According to Benjamin Franklin, there are only two things that are certain in life: death and taxes. Whilst the former is usually not a palatable topic for discussion in any gathering, the latter has been a subject of wide deliberations, ranging from its administration and collection to compliance level, interpretation of relevant legislation and the utilization of revenue generated from taxes and levies collected.
The Black’s Law Dictionary (the Dictionary) defines tax as a monetary charge imposed by the government on persons, entities, transactions, or property to yield public revenue. The Dictionary also defines public revenue as government’s income derived from taxes, levies and fees.
Tax has been generally used as a powerful tool for achieving economic and social policy objectives of government in most countries of the world. Although the payment of tax is a civic duty, it does not presuppose a ‘quid pro quo’ relationship between the government and its citizenry.
Nonetheless, it is the expectation of most citizens that the revenue generated from taxes will be used for the betterment of the society. The government, on the other hand, expects that its citizens will be in full compliance with the prevailing tax laws, to enable it earn part of the necessary revenue to provide and maintain the essential services for its citizenry.
In Nigeria, voluntary tax compliance by citizens is somewhat a mirage; yet a feat that the government has been seeking to achieve for decades. Most taxpayers believe that the taxes collected are largely misappropriated as the government is perceived, in most quarters to be unscrupulous and insensitive to the needs of the people. As a result, taxpayers engage in tax avoidance schemes and/or outright evasion or are reluctant to perform their civic responsibility of voluntarily paying their taxes as they hold the view that such monies will either be spent recklessly or end up in individual pockets.
This article, therefore, seeks to evaluate the impact of government’s accountability and transparency on voluntary tax compliance.
Nigerian National Tax Policy
The Nigerian income tax system is mainly characterised by self-assessments for companies and businesses based on the provisions of the prevailing tax laws. However, in certain instances, especially for transaction and personal income taxes, the tax laws provide for the appointment of persons, companies, ministries, extra-ministerial departments and agencies as agents of the government for withholding and collection of applicable taxes for onward remittance to the tax administrator, which is either the Federal Inland Revenue Service or the relevant State Internal Revenue Service.
Nigeria’s tax to Gross Domestic Product (GDP) ratio stands at approximately 4 percent as at 2018, according to data from the National Bureau of Statistics (NBS) and Federal Inland Revenue Services (FIRS). This pales in comparison to other African countries. For instance, based on the Africa Tax Administration Forum (ATAF) report, countries like South Africa and Kenya have a tax to GDP ratio of 27 percent and 16 percent, respectively as at 2017.
Similarly, in most developed countries, tax revenues account for over 30 percent of the GDP, while in other developing countries, it accounted for less than 20 percent of the GDP. Thus, in a bid to increase Nigeria’s tax to GDP ratio, amongst other things, the Federal Republic of Nigeria through the Federal Ministry of Finance, launched the National Tax Policy (NTP) in February 2017.
The NTP defines tax “as any compulsory payment to government imposed by law, without direct benefit or return of value or a service, whether it is called a tax or not”. This definition has, however, raised the question of whether the Nigerian government is seeking to shirk its responsibility of answerability for utilization of taxes.
Notwithstanding the definition of tax by the NTP, some of the objectives of the NTP are to serve as a point of reference for all stakeholders on taxation and to provide a benchmark on which stakeholders shall be held accountable. The NTP identifies the government, taxpayer, revenue agencies, professional bodies, tax practitioners, consultants, agents and media and advocacy groups as relevant stakeholders.
In addition, the NTP elucidates that sustainability is one of the guiding principles of the Nigerian Tax System. Thus, according to the NTP, the tax system should promote sustainable revenue, economic growth and development, which are legitimate expectations of the citizenry of any country.
(To be continued. The next article will look at government accountability in tax compliance in Nigeria)
Dayo Adeniji & Aminat Jegede
Adeniji and Jegede are, respectively, Senior Manager and Manager at KPMG Nigeria
