Others complained that increasing the cost of their goods which they have to pass to the final consumers, affects their sales volume as customers quickly find alternatives to highly-priced products or services.
To tackle the incidents of multiple taxations, SBM recommends that the process of administering tax Identification Numbers needs to be streamlined and tied to something that every Nigerian need, such as a mobile phone number or National Identification Number and a Bank Verification Number.
“To this end, the concerted efforts around NIN registration will go a long way to achieve the objective of giving a foundational ID to Nigerians, upon which other services can be built,” It further stated.
It also recommended that the tax administration regime should be simplified and unions and non-state actors that place a tax burden on citizens should be checked.
