By Oke Godwin Olaoluwa
One issue that does not attract the interest of the general public is taxation. Once the topic is raised in public forum, aside interested parties like tax or finance professionals, other members of the public either ignore or pay a divided attention. Someone once told me that, tax is a bitter pill to sell in Nigeria. One of the founding fathers of the United States of America Benjamin franklin was however, quoted to have said that “In this world nothing can be said to be certain, except death and taxes”.
Among the duties of a citizen of Nigeria enshrined in the constitution, is payment of taxes. Section 24(f) of the Nigeria constitution states “it shall be the duty of the citizen to; declare his income honestly to appropriate lawful agencies and pay his tax promptly”. The import of this statement can be divided into three parts; one is voluntary compliance; with or without notice, a citizen is expected to declare his income and should be honest about it. Secondly, the citizen has a fiduciary duty to the state by reporting his income to lawful agencies and lastly, it is time bound, Tax must be paid promptly.
The federal government of Nigeria is empowered to legislate on taxes due on income, capital gain and profit of companies while second schedule part II under section 7 gives the power to collect taxes from income, capital gains and profit of persons resident within the state jurisdiction. Such powers are well detailed in the personal income tax act 2011 as amended. As I have explained in my earlier article, (see link), state governments are likely to face a situation of dwindling federal allocation; hence the need to focus on the alternative, internally generated revenue. The informal sector may be the saving grace in this light.
According to the Nigeria bureau of statistics (NBS), micro enterprises which represented majorly the informal sector, accounts for 49.78% of Nigeria’s GDP, contributes as much as 85% of total industrial employment and over 70% of total employment in the country. The micro enterprises are largely one-man businesses and they constitute the informal sector. They operate their business on the roadside, or in a kiosk, or a makeshift stall, a mall or even an office space.
They are everywhere around us, from the members of the union of Road transport workers, market men and women association, co-operative societies, to the association of artisans, to the more organized pressure groups like the manufacturers association of Nigeria, and the professional groups. They employ about one to 10 staff with a start up capital of less than a 100,000 naira. The finance act 2020 defined them as the small sized companies with turnover of less than 25 million naira a year. According to the NBS, there are about 41.4 million of them in Nigeria and are responsible for over 59 million jobs in the country. They are a key determinant of the overall performance of the economy, thus should get a befitting attention from the government.
There are more than 3 million of these micro enterprises that represents informal sector in Lagos state, employing over 6 million men and women, residents in Lagos. Only about 2% of the informal sector operators are officially identified by the state as taxpayers. The question is, do the informal sector players pay any form of taxes? Yes! They do, albeit in the form of exorbitant fees, dues, levies and illegal taxes, to rent-seekers that disguise as union leaders, market leaders and unscrupulous government officials. Lagos is a booming metropolis. In his popular classic work “the Future of capitalism” Paul collier posited that a booming metropolis generates huge economic rents of which should accrue to the state.
Understandably, this covid-19 period is a challenging period for the informal sector. Many analysts are suggesting palliatives like tax reliefs, but the illegal fees, dues and levies are still being paid daily to these rent-seekers. As Paul collier suggested, government should redesign its tax system so as to redirect these payments to the state’s coffer
Under the 1999 constitution of Nigeria, the government is also vested with certain duties to its citizens and the economy, which are explained in details under section 14 to section 23 of the constitution. Accepting such obligations unconditionally, with every sense of responsibility by the government encourages a norm of reciprocity in the society.
If the government truly seeks any form of economic development, the informal sector must be encouraged to contribute to the purse of the state. To do this, the government should adopt the approach of a libertarian paternalist a term coined by Robert Thaler in his popular works “Nudge”, by deploying incentives so as to encourage the informal sector to be part of the development of the state.
The Lagos state government can nudge the informal sector operators in the state into voluntary tax compliance, through the several state initiatives and programs. For instance; sometimes ago, I was watching on a television program, a lady sharing her experience on how she got the Lagos state employment trust fund loan without any referral and the fund, added to her start up capital, helped scale up her beauty business to a household brand. The state government may consider increasing funding to the ETF scheme and relax its condition to attract more informal sector operators. Also the covid-19 period has revealed that access to health facilities is paramount to everybody, hence the government can encourage voluntary tax compliance by heavily subsidizing its health insurance scheme and ensuring it is very effective.
One of the practicable works on great leaders was done by Jonathan Tepperman in his book “the fix”, where he studied ten great leaders. In studying their strategies for solving grave problems, he found out that; great leaders are not dogmatic, they adopted pragmatic solutions to every problems as they arises, and make necessary adjustments as situation unfolds. They were prepared to be tough along the line and the hallmark to their success rests on their willingness to deny any patronage to powerful groups. The clouds are gathering already and to weather this impending storm, it requires a new thinking and a new approach to governance.
Oke Godwin Olaoluwa is an economist and a financial analyst. He is the co-founder of a research – based Non – Governmental Organisation (NGO), Advocacy for Economic Development (A-CED). He is also the Co-convener of the first Ikorodu Division Economic Summit.
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