TAXATION AND THE INFORMAL SECTOR IN NIGERIA BY OLAYODE OLALEKAN

  

We shall not be concerned with the appraisal of the legal framework of taxation because its practically too wide to delve into. However, we shall be only be examining the problems of taxation,focusing on some of the reasons why people in informal sectors  do not pay tax in Nigeria. 

   But, Wikipedia  has it that Tax, which is derived from the Latin word”taxo", can be defined as

       " a mandatory financial charge or some other type of levyimposed upon a taxpayer (which could be an individual or any other legal entity) by a governmental organization in order to fund various public expenditures.

   

   However,the informal sector refers to those workers who are self employed or who work for those who are self employed. People who earn a living through self employment in most cases are not many as such,informal workers do their businesses unprotected.

  

     Virtually all adults[including students] in Nigeria know one or two things about tax. We hear and see adverts and jingles on our radio and television stations enjoining us to pay our tax and we all have the basic idea that governments use the tax we pay to provide social amenities we enjoy and they use these monies to ensure effective running of government at all levels. Taxation also enjoys biblical

support as it is recognized by the holy books.

    However, as good as the idea of taxation is, a lot of people arestill indifferent about it, and many members of the middle class and the informal sector do not pay taxes at all or they do not pay regularly. This  projects a need for the critical examination on the different reasons why the middleclass Nigerians do not pay tax.

    The government at all levels have various methods of removing taxesfrom the salaries of civil servants and public servants. For example,a state  like Lagos state, which Is known for effective methods of taxcollection,  has a structured way of collecting tax from registeredcompanies and industries. What then happens to shop owners, artisans and  even farmers?,  there seems to be no functioning methodology of collecting tax from these classes of people.  It is the tradition of government officials  from the board of Internal Revenue in a particular state[ name of state purposely withheld] to enter intoshops of traders  and evaluate the goods inside, based on their own

estimation of the goods in the shop, they just pronounce a particularsum of money as the tax of the particular trader for a whole year.Most times, they fail to issue evidence(s) of payment  to these

raders, such acts have left the traders with the impression that this officials do not even remit their so called tax to the government account, so many of them see no reason why they should pay tax.

      Also, so many people believe that the tax they pay will at the end of the day be of no significance to the society as it is most times embezzled by the civil servants in charge. Even when remitted to the government account, it will be misappropriated by corrupt leaders who will readily convert the monies to their own purse,  so they become incredulous about tax.

     

     However,  Gary Becker, the Nobel Laureate in Economics, developed an elegant model of Tax Evasion based on economic factors. He contended that tax evasion was determined by the tradeoff between tax rates and the cost of punishment for noncompliance. With respect to this, for the average man , it majorly seems like there's no punishment  for the evasion of tax except for some unlucky traders whohave their shops sealed and some artisans who have their equipmentsseized by officials from the board of Internal Revenue, with the help

of the police. For example, in the United States, cheating on taxes isa criminal offence and many famous personalities have been imprisoned as a consequence. In Switzerland, it is a civil offense,the punishment being that they levy a fine, then send you back to work, in order to earn pay.  In Nigeria, it doesn't seem to an average man as a crime or civil offense because he doesn't know anyone who has been punished for it.

    

       It is evident in Nigeria that tax is a major constituent of the Internally GeneratedRevenue[IGR],another constituent being allocation from the federal government. However, the federal allocation is most times not sufficient for the state, hence the need for effective collection of taxes. The implication of this is that many state governments do not have the funds to carry out capital projects unless they borrow money. This can be controlled to an extent by creating a structure for the collection of taxes from the middle class citizens who are not civil servants. Most governments  has established above have a structured way of removing taxes from civil servants and corporate entities.

     

  Government must educate citizens on why they should pay taxes and assure them of the judicious use of taxpayers' money.  Governments should also devise a structured way of deducting tax from traders,artisans, etc for the development of the society.

      

On February 5,2018, The Punch newspaper reported that the Deposit Money Banks in the country are about installing appropriate technologies that will enable them to submit the information of wealthy customers and other taxpayers to the Federal Government underthe Common Reporting Standard programme, which Nigeria signed up to last August. The Federal Government has also signed up to theBeneficial Ownership Register with the United Kingdom for the purpose of driving the Voluntary Asset and Income Declaration Scheme.  This will go a long way instrengthening the system of taxation in Nigeria.

    

However, A Professor of Law, specialising in taxation, Abiola

Sanni, submitted that “the informal sector is important and thegovernment is already working on that".

 Conclusively, every citizen should however endeavour to do the rightthing by paying their tax. Government at all levels should also make sure that taxpayers see value for their money and all citizens enjoy the dividends of democracy. The needs of our people for development override any argument against payment of tax.