The federal government’s recent threats against tax defaulters will not help its tax reform policy
In a country where government is alive to its responsibility by providing the basic needs for its citizens and maintaining the existing infrastructure, tax is an obligatory levy imposed on the citizens. Indeed, the socio-political and economic development of any country depends on the amount of revenue that is generated for the provision of infrastructure. And one way to generate such revenue for providing the needed infrastructure is through a well-structured tax system.
That is why we see the recent 90 days ultimatum by the Minister of Finance, Mrs Kemi Adeosun for the so-called tax evading wealthy Nigerians and corporate bodies to declare their taxable income and pay appropriate taxes or face the full wrath of the law as counter-productive. What is required as the country struggles to reposition the economy is a comprehensive tax reform policy and a serious campaign to get more Nigerians to pay tax.
According to Adeosun, tax defaulters in the country risk at least five-year jail and asset forfeiture. Her warning came even as Vice-President Yemi Osinbajo launched the Voluntary Asset and Income Declaration Scheme (VAIDS), a new tax reform programme of the federal government aimed at increasing tax awareness and compliance.
Punishment for evasion is severe, at least on paper, in a country where only the poor get convictions for crime: all tax evaders, when identified, are subject to the full force of Nigerian and international law, including imprisonment of up to five years. There are also extra severe penalties of up to 100 per cent of the outstanding tax due, compound interest at 21 per cent per annum and forfeiture of assets, the Minister of Finance had stated. Insisting that tax evasion leaves an unfair burden of payment on the poorest Nigerians, Adeosun further revealed that tax evaders who want to avoid the full force of the law have between July and December 2017 to regularise their tax status in exchange for immunity from prosecution of tax offences and a tax audit, and be absolved from penalty charges and interests.
Yes, we agree that the number of taxpayers in Nigeria, relative to the size of the economy, is one of the lowest in the world—at only 6 per cent. Such underpayment of tax is unacceptable and hits the poor the hardest, and we must end it. But we hasten to say that the federal government is addressing the problem in a wrong way. The current system does not encourage people or businesses to subscribe and no amount of threat will work. Besides, this could easily become another political weapon, given the way this government is wired.
Like many experts have identified, workable enterprises that pay good taxes do not and cannot exist in a vacuum; all enterprises operate within a political, social and economic context and are subject to regulatory and institutional constraints. Therefore, while the federal government is planning to grow its tax base, it is also important for the authorities to support enterprise-specific interventions for businesses. That will necessitate a complete overhaul of the current tax regime in Nigeria.
Without addressing the issues related to the overall business environment, the planned tax reform may not be able to achieve the sustainable development which the government is targeting. That is why the authorities should be committed to creating enabling environments that help entrepreneurs to expand their activities and create incentives for them to validate their businesses. This means inspiring them to innovate.
For sure, the impact of tax reforms on the economic growth of the country will be huge. Favourable tax reforms will improve the revenue generating capacity of government to undertake socially desirable activities that will translate to economic growth in real output and per capita basis.