Bad governance is likened to the unfavourable relationship between those who govern and those who are governed which eventually results in negative consequences.
The failure in governance in Nigeria, one of the world’s most corrupt countries, is accompanied by a score of other specific threats to human security, including the pressures of globalization, poverty, unemployment, an outdated legal system, a weak civil society, a lack of political commitment by those who govern and ultimately mistrust from the people governed.
Despite many natural resources and an increasing population of 209,714,686, Nigeria is said to rely majorly on a source of income, the Oil trade. A market that is declining faster than we think. This leaves the question of taxation in Nigeria and how the country is shifting towards taxation in order to fund federal and state expenditure.
The Concept of the Nigerian Tax Scheme
Like other countries, the Nigerian tax system was structured uniquely to level up the economy. Sadly, many issues like poor tax management have contributed to the system’s failure.
Since the early 1990s, Nigeria has been moving from direct to indirect tax, which many consider being less distortionary.
VAT, for instance, is less distortionary because it applies to the value-added contents of imports and of domestically produced goods.
The potential for maximizing the benefits of this taxation is, however, constrained by structural problems in the economy.
The predominance of the informal sector, constituting more than 50 percent of the country’s economy, enables most domestic production to circumvent VAT.
Personal Income Tax also faces the same risk. Since operations in the informal sector are rudimentary, without adequate record-keeping, tax assessments are difficult to make.
Following the decline in the price of oil in the global market, which has served as a major source of revenue for Nigeria, the government has had to rely heavily on taxes to fund its choice expenditures.
In the first quarter of 2020, the Federal Government of Nigeria increased the Value Added Tax (VAT) rate from 5% to 7.5% and this move raised N651.8 billion in the first half of 2020, an 8.5% increase compared to N600.9 billion generated in the corresponding period of 2019.
In 2020 alone, a major percent of revenue was gotten through non-oil taxes. FIRS in its annual reports revealed that 65.8% ( 848.1 billion) was generated from non-oil taxes and 34.2% was petroleum profit taxes (N440.3 billion).
Going on to Personal Income Tax (PIT), which is primarily deducted from the profit from earned employment, trade, and vocation. In Nigeria, it is expected that every individual within the employable age must remit their taxes to the appropriate authorities.
Below shows a summary of the taxable income tax bands and applicable rates of tax on an annual basis.
Personal Income Tax Rates
| Annual income (NGN) | Personal income tax (PIT) rate (%) | |||
| First 300,000 or Below | 7 | |||
| Next 300,000 | 11 | |||
| Next 500,000 | 15 | |||
| Next 500,000 | 19 | |||
| Next 1,600,000 | 21 | |||
| Above 3,200,000 | 24 |
Herein lies the problem, about 23,187,389 (23.2 million) Nigerians are currently unemployed and statistics show that this unemployment rate has been on a steady rise in the past 10 years. If this number of persons are unemployed, how then can the government make money from taxing unemployed people?
For instance, if the average employed person in Nigeria earns the minimum wage of N30,000 and is to remit 7% (the deductable rate for persons earning below N300,000), each month, the individual would remit N2100 to the government, annually the figure should be 25,200.
If 23,187,389 people paid the government N25,200 each year, the government would make 579,684,725 every year and 2,898,423,625 in five years. That means that the Nigerian government’s inability to properly address the issues of unemployment has cost it approximately 2.8 billion naira of payable taxes.
It further points at the sad realities of unemployment in Nigeria. Another angle to look at is the frightening number of Nigerians who earn below the minimum wage. Could this be the reason Personal Income Tax revenues are always almost insignificant in the fiscal quarterly reports of the FIRS?
OECD. Stats revealed that the federal government made N57,377.4 in revenue from Personal Income Tax in 2015, N59,468.5 in 2016, N107,682.1 in 2017 and less than 87,000 naira in 2018.
Dead People Dont Pay Tax
TwentyTen Daily reports that between 2015 to 2020, the death rates from the Boko Haram insurgency grew to a peak of 233% and only in 2020, a total of 8,279 deaths were recorded from insecurity.
Another report showed that no fewer than 1, 525 persons died across the country as a result of the recurrent insurgent crisis in the first six weeks of 2021. While an unconfirmed number of people died in the den of kidnappers.
We can not say for sure that these numbers represent only people within employable age but if we are to assume, this means that Nigeria probably lost N247,060,800 of payable tax in 2020.
Macrotrends reports that the under-five mortality rate in 2020 was 59.181 deaths per 1000 live births and the highest rate within the last five years is 62.142 deaths per 1000 live births in 2018.
According to the World Health Organization, Nigeria was referred to as the country “where nearly 20% of all global maternal deaths happen”. It reported that between 2005 and 2015, an estimated 600,000 maternal deaths and no less than 900,000 maternal near-miss cases occurred in the country.
These avoidable high death rates have been linked to a poor healthcare system and a high level of insecurity despite the trillions of naira budgeted each year to tackle these concerns and as unbelievable as it may seem, the possibility of a change is minimal due to the lack of democratic mechanisms that influence good governance.
The government would do well to know that the climbing death rates of its citizens translate to low turnout on revenue through taxation. Dead people cannot pay tax.
Fortunately, the daily decline in oil prices and the global shift to renewable energy might be a wakeup call for the government to look inwards to gainful revenue from tax by ensuring the fulfilment of its political commitment. A win-win for the governed and those who govern.