Nigerian Taxation System; A Call for Awareness, Simplicity, Transparency and Efficiency

Abuja, Nigeria. August 7th, 2018 – An excerpt from NOIPolls National Survey conducted in 2017 has revealed that a larger proportion (47 percent) of the adult population believe that taxes paid by Nigerians are not used for the right purpose of infrastructural development and services but rather used for something else. Corroborating these findings, an analysis of the Federal Government Budget for the past few years by Price Water House Coopers (PwC) in 2015 shows that tax revenue has essentially been spent on debt financing and recurrent expenditure, a significant amount of which goes to salaries, travels and other overheads. 

More findings revealed that the greater proportion of Nigerians are not compliant with tax laws as 46 percent claimed they do not pay their income taxes and 7 percent reported that they are unaware of tax payment. However, 44 percent of adult population claimed that they pay their income taxes and adults in urban areas (45 percent) are more likely to pay their income taxes more than those in rural areas (42 percent). The survey report further identified that when disaggregated by region, the proportion of adults who pay their income taxes are highest in North-Central (58 percent), while the regions that are most likely not to pay their income taxes are adults from the North-West (56 percent). Regarding the issue of VAT, about half (43 percent) of the adult population (which formed the majority) stated that the current rate of 5% VAT regime is too high. 

Finally, the survey report identified that, more than one-third of the adult population (38 percent) think that Nigeria’s tax procedures are not simple to understand and easy to obey. In line with the ‘Ease of Paying Taxes’, Nigeria is currently ranked 145th out of the 190 countries rated globally on the 2018 World Bank Ease of Doing Business Index .[1] However, in February 2017, the Federal Executive Council approved the revised National Tax Policy in order to have a robust tax system that would promote investment and improve revenue for sustainable national development. The Minister of Finance, Mrs. Kemi Adeosun emphasized that the new tax policies would remove obsolete, ambiguous and contradictory provisions in the laws, increase government revenue and simplify the process of paying taxes and doing business.[2] 

Survey Findings

Nationwide, 47 percent of the adult population think that taxes paid by Nigerians are “used for something else” other than services and infrastructure development. 36 percent reported that taxes are used for services or infrastructure development. About 16 percent reported that they don’t know what taxes paid are used for. Corroborating these findings, an analysis of the federal government budget for the past few years by PwC (2015) shows that tax revenue has essentially been spent on debt financing and recurrent expenditure, a significant amount of which goes to salaries, travels and other overheads. Furthermore, at a tax stakeholder forum organized by PwC, a survey was conducted to find out why many Nigerians do not pay tax. The result was insightful but not surprising. A majority (70%) said it is because people cannot see taxpayer money at work, 22.5% said it was due to the tax rules that are unclear and compliance processes that are too complex, while 7.5% said it is due to poor enforcement by tax authorities. A major implication of these findings is that judicious use of tax payers' money should be made seen to have been properly utilized. This will encourage tax payers to continue to pay taxes. 

Adult males are more likely to think that taxes paid by Nigerians are being used for something else (49 percent) than adult females (45 percent). On the other hand, more women are more likely to report that they don’t know what the taxes paid are being used for (20 percent) than men (13 percent). Middle aged adults who are between 36-60 years of age are most likely to say that tax payers money are used for something else (53 percent) than younger people who are between 18-35 years of age (44 percent). 

 

The proportion of adults who are from the South-South region are more likely to say that taxes paid by people are used for something else (65 percent). A number of other studies have shown that government’s fulfillment of social/fiscal contract with their citizens significantly encourages voluntary tax compliance. 

 

Nationwide, 44 percent of adult population report that they pay their income taxes, 46 percent do not pay their income taxes, and 7 percent reported that they don’t know about tax payment and 3 percent refused to answer. Compared to the labour workforce of 77 million at the end of 2015 according to the National Bureau of Statistics (NBS), the number of people in the tax net is only 13%. According to figures from the Joint Tax Board, there are ten million people (precisely 10,006,304) registered for personal income tax purposes in all the states of the federation including the FCT. Out of this, about 4.6 million or 46 percent are registered with the Lagos State Internal Revenue Service (LIRS) indicating an average of 153,000 or 1.5 percent per state for others. 

In terms of tax payment and gender relationship, poll findings revealed that women are more likely not to pay their taxes (50 percent) than men (42 percent). Older adults who are 61 years and above are most likely to evade tax payment (56 percent) than younger people 18-35 years of age.

 

When disaggregated by region, the proportion of adults who pay their income taxes are highest in North-Central (58 percent). The regions that are most likely not to pay their income taxes are adults from the North-West (56 percent). A major insight of the above findings is that if people do not see their government as accountable, there is an increased likelihood that state demands for payment of taxes will be met with non-compliance. 

The NBS recently released tax collection data by 29 states of the federation which totaled N317.79bn out of which Lagos State recorded the highest Internally Generated Revenue (IGR) figure of N150.59bn, which is 47 percent of the total revenue collected by all the states of the federation in half year 2016. In terms of urban-rural split, adults in urban areas (45 percent) are more likely to pay their income taxes more than those in rural areas (42 percent). This is not surprising as those who live in the cities are more likely to be gainfully employed to pay their personal income taxes.

Furthermore, a large proportion (43 percent) of the adult population stated that the current rate of 5% VAT regime is too high. 28 percent indicated that it’s about right, only 4 percent mentioned that it’s too low. 23 percent reported that they don’t know whether it’s too high or low. With respect to VAT, the finance minister was recently quoted as saying the rate of compliance is about 12 percent. 

More males (44 percent) say that the current rate of 5% VAT is too high against 41 percent of adult females. Younger people who are between 18-35 years of age are more likely to say that the current 5% VAT regime is too high (49 percent) than older adults 61 years and above (36 percent).

By region, the largest share of adults who reported that the 5% VAT is too high came from the South-South region (58 percent) and South-East region (53 percent). On the other hand, the adult population from North-Central (37 percent) region are more likely to say that the 5% VAT regime is about right than other regions. There is a marginal variation in the perception of the current 5% VAT regime between urban and rural adult population. Adults who live in urban areas are slightly more likely to perceive the current 5% VAT as too high (44 percent) than those in rural areas (43 percent).

 

Nationwide, more than one-third of the adult population (38 percent) think that Nigeria’s tax procedures are not simple to understand and easy to obey, confirming the need to simplify the tax procedure as highlighted by the 2017 World Bank Ease of Doing Business Report. Both adult males and females also think the tax procedures are not simple to understand, representing 39 percent and 37 percent respectively. Younger people who are between 18-35 years of age are more likely to understand the tax procedures (45 percent) than older adults who are between 36-60 years of age (32 percent).

Compared within regions, the North-West (45 percent) and South-East (42 percent) regions have the largest share of adults who reported that Nigeria’s tax procedures are not simple to understand, and easy to obey. On the other hand, the regions with a relatively better understanding of the tax procedures are the South-South (49 percent), North-Central (45 percent) and South-West (40 percent). Disaggregated by urban-rural split, urban adult population are more likely to report that they understand the tax procedures (39 percent) than the rural population (35 percent).

 

In conclusion, one of the main reasons why majority of Nigerians are averse to payment of taxes (47 percent of the adult population) is that they think that taxes paid by the citizens are “used for something else” other than services and infrastructure development. Government and policy makers should create awareness on what the tax payers’ money are used for, and transparency is very critical in changing this negative perception. 

There is need for public sensitization on the need to pay tax given the high number of people who reported that they don’t pay their income taxes. Government should make effort to have a credible database of its citizens who are gainfully employed and subject to income tax. Majority of the population (38 percent) think that Nigeria's tax procedures are not simple to understand and easy to obey, confirming the need to simplify the tax procedure as highlighted by the 2017 World Bank Ease of Doing Business Report. There is need for government to engage the private sector to simplify the tax assessment and payment procedures. 

Disclaimer

This press release has been produced by NOIPolls Limited to provide information on all issues which form the subject matter of the document. Kindly note that while we are willing to share results from our polls with the general public, we only request that NOIPolls be acknowledged as author whenever and wherever our poll results are used, cited or published. 

NOIPolls hereby certifies that all the views expressed in this document accurately reflect its views of respondents surveyed for the poll, and background information is based on information from various sources that it believes are reliable; however, no representation is made that it is accurate or complete. Whilst reasonable care has been taken in preparing this document, no responsibility or liability is accepted for errors or fact or for any views expressed herein by NOIPolls for actions taken as a result of information provided in this report. Any ratings, forecasts, estimates, opinions or views herein constitute a judgment as at the date of this document. If the date of this document is not current, the views and content may not reflect NOIPolls’ current findings and/or thinking. 

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[1] https://www.vanguardngr.com/2017/10/nigeria-moves-24-points-world-bank-ease-business/

[2] https://www.vanguardngr.com/2018/06/fg-approves-2-executive-orders-5-amendment-bills-reduce-tax-burden-nigerians/