Nigeria's taxing problem

Tax avoidance is widespread in Nigeria

By Fiona Ledger BBC, Lagos

The majority of working people in Nigeria do not pay tax.

Forty years after independence, and now with a huge business population, Nigeria is also without a workable tax strategy.

The fact that a lot of people don't pay tax makes me angry

Femi Fatoba

But this will soon change, if the government of President Olusegun Obasanjo has its way.

Complementing the country's privatisation programme, the Nigerian Government wants a coherent approach to investing tax revenue into the country's infrastructure.

This process is also a confidence-building exercise.

Until recently, Nigerians have seen little evidence that tax money is being put to work to improve living conditions in the country.

Ismaila Mohammed's view of taxation is typical. He is a self-made man who started washing cars in a hotel car park.

He now owns several cars of his own. These are the fruits of his labours as a money-changer.

Indirect tax

Does he pay tax? Without hesitation he said, "I pay tax indirectly, in the sense there are many 'needies' out there which the government can't take care of."

Tax payers of the future

The "needies" which Ismaila is referring to are family and friends who constantly clamour for money to pay for anything from schools fees to a new pair of shoes.

And Ismaila is right, the government cannot take care of them.

There is no social service net to support the unemployed in Nigeria. There are state funded schools and hospitals, but none are completely free.

What is equally annoying for many potential tax payers, Ismaila included, is the lack of essential amenities.

"Every Nigerian has to have a local government of their own, to generate their own water, and electricity," says Pat Utomi, Director of the London Business School.

Imposing more income tax is only part of the solution, he believes. There should be more direct taxes too.

For example, a tax on the sale of fuel to motorists to be used exclusively for funding road building.

VAT is another source of deep resentment. It is imposed at 5% on all imported goods, with another 5% on sales of those goods.

The difference in the profit margins of those that are VAT registered and those that are not, is considerable.

Duty

When it comes to income tax, the bulk of individuals paying it are civil servants, registered on a pay roll.

These include teachers as well as those employed by government departments.

Fasoto: Corruption is a major obstacle to tax collection

Femi Fatoba has paid tax all his life and sees it as part of a citizen's duty.

"I know when you work, you have to pay tax. It's OK with me. But the fact that a lot of people don't pay tax does make me angry."

Despite the huge number of tax dodgers, there are no shortage of laws relating to tax. But making sense of them is another question.

Faluso Fasoto is a tax consultant who has devoted the last 15 years to compiling Nigeria's taxation laws.

The resulting book, Nigerian Tax Companion, contains every tax law ever passed since 1960 from Capital Gains Tax to the more obscure local government taxes such as Slaughter Slab Fees, and The Merriment and Road Closure Levy.

As a child, growing up in a small village, Faluso Fasoto remembers the fear people felt when tax collectors appeared.

"The householders will run away, because they don't have money... you grow up and hear the word 'tax' and you associate it with oppression, cruelty."

As well as being a chartered accountant, Faluso Fasoto is now on the Presidential Committee on Revenue Generation.

He identifies corruption as a major obstacle to effective tax collection.

He himself has had to resign from a number of jobs when pressure was put on him to file false returns.

Sometimes this pressure is the result of the tax payer being close to someone in government.

At the other end of the tax paying process, poorly paid tax collectors are all too easily tempted by bribes.

"When you send officers to pay tax," says physics lecturer Ado Mohammed, "they sit down and make a deal with the tax payers.

"They may have left the house without food or anything... They think 'why can't I design a way to make money and live?'"

Tax at work

Faluso Fasoto has seen both the greedy and the needy side of human nature in his line of work. But he is optimistic that more revenue can be generated through tax collection.

As part of an effort to persuade people that payment of tax increases the quality of life of Nigerian citizens, he points to the government policy of sign-posting projects paid for by tax revenue with the catch-phrase "Tax Payers' Money at Work."

And if the carrot does not work, bring on the stick.

At the moment fines range from 50 naira (41 cents) a day to 50,000 naira ($415 ).

Increasing this, Fasoto believes, will have a huge impact. "By the time you have some of these rich people not only fined but jailed, then people will sit up and comply with tax laws."

"Tax is important," says Professor Ayagi.

"It is a form of forced saving. The government taxes from you and invests it."

That's the theory, and soon, Faluso Fasoto, hopes it will be the practice.