BtS Vol 1, Issue 3: The Task of Taxing Citizens
The government of Nigeria is keen on exploring alternative avenues to generating revenue. Evident in its unflinching resolve to increase existing tax rates, create new tax categories and service charges, and even ‘name and shame’ 19, 901 defaulters, is the fact that taxation is one major way the federal government of Nigeria intends to plug its revenue gap.
Despite reports and commendations about doubling tax revenues, Nigeria’s tax to GDP rations continues to hover around 6%, far below the 20% average in sub-Saharan Africa, and even the 15% prerequisite necessary to provide adequate public services.
Yet, Nigeria’s problem is not limited to low tax rates or an inadequate tax to GDP ratio. It is becoming increasingly clear that the way taxes are introduced and/or raised is a key success indicator raising tax revenue – equitably and without impeding growth in the sectors where they are introduced.
Avoiding double taxation, showcasing the infrastructures developed using already collected taxes, actual improvements to quality of life as a direct result of tax revenue, and adequate communication with the citizenry before proposing increased taxes are some of the key indices StateCraft Inc. finds will affect Nigeria’s proposition to raise taxes in 2020.
To this end, we have made the following recommendations:
- Learning phase
Like any other policy, it is important for the government to only initiate tax increments when it has put in adequate efforts to give citizens proper information regarding the need, as well as the use to which new revenues will be put – for the benefit of all.
- Messaging phase
Proper audience segmentation is important for effective communication – more so in taxation than for many other things. Research shows that a message about the impact of taxes on public services can lead to increased tax compliance among a group of citizens and while increasing avoidance amongst another group. Properly segmenting communication efforts – considering the government’s focus on the digital economy – will help to ensure that efforts to promote financial inclusion, digitisation and integration of informal sects will not be put at risk.
- Reward policy
Having established proper tax communication frameworks, citizens should be incentivised, using proper and non-contradictory channels, to voluntarily comply with new taxes. A recent example of this done right is the Voluntary Assets and Income Declaration Scheme (VAIDS).
The incentives do not necessarily have to be tax holidays or subsidies – which often come with problems of their own. Incentives can be in form of recognition of tax champions for specific citizen segments or rebates in recognition of the inadequacy of infrastructure and double taxation. Countries like Ethiopia and Indonesia have reaped rewards with the introduction of reward policies for tax.
- Phasing implementation
In order to avoid the populace recoiling and simply revolting – as seen in 2007, when the last proposal to double VAT rates was shut down by a critical mass – the government must appropriately space the proposition to increase taxes and the implementation. It is during this period that the above recommendations will be conceived and communicated to increase the chances of compliance.
Adebola released a speech on “Building Prosperity”.