Challenges of Tax Execution in Contemporary Nigeria
By Solomon Essien Udofe
The Nigerian tax system is structured as a tool for revenue generation. Tem had been Ways of administering an effective revenue collection system has been one of the major challenges of the country since pre-independence era of administration.
Today, Nigeria is facing significant financial insufficiency as a result of falling oil prices which lower the country’s revenue earning capacity with consequent negative effect on the economy. The adverse effects are on its capital market, exchange rate and gross domestic product (GDP).
The issue of low national income is worrisome in that Nigeria is one of the largest economies in Africa that has one of the lowest tax revenue to GDP ratios especially if one considers non-oil tax revenue only.
To redeem the problem of low revenue earning, Government has initiated some steps to improve revenue generation in the country. These include proper administration of Personal Income Tax (P.I.T.) for self-employed people and Personal Income Tax for salaried Employees among others.
But despite Government initiatives, the problems still persist.
Most of the tax authorities especially the States and Local Government lack the desired Institutional Capacity to administer effectively, the taxes under their purview due to under-staffing, lack of skills among the staff members, under-funding and lack of office-wares, computers, IT infrastructure and transportation.
Poor Taxation drive by the three tiers of Government is another major challenge. The current fiscal federalism of revenue allocation discourages a proactive revenue drive especially by the States and Local Government. This has left them with little or no incentives to generate revenue on their own, rather they rely heavily on their share of oil revenue from the monthly Federal allocation.
Non compliance of employers to register their employees as well as failure to remit such taxes to relevant tax authorities are major obstacles to revenue generation in Nigeria. For example, a lot of Value Added Tax (VAT) are believed not remitted while many evade tax in the cities and rural areas. This includes many informal sectors of the economy.
The bulk of personal income tax (PIT) are paid only by employees while the politicians the rich and privileged few are not equitably taxed. In addition, the tax collectors and administrators are often prone to corrupt practices such as tax diversion, embezzlement, fraud and connivance with tax payers to pay less tax when palms are greased.
Multiplicity of taxes and multiple tax agencies which small and medium scale businesses have to deal with are dysfunctional to tax administration. These breed multiple audits from different agencies that lack coordination and collaboration thereby increasing the cost of doing business.
In order to tackle this menace, there is urgent need to have a national tax policy from which other measures would derive legitimacy. Various level of Government should work the legislative body to review the current tax laws that would boost revenue generation among States and LGA. Power devolution to States and Local Governments would stimulate competitive internal generation of revenue among the various governments.
This will in turn enable efficient and effective tax administration, improved non-oil sector revenue, reduced overdependence of other levels of Government on Federal Government, promotion of effective tax rate and simplified tax regime. In addition, these will help to eliminate double taxation and multiple revenue agencies and effective boost to the nation’s economy.
Finally, Government should consider taxpayers interest in fiscal policy formulation and implementation in other to achieve improved tax compliance rate in the country.
Mr. Solomon Essien Udofe is a graduate of Political Science University of Calabar. He is serving National Youth Service Corp 2016 / 2017 batch in Ibadan, Nigeria.