“The taxpayer: that’s someone who works for the federal government, but doesn’t have to take a civil service examination”. –Ronald Reagan.
A lot of Countries basically survive and build up their nations from the revenues generated by way of taxation. These Countries do also have veritable tax enforcement system and institutional platforms for protecting the financially weak and vulnerable.
Proper, transparent and an accountable tax system can deliver aggressive infrastructural and institutional advancements and minimise the consequences of mass poverty.
This is because when a nation is buoyant, it will then become a moral and legal crime for the majority of the citizens to be impoverished, hungry and unemployed. Nigeria would be better and friendlier to the youths if the Federal and State administrations are set up in such a business minded formats to make it much more transparent for the tax and revenue generation system to be efficient but benevolent to the poor and for the nation to have strong anti graft institutional mechanisms to check insider abuses.
It is imperative therefore to assert that setting up a Better and a much more effective tax system guarantees more jobs for the youths because when a government makes a lot of revenues and the officials are disincentivised away from public corruption, it will then be in a position to create the enabling environment for higher national productivity and employment creation.
These are basic issues that must form parts of the larger political conversations as we get set to begin a democratic transition from the President Muhammadu Buhari administration to his successor in another one year. Those politicians who are already in the race for the highest office in the land must demonstrate a greater understanding of the issues around effective taxation.
So voters are expected to demand a clear taxation blueprints from the aspirants who would come up with their individual ambitions to run for the office of the President of Nigeria at these trying times.
Two factors make the conversation about taxation strategic: these are the high rates of unemployment and poverty and the lack of social safety nets for millions of heavily poor citizens who are about 100 million of the 200 million population.
Nigeria is the largest black democracy in the World and incidentally is one place whereby mass poverty poses a national security challenge to the survival of the nation state.
So it would seem that one of those canvassing for votes of Nigerians to become the President in the ongoing transition programme who is also a former Vice President of Nigeria Alhaji Atiku Abubakar does not understand these key contemporary developmental issues when he made a promise today to run what he calls a Liberal economy, and to make Nigerians pay lower taxes. This Adamawa born politician is being deceptive in telling Nigerians about lower tax because he understands the popular sentiments about taxes. However, he simply played on the gullibility of Nigerians because he knows that people won’t take him to tax to even show us his tax returns since he began business many decades ago. Atiku Abubakar does not seem to know that right now, most rich people are grossly undervalued even as many more do not pat taxes.
This public show of ignorance shows that he (Atiku Abubakar) is unaware of the strategic place of appropriate tax system. Atiku Abubakar is running under the banner of Peoples Democratic Party.
But one of the Presidential aspirants of the All Progressives Congress and the Chief whip of the senate Senator Orji Uzor Kalu has demonstrated a very excellent understanding of the place of best global practices in taxation going by a bill that he is currently sponsoring at the Senate to make the payment of taxes by all categories of Nigerians seamless and much more transparent.
We will return to this critical component of investigating the readiness of Senator Kalu to deliver a fulfilling Presidency if he gets the nod of Nigerians voters as their President.
This is because it is said that the first step in every endeavour is the most important. Atiku Abubakar started badly by manifesting absence of any sort of critical thinking in the area of the best tax system for Nigeria.
This is contrary to the fact that the Chief Whip of the Senate has contributed significantly to improving taxation in Nigeria going by the legislative instruments that he has authored and presented to the Senate.
Before returning to see what Senator Orji Uzor Kalu has done on taxation, it is appropriate that we point out what experts have stated clearly that developing countries would benefit from improved tax collection.
These scholars namely Roberto Ricciuti, University of Verona, Antonio Savoia, University of Manchester, Kunal Sen, United Nations University in a paper published: March 12, 2019 laid bare these underlying facts.
They wrote that the ability to raise revenues from taxes – called “fiscal capacity” – is a crucial aspect for the functioning of any state. Being able to tax citizens, and collect revenues efficiently, is a cornerstone of state formation and survival. Secondly, greater fiscal capacity implies greater access of the state to resources needed to provide public goods and services.
They averred that developing countries are only able to raise a small share of taxes. Typically, they collect between 10% to 20% of GDP. The average in high-income countries is double this, at 40%.
These low rates are the consequence of many problems. First, the large size of the informal economy. Second, a lack of investment in tax collection – most developing countries rely on sales taxes, which are easier to administrate than personal taxes, but entail lower revenues.
Low tax collection rates have devastating consequences on development. They mean that governments aren’t able to invest in public goods such as health, infrastructure and education. Even the Sustainable Development Goals, which aim, among other things, to build effective, accountable and inclusive institutions at all levels, have set mobilising revenues as a goal on its own.
On financing of Government Expenditures, these authors said that taxation is the central part of modern public finance. The importance of taxation arises from the fact that it is by far the most significant source of government revenue and is therefore the primary means of financing government expenditures.
Due to the pervasive nature of taxation, taxes can be used as an instrument of attaining certain social objectives. For example, income taxes due to their progressive nature are used to equitably derive revenue by differentiating tax rates by income strata. The income derived in this manner is then used to transfer income to lower income groups, thereby, reducing inequalities related to income and wealth.
Taxation is also used as part of fiscal policy to stabilize the economy. Increasing taxes can reduce consumption and lead to economic slowing when the economy may be growing too quickly. Alternatively, decreasing taxes can be a mechanism to promote economic growth by increasing the funds available for consumption and investment spending. It is important to note that when the government spends more than the tax revenue it collects, the government is operating at a deficit and will have to borrow funds to finance operations until taxes can be increased to return the government spending to a balanced budget.
On the types of Taxes, they said the US government imposes a number of different types of taxes in order to finance its operations. The following is a list of taxes in common use by governmental authorities:
Excise tax: tax levied on production for sale, or sale, of a certain good.
Sales tax: tax on business transactions, especially the sale of goods and services.
Corporate income tax: tax on a company’s profits.
Income tax: tax on an individual’s wages or salary.
Capital gains tax: tax on increases in the value of owned assets.
Financing State and Local Government
Taxes are the primary source of revenue for state and local governments; income, property, and sales taxes are common examples of state and local taxes.
Taxes are important to federal, state, and local governments. They are the primary source of revenue for the corresponding level of government and fund the activities of the governmental entity. For example, on a local level, taxes fund the provision of common services, such as police or fire department, and the maintenance of common areas, such as public parks. On a state level, taxes fund the school systems, including state universities. On a federal level, taxes are used to fund government activities such as the provision of welfare and transfer payments to redistribute income.
On example of a Federal, State, and Local Tax, they wrote as follows: “Income taxes are taxes imposed on the net income of individuals and corporations by the federal, most state, and some local governments. State and local income tax rates vary widely by jurisdiction and many are graduated, or increase progressively as income levels increase. State taxes are generally treated as a deductible expense for federal tax computation.
Realising how important establishment of a transparent tax system is to the development of Nigeria, the Chief whip of the senate Senator Orji Uzor Kalu has sponsored a bill seeking to enhance the Nation’s revenue generation system through the establishment of a National Tax crimes commission (NTCC) to prevent and combat tax crimes, protect taxpayers rights, amongst others and this has passed through second reading on the floor of the Nigerian Senate on Wednesday.
The bill which passed first reading when it was initially introduced to the Senate on Tuesday 8th March,came under the first order of the day during the consideration of bills at Wednesday’s Senate plenary received an unanimous voice vote in its favour to scale through its second reading.
Sponsored by the Chief Whip of the Senate, Senator Orji Uzor Kalu the Tax bill titled ” an Act to establish the National Inspector General for Tax Crimes Commission,2022 (SB. 951) is designed to address irregularities in Tax remittances , non-payment , under payment of taxes and to establish an NTCC to protect taxpayers rights by serving as the Tax Ombudsman.
According to the Abia North Senator, the Bill if eventually passed into law will protect Taxpayer rights as the NTCC will address the lacunas in the Tax administration system in the country by making the Federal Inland Revenue Service (FIRS) accountable and also create avenues for Taxpayers to make complaints over tax related matters.
Leading the debate on the Bill, Kalu disclosed that with the establishment of a National Tax crimes commission asides being the first of its kind in the country will also address taxpayers’ grievances and complaints promptly and without any hassle, and provide an effective redressal system.
Urging his colleagues to back the bill , The Abia North Senator said that through the creation of the National Tax Crimes Commission, criminal Tax investigators will be empowered with their unique forensic accounting skill sets, to be well positioned to combat national security threats and pursue illicit financial flows that were either derived from tax evasion, international tax schemes, cybercrime, or terrorist financing.
Providing additional justification on the essence of the bill Kalu stated that with an increased globalized economy and technological advancements, the country is witnessing transnational organized crime groups and other perpetrators abuse the vulnerabilities in the country’s financial systems.
He elucidated that the bill seeks to complement the Federal Inland Revenue Service in ensuring compliance with payment of tax; develop and implement national policy for tracking down tax defaulters and develop tax compliance strategies.
He said ; “Taxation is the key to unlocking the resources required for public investment and infrastructural growth. Therefore a fair, just, efficient and simple tax administration system is crucial to induce confidence amongst the citizens to pay their taxes as their national and patriotic obligations.”
“The Bill seeks to provide for an efficient and effective mechanism in administering the Nigerian tax system; and to protect taxpayers rights by serving as the Tax Ombudsman; educate the citizenry on tax matters;collaborate with relevant stakeholders to ensure payment of taxes and proper remittance to the Federation Account; provide a transparent platform on all matters relating to tax; provide sustainable finance and revenue for the government; review and address any complaint by a taxpayer regarding a service matter or a procedural or administrative matter arising from the application of a tax Act”.
Drawing the attention of his colleagues to the Tax Administration system of other countries, the Lawmaker revealed that in regard, countries such as United States, United Kingdom, Netherland and Australia, have an Auditing and Investigative Independent Agency such as the TIGTA and FATCA of United States, the House of Common Treasurer Committee (HCTC) and Tax Ombudsman of the United Kingdom and the Inspector General of Taxation (IGT) and Tax Ombudsman of Australia.
He said in Africa this is also obtainable in countries such as Ghana, Kenya, South Africa etc. And when this commission is created, it will be reporting to the National Assembly and not the Minister of Finance like the FIRST.Kalu added that the essence of the bill is for the establishment of an external examiner, a scrutiniser for checks and balances in Tax administration in Nigeria.
Arguing further, Kalu presented the content structure of the bill to his colleagues, disclosing that is contained 33 clauses which is divided into 7 parts namely; establishment of the National Tax Crimes Commission, functions of the commission, structure of the commission , membership and Zonal operation of the commission, state of the commission, staff of the commission, financial provisions and miscellaneous provisions.
Concluding his lead debate , Kalu provided the financial implications of the establishment of the Tax Crimes Commission in the twelve first months.
In his contribution, Senator Isah Jubrin ( Kogi East) commended Orji Kalu for initiating the bill and moved for the adoption of the bill for second reading. The Senate in a voice vote presided over by the Senate President, Ahmad Lawan voted in favour of the bill to be read for a second time.
Following the 2nd reading of the bill was taken by the Senate clerk , subsequently the Senate President Ahmed Lawan referred the bill to the Senate Committee on Finance to report back within four weeks.
There is really no doubt that Nigerians need to clamour for a business minded President like Senator Orji Uzor Kalu who has a very excellent understanding of the place of best global practices in taxation. Nigerians need to be vigilant so we don’t make the mistake of electing persons with very little interest in how to organise the Nation’s tax system.
EMMANUEL ONWUBIKO IS A MEDIA AND POLITICAL STRATEGIST BASED IN ABUJA.