Tax compliance & good governance should go together, says VP Osinbajo

 

*Number of Nigerian taxpayers increases by 5 million in 12 months

“In reality, we shouldn’t have to debate this at all; tax compliance and good governance should exist side-by-side as the head and tail of the social contract that binds – or should bind – citizens and governments anywhere in the world.

“…the government of President Buhari is working to change this state of affairs. We are determined to restore the full weight of the social contract. We are rewriting the old rules and compacts; making it clear to Nigerians that we will ensure that every naira of public money is put to use for the maximum good of the Nigerian people, while simultaneously ensuring that every naira due to the public coffers in taxes is promptly and efficiently collected.

“This level of commitment to accountability makes it easy to see how we have managed to, even in the face of dwindling oil earnings and a recession, succeeded in spending significantly more on infrastructure (roads, rail, power) and human capital development (education, health, poverty reduction) than previous governments.

“As of May 2017, only 14 million economically-active Nigerians paid taxes. I am pleased to note that that number is now in excess of 19 million, and still growing.”

SPEECH BY HIS EXCELLENCY, PROF. YEMI OSINBAJO, SAN, GCON, VICE PRESIDENT OF THE FEDERAL REPUBLIC OF NIGERIA, AT THE CITN 20TH ANNUAL TAX CONFERENCE, HELD AT THE NAF CONFERENCE CENTER AND SUITES, KADO, ABUJA, ON WEDNESDAY MAY 9, 2018.

PROTOCOL

It is my special pleasure to be here with you at this 20th Annual Conference of the Chartered Institute of Taxation of Nigeria. Indeed the theme is a very apt one; Institutionalizing a culture of tax paying in the 20th century, and it is apt because this is the time where we are in search of the solutions to widening our tax base.

Distinguished guests, Chief Obafemi Awolowo otherwise known as Awo, died this day, May 9, 1987, about 31 years ago. He was Premier of the Western Region of Nigeria from 1954 to 1960.

The Western region is what today constitutes Oyo, Ogun, Ondo, Ekiti, Osun, parts of Kwara and Kogi, Edo and Delta, Lagos( as far as Jibowu/ Ikeja, Agege).

The six-year period of the Awolowo government is often cited as one of the most progressive of any government in the developing world. Some of the major accomplishments include the University of Ife (now Obafemi Awolowo University), the 26 Storey Cocoa House, Ibadan – an architectural wonder at the time, Western Nigeria Television, WNTV (first of its kind in Africa), the Ikeja industrial estate, several farm settlements, Airport Hotel, Ikeja, as well as several industrial establishments, including Oodua Textile Industries, Ado Ekiti, Okitipupa Oil Palm Mills, Oluwa Glass, Ifon Ceramics, and Ire Ekiti Brick Industry, a network of roads across the region.

But by far the most significant of these achievements is the Free Universal Primary Education. In 1952 when the scheme was proposed, 381,000 children (about 30%) were enrolled in school. By 1955 when the scheme took off 811,432 children were enrolled. And the numbers continued to grow. The Government devoted as much as 41.2% of its 1958/59 recurrent budget to Education, one of the highest in the world at the time. The Western region of Nigeria, at that time, was educating more children than anywhere in Africa. At the same time, the region nurtured a vibrant civil service and judicial system, which is widely acknowledged as a model, even today.

So how were Awo’s phenomenal achievements possible? There was no oil revenue and no federal revenue. In fact, the Western region, as well as other regions, had to give revenue to the central government. How did they do it? Mostly taxes and revenues from agriculture, especially Cocoa.

Free education which was audaciously launched by the Awolowo Government was directly on the back of income taxes. A capitation or poll tax was imposed by the Western Regional Government mainly to fund free education, despite much opposition and protests at the time.

With Military rule from 1966 and oil money, everyone forgot about taxes. The Federal Government gave everyone an allocation.

So, today the states in the old Western region, aside from Lagos, do not earn enough in taxes or anything else to pay salaries let alone do major capital projects. Without federal allocation, most states cannot survive.  I am sure you are familiar with the statistics, Lagos state alone takes in as much IGR as 31 states combined. It tells you how little the other states manage to bring in IGR.

This historical analogy of the old Western region and fate of the states that now constitute it explains the low level of tax compliance; the now-well-known fact that our tax-to-GDP ratio stands at only 6 percent, although we are told that it will improve with VIADS and some of the steps taken already by the FIRS. This is obviously a dismal figure when compared to other countries at similar levels of development: Ghana, Egypt and India at 16 percent, South Africa at 29 percent.

That our tax-to-GDP ratio is one of the lowest in the world should in fact surprise no one. As of May 2017, of the roughly 70 million Nigerians who are economically active, only 14 million – or twenty percent – paid any federal or state taxes at all. The number of Nigerians who pay more than N10million in self-assessed taxes is even more astonishing. As at December 2017, only 943 Nigerians pay self-assessed taxes of over N10 million and of that number 941 live in Lagos State, the other two live in Ogun State.

Admittedly, tax is not an issue that excites citizens anywhere around the world. It is a favorite of those who love chicken-and-egg arguments: which should come first: paying taxes or enjoying the dividends of good governance?

In reality, we shouldn’t have to debate this at all; tax compliance and good governance should exist side-by-side as the head and tail of the social contract that binds – or should bind – citizens and governments anywhere in the world.

It is of course not hard to explain the cynicism that Nigerians display about governance and about fulfilling their tax responsibilities. Governments generally have been nonchalant about fulfilling their own part of the social contract.

But it is also a fact, that when people pay taxes they are more inclined to hold their governments to account. It is now almost 300 years since ‘No Taxation without Representation’ became the rallying cry for American colonists and one of the main triggers for the revolution that earned those 13 colonies their independence from Great Britain.

Closer home, we have had the Aba and Abeokuta Tax Revolts, incidentally both championed by women. The moral is a simple one: that when citizens pay their full share of taxes they take more than a passing interest in how they are governed and in how public funds are utilised and accounted for.

However, the story seemed to have changed as Nigeria began to rely more and more on oil revenues, and less on taxation. This period also coincided with military rule which took away from the people the choice of their leaders. With increasing oil wealth, government soon lost the will to tax; and the decline of taxation also signaled a decline in government’s accountability and ability to cater to the needs of the people.

For too long Nigeria has tried to carry on as an oil-rich country, one without the need for its citizens’ taxes. The unwritten compact has been something along the lines of pay whatever taxes you can pay, but it’s really no big deal. In exchange, we, as government, get the right to do whatever we like with Nigeria’s oil wealth. This arrangement has, of course, fueled the massive corruption and inefficiencies that have come to be associated with public revenue management.

The point here is this, that a taxpayer is less tolerant of corruption than a citizen who does not pay tax. Because most of what the government spends is from oil and the taxes of the few, many citizens simply see government money as belonging to no one. So you sometimes hear people supporting persons of their ethnic group who steal government funds, whereas they would not tolerate the same persons stealing from their town union funds or any society they belong. The simple reason is that they are active contributors to whatever society they belong and they would not tolerate anyone stealing their money.

I think that the government of President Buhari is working to change this state of affairs. We are determined to restore the full weight of the social contract. We are rewriting the old rules and compacts; making it clear to Nigerians that we will ensure that every naira of public money is put to use for the maximum good of the Nigerian people, while simultaneously ensuring that every naira due to the public coffers in taxes is promptly and efficiently collected.

We have aggressively expanded the implementation of the Treasury Single Account (TSA) and the Integrated Personnel Payroll Information System (IPPIS), both designed to ensure that public funds are more transparently managed and spent. In the process, we have succeeded in proving that process reforms are only as good and as effective as their implementation.

The TSA’s unified system of bank accounts domiciled in the Central Bank of Nigeria (CBN) has proven to be far more transparent and cost-effective than the old scenario in which government agencies maintained thousands of accounts across various commercial banks. Because of the TSA, the Federal Government realises monthly savings of at least N4 billion which would have gone on commercial bank charges.

The Presidential Initiative on Continuous Audit (PICA) has also tightened controls on the federal payroll and pensions systems, eliminating tens of thousands of ghost workers and saving us more than N200 billion that would have gone to these ghost workers.

This level of commitment to accountability makes it easy to see how we have managed to, even in the face of dwindling oil earnings and a recession, succeeded in spending significantly more on infrastructure (roads, rail, power) and human capital development (education, health, poverty reduction) than previous governments.

Alongside these public financing reforms which I have highlighted, we are also keenly aware that our tax system requires review, to make it easier for citizens to fulfil their own end of the social contract.

This is why, in February 2016, the Federal Executive Council adopted the National Tax Policy, and the establishment of an Implementation Committee for the Policy. The specific mandate of the Committee included the removal of obsolete, ambiguous and contradictory provisions in our tax laws, simplification of the tax payment process, and the reduction of the tax burden on micro, small and medium enterprises.

It is pleasing to note that the committee’s work has since produced five amendment bills and two Executive Orders; all of which will shortly be presented to the Federal Executive Council for approval.

Last year, we launched the Voluntary Assets and Income Declaration Scheme (VAIDS). VAIDS has opened up a 12-month Amnesty Window, which allows Nigerians at home and abroad to regularise their tax status by declaring and paying taxes on all previously undeclared income and assets, without the fear of investigation or prosecution. One of VAIDS’ goals is to raise Nigeria’s tax-to-GDP ratio from the current 6 percent to 15 percent by 2020.

I am sure that as Tax Professionals, VAIDS has brought increased activity to your various offices. I implore you to keep in mind that, one, that extra income is taxable, and two, to whom much is given, much is expected. When VAIDS comes to a close on June 30, 2018, the Tax Authorities have made it clear that they will aggressively go after all tax defaulters and evaders.

In terms of tax administration, we are seeing new levels of cooperation between Federal and State authorities – VAIDS is a very good example of this – based on the realisation that cooperation will bring more benefit than competition.

On the international level, we have signed a number of International Tax Administration Agreements that will make it harder for Nigerians to evade taxes by hiding their assets abroad.

We are also working to adapt our tax laws for the digital age, one in which commerce has become borderless and intangible, and to which the old laws no longer apply. E-Filing is a rapidly growing concept which we are very keen to extend to taxpayers at all levels across the country.

We are taking serious measures to curtail tax evasion by multinational companies. I know that this is one of the things that the Minister of Finance is most passionate about. We must not hold the ordinary citizen to account for tax payments while allowing the powerful multinationals to capitalize on their size and smarts to slip away without scrutiny.

We are also determined to ensure that no one is left at the mercy of unfair tax regimes. To this end, we have extended the reach of our Double Taxation Avoidance Agreements.

There is no doubt that much has been achieved by our unprecedented push to rewrite the tax narrative in Nigeria, to ensure that everyone, citizens, businesses, investors, tax professionals, governments, all derive maximum benefit from the system.

Earlier, I noted that, as of May 2017, only 14 million economically-active Nigerians paid taxes. I am pleased to note that that number is now in excess of 19 million, and still growing.

This means that the efforts of the Federal Inland Revenue Service (FIRS), in collaboration with the State Inland Revenue Services, have already added more than five million new taxpayers to the tax base.

But there is also still a lot of work ahead of us, as Nigeria races to catch up with the rest of the world in terms of tax compliance. We all have a role to play in this, and I hope that your conversations over the next few days will challenge you, as tax experts and professionals, from across government, academia and the private sector, to do even more.

Permit me to say though, that perhaps the equivalent of the invention of electricity for tax administration is inventing the solution to effectively collecting taxes from our huge informal economies. The easy argument is to suggest that we should wait until economic growth and development brings them into the formal systems. This is unhelpful. It has kept us on the same spot for decades. It seems to me that we must find a way of fixing this car while the engine is running.

I would urge that this conference consider some solutions to this problem along with the so many huge issues that will occupy your attention in the next couple of days.

While thanking you for your attention, it is now my special privilege to declare this 20th conference open.

Thank you.