Towards ensuring Nigerians’ tax compliance

With the dwindling income from sale of crude oil, it has become imperative for government at all levels to scout for alternative sources of income to fund development projects and programmes as well as oil the wheel of governance. There have been several suggestions on how to boost the internally generated revenue of government. These include right investments and policies in agriculture, solid minerals and sports. Cross-cutting benefits will accrue to government from all private and public investments in the identified areas in form of tax. An online source defines tax as “a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.”

According to the Federal Inland Revenue Service, which is the Federal Government agency in charge of tax administration in Nigeria, some of the taxes operational in the country are: Personal Income Tax; Companies Income Tax; Petroleum Profit Tax; Value Added Tax; Withholding Tax; Education Tax; Stamp Duties; Capital Gains Tax and National Information Technology Development Fund Levy.

There are several advantages accruing to both government and citizens from payment of taxes. According to the FIRS, “The benefits derivable include but are not limited to: Providing sustainable finance and funding for governance, public and social services and economic development; Promoting civic responsibility, patriotism by citizens and social responsibility by corporate citizens; and Stimulating priority social and economic activities and sectors while discouraging less preferred ones.”

Others include, “bringing about the redistribution of wealth and bridging sharp disparities in living standards; Giving taxpayers the moral and legal right to demand (thereby engendering) a culture of accountability; Serving as a gauge for measuring the level, growth and health of economic units and economic activities; Individuals and corporate organisations are conferred with definite benefits, rights and privileges in the system based on their tax compliance status; and Tax compliance enables law abiding citizens to avoid the consequences, penalties and sanctions of non-compliance.”

In spite of the aforementioned benefits and importance, Nigerians are one of the world’s worst dodgers of tax. Tax evasion, though a global phenomenon, however is very rampant in this clime and is committed with impunity. Even when not totally avoided, many Nigerians do not pay the right taxes. Some Nigerians are also in the habit of procuring fake Tax Clearance Certificates when it is demanded of them.

A newspaper in its editorial last year, quoted PricewaterhouseCoopers as saying that Nigeria has one of the world’s lowest tax revenues to GDP ratios.

The editorial also made more startling revelations. It says 80 per cent of taxable adults never pay tax, as revealed at a recent Chartered Institute of Taxation of Nigeria forum. Seventy five per cent of companies are not registered with the FIRS for the mandatory Companies Income Tax and 65 per cent of those registered are not up to date with tax filings.

What are the factors responsible for this high level of tax evasion or non-compliance? They are many. One of them is the multiple taxation of the companies operating in Nigeria. Private companies in the country complain that they are subjected to too many taxes by the three tiers of government namely; federal, state and local government.

With the exception of government workers whose Personal Income Tax is deducted from source under the Pay As You Earn scheme, it is practically impossible to assess the tax liabilities of many traders or those in the informal private sector. They deliberately underestimate their business value in order to ensure that they pay less tax.

Besides, people do not want to pay tax because they have not seen or felt the positive impact of government in their lives. They see the wasteful spending and ostentatious lifestyles of political office holders.

Moreover, unemployment and staff retrenchment also combine to rob government of tax revenue. It is impossible to tax someone who is unemployed. However, government needs to be ruthless with tax offenders, while rolling out a more robust tax on luxury goods instead of a blanket increase in Value Added Tax (VAT).


  • Ojo is a Lagos-based tax consultant.