Taxation without Tears…

You must have seen the pictures before. Heavily armed policemen — showing off their latest AK47s — surround the premises of a company, as if they just spotted Abubakar Shekau in the building. Actually, the police officers, in full combat regalia, are only providing security for tax enforcement officials to seal off the company’s premises.

The excited tax officials put up an extraordinary show in front of TV cameras. The police officers, in bullet-proof vests, with guns corked, bravely position themselves in case of a bomb attack by the offending company. After the invasion, our gallant national heroes march on to launch another ground assault on another defaulting company.

Wait a minute. Why should tax collection be like fighting a civil war? Let me guess why. The authorities think if you don’t use heavy artillery, many Nigerian companies will not pay tax. Some deduct VAT, WHT and personal income tax and criminally fail to remit to government. Many habitually fail to pay company income tax, thereby depriving the government of valuable revenue.

This is disgusting. Hence the resort to firearms by tax authorities. No doubt, tax is the livewire of many governments. Benjamin Franklin, one of the founding fathers of America, famously said: “In this world nothing can be said to be certain, except death and taxes.”

At the 8th Wole Soyinka Media Lectures Series organised by the Wole Soyinka Centre for Investigative Journalism (WSCIJ) in Lagos on Wednesday, July 13, taxation was the topic of discussion. The theme was: “Tax education, national development and the seminal role of the media”. After the keynote by Mrs Adebimpe Balogun, the first-ever female president of the Chartered Institute of Taxation of Nigeria (CITN), there was an outpour of frustration and anger at the tax authorities by participants. The biggest issues that I went home with had to do with tax administration and public accountability. I saw raw rage. I saw bitterness.

Complaints about the attitude of tax officials topped the chart. If you voluntarily walk into a tax office to register, the officials will stare at you as if you are on the wanted list of Interpol. They interrogate you in such a condescending manner, like you are at a police station. Tax officials these days think they are omnipotent. Contempt is in their genetic code. You read instructions on their websites but when you get to the tax stations, the officials tell you something else. Dissonance. Getting credit notes for WHT is like prospecting for oil in the Chad Basin. These were some of the complaints I heard, and there were quite a lot.

Interestingly, although I write a lot about nation building, conflict and development, my real academic interest in the field of development studies is “fiscal sociology” — that is, how the fiscal relationship between a state and its citizens impacts the quality of governance. The broad theory is that a state that depends principally on the taxes paid by its citizens tends to be more accountable, responsive and democratic than a state that relies extensively on natural resource rents and aid. In Nigeria, oil typically accounts for 80-90 per cent of forex earnings and 60-70 per cent of public revenues. Petroleum profit tax is one of the biggest contributors to tax revenue.

Inevitably, the government is more likely to devote its love and affection to the crude cash cow. Oil boom naturally shifts government’s focus to the easy way out: the big taxpayers and the ones they can grab at source — from the civil servants and contractors. It takes too much effort to chase small businesses and individuals. This means most citizens are out of the tax net, leading to a tacit “devil’s deal”: do whatever you like, just don’t ask how we are spending the money. In comes the rentier state, largely independent of the citizens. The results? Lack of accountability, intense competition for power, armed conflicts, skewed resource allocation and, ultimately, underdevelopment.

However, falling oil revenue means Nigeria is now shifting focus to direct taxation. Government is hammering on tax like never before. But the tax drive is, as it is typical of us in Nigeria, fraught with a lot of missteps. Nigerians are already under extreme economic turbulence, so this is a bad time to introduce new taxes (like the Benue ozone layer tax) or resort to highhandedness in tax administration. In advanced societies, most of them tax states, the key focus is how to encourage voluntary compliance, not how to use grenades and newspaper pages to terrorise defaulters. Enforcement is costly: excessive use of force tends to drive businesses underground.

The most efficient form of tax administration is built on “consensual taxation”. Historically, tax states in Europe were built around “I pay my tax, you provide service” — in that order. There was negotiation and stakeholder engagement. You make the rules and the processes simple and understandable. And dynamic. You make compliance as convenient as it can be. You make tax refunds and credits easily redeemable. You make good use of technology to reduce the incentives for extortion.

You create respected processes for arbitration in case of disputes. And there must be better ways of tackling default — like the courts and tribunals, not AK47s.
Historically, what we have always had in Nigeria is “coercive taxation” — the use of sledge hammer to extract taxes from the citizens. We inherited this tradition from the colonial masters. It created tension between the state and the society. And several generations after, people remain rebellious and defensive when it comes to paying taxes.

The average citizen sees tax collectors as roaring lions looking for whom to devour. The councils are particularly notorious for hiring hemp smokers, dressing them up in reflective jackets and empowering them to molest okada operators and petty traders in the name of collecting levies. The result is a resentful and bitter citizenry.

Meanwhile, I hear people ask, angrily: “Why should I pay tax? What do I benefit from the government? The roads are bad, there is no electricity and I provide my own water, so why should I pay tax?” The basic answer is that you have to pay tax because that is the law. As to why you should pay when you are not enjoying service, maybe the chicken should come before the egg. When you pay your tax, there will be money to provide amenities.

I hear you say: “They will only loot the tax. What have they been doing with our oil money?” Now, that is the point: we should pay our tax and then stand the moral ground to demand accountability.

If taxes from citizens provide the bulk of government revenue and the taxpayer feels the “pain”, there is a natural incentive to begin to demand for accountability and good governance. It won’t happen automatically: taxpayers still need to be enlightened and mobilised to demand accountability, perhaps by the civil society and the media. More so, government knows it has to work for the prosperity of its citizens so that more tax revenue will flow. We won’t have to beg government to provide infrastructure, because without roads, electricity, water and hospitals, productivity will be low and tax revenue will not improve.
I conclude. I’m quite happy that Mr. Tunde Fowler is breathing new life into the Federal Inland Revenue Service (FIRS).

He has been strengthening its human and technical capacities. Going forward, I would suggest that tax administrators across the country should focus more on promoting voluntary compliance. We need to simplify the tax codes, streamline tax regimes, reduce tax rates and expand the tax base, sensitise and incentivise tax payers, make examples of tax evaders and justify taxation. Let people believe that they don’t have to pay their taxes with bitter tears drawing lines on their cheeks. Also, it makes life easier for tax collectors and taxpayers.

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“I’m quite happy that Mr. Tunde Fowler is breathing new life into the Federal Inland Revenue Service (FIRS) by strengthening its human and technical capacities of the service, and I would suggest that focus should be more on promoting voluntary compliance”
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WOMEN WINNING
So, Theresa May is the new UK prime minister. If the US elects Hillary Clinton as president, three of the world’s five biggest economies would be led by women — the third being German Chancellor Angela Merkel. What a glorious landmark that would be. This should be a further push for Nigerian women, who have not been considered good enough to be elected governor, much less senate president, vice-president or president. In fact, only Plateau state has ever had a female deputy governor in northern Nigeria. We can progress by giving women increased roles as ministers and heads of agencies. Change.

SENSELESS SLAUGHTER
On Saturday, July 9, Mrs. Eunice Mojisola Olawale, a deaconess of the Redeemed Christian Church of God, was gruesomely slaughtered by suspected religious fanatics in Kubwa, FCT. I know that the next thing we would be told is that her husband committed “blasphemy” — that nebulous accusation that turns the mobster into accuser, prosecutor, jury and executioner, all within one minute. I think the federal government has, for ages, failed to send enough signals that jungle justice is absolutely unacceptable. You would normally think that FCT is a neutral-enough ground for Nigerians of all persuasion to feel safe and secure. Horrifying.

KACHIKWU’S CALL
Dr. Ibe Kachikwu, the minister of state for petroleum resources, has been relieved of the burden of doubling as the NNPC group managing director. In all probability, the new GMD, Dr. Maikanti Baru, will report directly to the minister of petroleum resources. Who’s that? President Muhammadu Buhari himself. But Kachikwu should not despair. He can turn lemon to lemonade by doing everything possible to see to the total economic and structural reform of the oil industry. He possesses persuasive powers, and his articulation is superb, meaning he can use his skills to the maximum by pursuing a policy revolution. Legacy.

TROLLING TALK
In my July 3 article, I proposed a decent debate on national issues, lamenting the increasingly worrisome quality of comments on social media and websites. Not surprisingly, I got calls and messages from many Nigerians who said I was speaking their minds. They are really, really worried about the merchants of hate and mischief polluting the internet. However, I don’t think anyone should be discouraged by the trolling. Those who enjoy posting low-level, inflammatory and abusive comments should continue. Those who have intelligent things to say should also continue. With time, the wheat will be separated from the chaff. Differentiation.