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Taxation, anywhere in the world, is a controversial issue. It is not just an economic instrument designed to generate revenue for development purposes. It is also a political weapon that threatens the stability of administrations.

One can readily call to mind the Aba Women’s Riot of 1929. The then colonial administration in Nigeria did not quite find it funny. And tax was at the root of it.
Paying tax is considered, rightly, a civic duty. But the Americans under the British colonial overlordship withheld tax payment to resist the decision by Britain to deny them representation. “No taxation without representation” became a battle cry in their war of independence. They won.

Such is the importance attached to taxation that a one time United States President, Benjamin Franklin said that there were only two certainties in life–death and taxes.
It is also a religious duty. Christians would recall that Jesus Christ, at one point in His ministry, told one of his apostles to go catch a fish, open its bowel, take a coin from inside it and use it to pay tax. He even admonished His followers to “give to Caesar what is Caesar’s…”

Tax evasion is usually considered a crime heavily punishable by the state. Spiro Agnew, Vice President of the United States in the Richard Nixon administration, the one who called journalists, “nattering nabobs of negativism”, was eased out of office for tax evasion. That’s how serious the matter is.
When well administered, tax can engender a healthy relationship between the government and the governed.

However, and if truth must be told, patriotic as tax payment is viewed to be, not many pay it happily. This is the case where there is a disconnect between tax generation and provision of social services. But as the Director-General of the Manufacturers Association of Nigeria (MAN), Mr Jide Mike Akerele, would say, “every citizen is encouraged to pay tax. It is actually very unpatriotic if one tries to run away from paying tax. But when tax is getting too much, you have to run away from it.”

This idea of running away from tax is bothering the Governor of Lagos State, Barrister Raji Babatunde Fashola, who lamented in a recent public media outing that “as at last year, barely one million people were within the tax net.” That is, only that number paid their tax in a state of over 18 million inhabitants. Considering that the governor views taxation as one of the sources of financing his pet mega city project, one can begin to understand his angst.

But why do people run away from tax? Jide Mike again said: “Act 21 of 1998 stated the categories of taxes to be collected by the three tiers of government – federal, the states and the local governments.”
Pensively, he said that “we have had occasions where our survey shows that one local government alone is asking for well over 500 taxes. In Lagos State alone, it is about 115 taxes.” And this brings up the issue of multiple taxation which is the subject of a bill the Lagos State government sent to the House of Assembly for enactment into law.

The Special Adviser to the Governor on Taxation and Revenue, Mr Ade Ipaye, said that the bill and the subsequent law were part of the machinery set in motion by the state government to tackle the perceived problem of multiple taxation.
This was even as the governor insisted that “our target is to bring about five million people, by December this year, to the tax net.”

The problem of multiple taxation, in spite of Fashola administration’s desire to ameliorate the pains it is causing the citizens, is clearly articulated by the MAN Director General. According to him, “taxation generally has been a big problem for manufacturers.”
Ipaye, however, does not think so as he said that with “the state’s tax administration, things are looking up.” A case of different strokes for different folks.

Jide Mike continued, “the issue is about taxes that are not tenable, are not listed in the Act 21 of 1998. If they really go out to collect normal acceptable taxes, people will even voluntarily go and pay their taxes. Why harass people on the highway with police and gang of area boys. I think that Lagos State government should look into this problem. People will be willing to pay their taxes if they know what taxes.”

Ipaye assured that the bill would address the problem and curtail the activities of touts and undesirable elements that have infiltrated the system, especially at the local government level.
The special adviser said that “the main objectives of the bill are to prescribe the agreed list of levies which the local government councils and the local government development areas in the state can legitimately collect and regulate the manner in which they may be collected by or on behalf of any council”.

This position of government appears to be exactly what the manufacturers have been angling for in a situation where, according to Jide Mike, “a lot of taxes are being reeled out by the state and local governments and the worst culprit is the local government.”

The governor set the ball rolling in his speech at a stakeholders meeting in December last year when he traced the history of taxation and posited that “in spite of the wide gap between a city like Lagos and many of its counterparts around the world, we are constrained to budget and spend only a fraction of what it takes to run a modern state.”
Fashola observed that in the year 2006, “our internally generated revenue came to 65 per cent of our total budget.” In this regard, he said wryly, “we rank first among the states of the federation, yet our effort thus far is only a good scratch on the surface.”

Giving a graphic detail of the financial needs of the state vis-à-vis the expectations of the people, the governor said: “Over the next two decades, Lagos State needs to spend, at least, N390 billion ($3 billion) to expand and improve its water supply network; N2.6 trillion ($20 billion) to provide a qualitative and efficient network of roads and drainage; N1.3 trillion ($10 billion) for power supply; N650 billion ($5 billion) for information and computer technology and N1.2 trillion ($9.3 billion) for inter-modal transportation system. Other services like waste disposal management and expansion/maintenance of the sewage system will cost an additional N351 billion ($2.7 billion).”

Almost in exasperation, Fashola added: “ In spite of these and many other enormous challenges, we cannot comfortably make a total annual budget in excess of N390 billion ($3 billion). This amount caters not only for capital expenditure but also for personnel, maintenance and other recurrent costs.”
Using the above as basis, the governor justified the aggressive revenue drive on-going in the state. He stressed that “given the enormousness of these problems, there can be no doubt that Lagos State has to optimize its tax potentials by achieving a very substantial, if not total coverage of its taxpayer base.”

About tax evaders, Fashola said that, “they complain when we insist that they have a legal and moral duty to pay and that even if they selfishly applied the principle of ‘enlightened self interest’, they would realize that it is in their ultimate interest to pay.” Even as desperate as the revenue position of the state is and the inevitability of a perceptibly harsh internal revenue generation option, Governor Fashola still has a heart for business operators in the informal sector. Yet, he insisted that they need to pay tax in order to even have the basic infrastructure their businesses require.

Citing their inability to understand and appreciate this index in state/citizen relationship, Fashola said that he felt concerned when these category of business operators “think nothing of paying taxes unless they need some government businesses or amenities which make it compulsory for them to produce a tax clearance certificate.”

“But this attitude is wrong,” he stressed, “because it deprives Lagos State of over half of its potential tax revenue from personal incomes and creates a heavy imbalance by leaving the tax burden on salary earners who often earn less but have their taxes deducted at source.”
The governor blamed the situation on what he described as a default “aided by the outdated and outmoded provision of our tax laws.”

From the mood at the Oval Office at Alausa Ikeja, Lagos, the tax axe might not spare anyone, even the rich and affluent whose performance in terms of tax returns the governor described as “extremely poor.”
Part of the difficulties of collecting tax revenue from the formal sector, Fashola lamented has to do with the fact that taxes on companies’ income are payable to the Federal Government, while Lagos, in spite of the conducive atmosphere, abundant local market and accessibility to the international market it offers, gets “just personal income taxes deducted from staff salaries and withholding taxes deducted from payments to contractors.”

Even this, he said, was not being done correctly. According to him, some of the companies do not deduct the correct amount of taxes prescribed by law.
“Those that eventually pay hardly ever do so within the time prescribed by law.”
As a way of changing the scenario, Fashola said that “we are making efforts to improve our monitoring and enforcement processes. Henceforth, we shall visit tax evaders with the full weight of the law.”

On the issue of multiplicity of taxes and levies, the governor acknowledged that the government was aware of the allegations made by the organized private sector and said that “our response has been to collate records of what is currently being charged in the various councils and harmonize them with a view to achieving a reasonable degree of uniformity across the state.”

However, he admonished the organized private sector and the individual companies that complain about multiple tax system to do more to assist the tax system. He stopped short of blaming them for the sustenance of the perceived illegality. “To start with, we must evolve a culture of challenging illegality rather than complying for the sake of convenience only to complain later,” the governor charged and pointed out that taxes and levies could not be charged unless by a written law.”

In any case, Fashola said: “Where we suspect the motive or bona fide of a person posing as tax collector, we must take the pains of making proper enquiries before paying up. These enquiries can be made directly or through the chambers of commerce, manufacturers’ association all of whom I expect to have a database of taxes chargeable in places where their members operate.”

Contributing to the issue, a tax expert, Mr Folusho Fasoto, said that “we have the law regulating the income of corporate organizations and that law is referred to as Companies Income Tax Act (CITA). We also have the law regulating the Personnel Income Tax Act (PITA). And because of the peculiar nature of the Nigerian economy, we also have a separate law for the oil and gas sector of the economy, and this is referred to as Petroleum Profit Tax (PPT)”. Continuing, he said that there were other sundry laws on taxation, there is, “the Value Added Tax (VAT) Capital Gains Tax. Taxes and Levies Approved list for collection Act and the other sundry acts but the major ones are those we mentioned above.”

But our tax laws are very complex. What Nigerians are saying is that the provisions of tax laws should be simplified to assist average Nigerians to comply. On this, Fasoto who was a President of the Chartered Institute of Taxation Nigeria(CITN) said,”we don’t want tax evasion, we want to reduce tax evasion to the barest minimum, if possible to eliminate tax evasion in Nigeria. So, the current reform bills before the National Assembly, nine of them are addressing some of these problems. They are seeking to reduce the complexity of the various laws I mentioned earlier on, to ensure that taxation is tax-payer friendly. That is, to put a human face to tax administration in this country”.

He asserted that the authorities must make taxation operate as a business. “When you make taxation unlike a business venture, it means that you value your customers and in this case, tax-payers are your customers. So, tax officials will take tax payers as customers and they should treat them like kings, then tax-payers will be so happy to voluntarily discharge their tax obligation. And that is what the CITN is also advocating for.”

However, he lamented that the laws have not been as effective as they should be owing to poor implementation. “For the fact that tax itself is a compulsory levy, it is imposed on people. Hence people will fight back, not to pay and where you do not have the cooperation of the tax-payers, there will be apathy.”

The resultant effect, the tax expert said, would be that it becomes difficult for tax administrators, that is, people working in the tax office to be able to really get maximum proceeds from taxation the way it should come.
As a way out, Fasoto said that “with the establishment of the CITN, we have a platform whereby you have the representatives of the tax payers as well as those of the government coming together, to discuss the problems they have”.

On that platform, he said, “the tax practitioners who represent the tax payers will lay before the institute the problem of their clients, so will the tax administrators who are working for government. And then we as an institute will look for a way of resolving these problems. Gradually, we have been able to bridge the gap between the tax payers and the government. We know why the government will want to collect tax, we also know how a tax-payer will want to voluntarily pay tax. If only government will do those things – carry out those responsibilities bestowed on them by law on behalf of the people, more Nigerians will be willing to pay tax.”

The CITN boss stressed that “government is expected to provide security for the citizenry, they are expected to provide good roads, good health facilities, good education for the populace and constant electricity supply. These are basic necessities that will make living more worthwhile as the people will feel the impact of government. But where it is the tax payers that are responsible for the provision of these amenities, the tax-payers will have to contribute money to build the school where their children will attain education, the tax-payers will build the roads that can be plied to where they live or where their industries are cited, where they have to provide their own electricity and even their own security, then tax-payers will not be happy”.

On tax evasion, the tax expert maintained that it was “very possible where there is no linkage of information. You realize that some people have business in Lagos, they live in Ogun State and then, they have country homes in their villages in other states of the federation. What they do is that, assuming Lagos State wants to charge them for their personal income tax(PIT), then they say that they spend most parts of their time in Ogun State. By the time Ogun State wants to lay hands on them for PIT, they will say, I now live more in my village than Ogun State. So, without some form of information strategy to track them down, tax evasion will remain a common phenomenon.”

However, he averred that a solution could possibly be on the way with the Study Group Reform, which was submitted in 2003. In it, Fasoto said that his institute “proposed Tax Payers’ Identification card. By this we mean that given impetus to the Tax Clearance certificate being issued in Lagos State, once you have that number ascribed to it, and anywhere you go in the country, that is the number by which they will identify you. With that number, any state within the federation should be able to punch the computer and see how far you have discharged your responsibility in the area of tax payments”.

According to him, “it’s not only in Lagos State or your state of origin, that they would be able to access that information, it should be a case of anywhere in the country. Once you show them your tax payer’s identification card, they should be able to identify your tax status from there. So, we are calling on government to accelerate the development of the database of the tax payers. Once they do that, it will make life easier and it will reduce tax evasion to the barest minimum.”

Fasoto observed that the government set up the Study Group and “we observed that the way government conducts its business is not the same with what operates in the private sector. There are certain steps which government was supposed to take, according to the report, before the end of 2003, and the whole of 2004. But we observed that government did not take any further step until January 2004.

And it was in 2004 that government was able to put the draft laws in place. And that draft law has been submitted to the National Assembly in the last few months, up till now, the public hearing, which should accelerate the passage of the bill, is yet to hold”.
So, he said, “government is a little bit slow in accelerating the improvement of taxation in the country. And we are calling on government to consider the danger that the delay of passing this bill into law would do to the country.”