Chairman of Federal Inland Revenue Service (FIRS) Mr. Mohammed Nami says desperation of politicians to win elections is the main reason why governments have not been deriving revenue from the informal sector of the economy.
The revelation came at the opening of 9th Country Correspondent meeting of African Tax Alliance Forum (ATAF) in Abuja where Secretary-General of the organization Mr. Logan Watt also disclosed that ATAF has so far traced over $1 billion trapped tax revenue for its 38 member countries of which $300 million has been physically recovered.
“Taxing the informal sector is viewed as politically unpopular and politicians are unwilling to risk losing the high number of votes represented in the sector.
“This is because politicians usually promise informal workers protection from taxation in exchange for their votes.”
Nami said as at 2017, Africa’s Tax to GDP ratio averaged around 17%, which was even an improvement over time but nonetheless, was the lowest ratio in the world, which had resulted in budgetary deficits in most countries in Africa.
“It is, therefore, necessary to reduce and eventually eliminate these deficits if Africa is to meet its development needs.
“The low tax to GDP ratio has been attributed to, among other things, low tax capacities and tax inefficiencies.
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“This is made worse by tax avoidance, tax evasion, and a large informal sector.
“It is estimated that the informal sector in Africa constitutes between 21% – 70% of the GDP of African countries and accounts for between 30-90% of employment in the region.
“Yet despite its large size, the sector remains one of the most difficult sectors to tax, with most of the businesses operating in the sector concealing their activities from the Tax Authorities.
“Such businesses also operate on a cash basis and maintain poor or no accounting records. “Most of the businesses in the sector are also small and fragmented making it inefficient for the revenue administrations to enforce compliance.”
Aside encouraging formal sector players, taxing the informal sector is also critical because it will ensure that there is a perception of fairness in the tax system.
Nami said those who operate in the formal sector deem it unfair to have to pay taxes while those in the informal sector do not.
“If Africa is to reduce its budget deficits and increase revenue mobilization, it must widen its tax base and the informal sector provides an opportunity to do so.”
Earlier, Watt had assured Nami that ATAF would “give you every support that you will require, technically and otherwise that is within our ability because that is what we are there for and that is how we give back to our members and to Nigeria who have been part of ATAF from the beginning.
In the 10 years of its existence, Watt said ATAF has trained 16,000 tax officials who have trained 500 tax auditors in the 10 years we have graduated 85 Masters degree students in tax who were trained in English masters degree offered through ATAF, we published more than 300 academic policy and administrator academic papers through the African Tax Research Network and we have produced the most formidable tax statistics publication anywhere on African travelers tax statistics.
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