At just 6 percent, Nigeria has one of the lowest tax-to-GDP ratios in Africa. This has led to the conclusion, in both academic and policy circles, that Nigerians do not pay tax, and the government has no capacity to collect tax and prevent leakages. Since the discovery of oil and the inflow of petrodollars, the government no longer required tax from its citizens to raise revenue, which often comes with a greater demand for accountability. So, during the period of the oil boom, the government virtually dismantled the system of taxation set up by the colonial government.
Now that oil revenue has shrunk, population has ballooned and the state is struggling to meet its basic obligations, it is finding it difficult to collect tax revenues. Besides its very low capacity for tax collection and the various leakages in the system, it is argued that Nigerians essentially do not like to pay tax because old habits die hard and Nigerians have come to acquire a sense of entitlement that always look to receive from, but not contribute to the state. That is why the taxes the government is only able to collect effortlessly are gate-keeper taxes – where the government sets itself as a gatekeeper, at entry, exit, and production points and forces employers to deduct and remit to it the personal income tax of employees.
But this system doesn’t bring in much. To be able to raise enough taxes, the government must be able to tax most of its taxable adults. The elephant in the room, however, is how to collect taxes from players in the informal economy, estimated to make up about 67 percent of the Nigerian economy. Even in Lagos where the sheer bravado of the government has succeeded in raising tax revenues to over 50 percent of state revenues, all efforts to collect taxes from the informal economy have been met with failure. “Owing to a combination of popular resistance and complex logistics,” argues Kate Meagher and citing evidence from extant literature, “tax officials have still not managed to collect enough revenue from the informal sector to cover the costs of collection, let alone to enhance public revenue and service provision.” This, most scholars and policy advocates point out, shows the challenges and limits of taxation in a post-colony such as Nigeria.
It is not true that the informal sector in Nigeria does not pay tax. It not only pays tax, but it is also the most taxed segment of the society
But this conclusion is faulty and cannot stand up to scrutiny. It not only shows a lack of understanding of the Nigerian milieu, but also shows the way in which Euro-American reality is uncritically accepted and engrafted or superimposed onto the African and Nigerian conditions. Empirical evidence shows that a sophisticated network of state, informal and fraudulent actors stepped into the void created by the state during the period of oil boom and have been efficiently collecting exorbitant taxes from the players in the informal economy without ever remitting a penny of these taxes to state coffers.
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All indications show this is a multi-million dollar business and it proceeds in the full glare of the state without any attempt to disrupt their operations or provide any succour to poor Nigerians who are disproportionately affected.
So, it is not true that the informal sector in Nigeria does not pay tax. It not only pays tax, but it is also the most taxed segment of the society, most times paying as much as half of their daily earnings in tax. As Kate Meagher avers in her paper “Taxing Times: Taxation, Divided Societies and the Informal Economy in Northern Nigeria” published in The Journal of Development Studies, in 2018, “on top of formal taxation, informal actors in Northern Nigeria are subject to a range of informal taxes, made up of illicit extraction by state officials, and self-help initiatives which involve enterprise associations imposing a range of dues and levies on members to provide limited business and social welfare services.” Meagher goes on to list the form of illicit taxes that the informal sector is often forced to pay to include “extraction at roadblock, arbitrary fines by traffic police and other officials, and ‘fake taxes’ imposed by revenue officials or by people posing as revenue officials.”
So terrible is the spate of formal and illegal taxation on the informal players in the economy, especially small-scale market traders, bus or Okada riders etc that they pay between 30 – 50 percent of their day’s earnings to these taxes. Although Meagher did her fieldwork in the northern cities of Kano and Kaduna, those in Southern Nigeria will have more to say on this.
Take the case of Lagos state for example. A recent report by the International Centre for Investigative Report shows that the Lagos chapter of the National Union of Road Transport Workers (NURTW) alone generates about N123.08 billion annually in levies and illegal taxes on passenger vehicles, motorcycles and tricycles alone. The report was only able to record transactions with a total of 75,000 buses; 50,000 tricycles; and 37,000 motorcycles. Daily, N3,000, N600 and N1,800 were collected each from operators of buses, motorcycles, and tricycles respectively. For context, this fee could service the annual budget of Nasarawa, Yobe, and Niger states put together. It is also about half of Lagos state’s officially declared tax revenue collected from over 4 million Lagosians that pay tax. Yet, not a single penny of this revenue goes into government coffers. This does not include the huge illegal taxes collected from hawkers, market women, articulated trucks, small traders displaying their wares on the side of the road etc.
It is a highly connected syndicate that position themselves at strategic points and ensures all operators pay the illegal tax compulsorily. Failure to pay can attract unpleasant consequences and denial of the right to do business altogether. Of course, it goes without saying that a good proportion of this tax is passed on to the passengers, who are the poor in the society.
To be continued next week
