Abuja’s tax-evading big men

Sometime in July, at a seminar to interrogate the disobliging tax culture in his administrative jurisdiction, the acting Executive Chairman of FCT-IRS, Mr. Abdullahi Haruna, made an alarming revelation. Only 10 per cent of the registered taxpayers across the six Area Councils file tax returns, and the weight of this shame manifested in processing that the registered taxpayers were just about 120,000 residents. The bulk of FCT’s Pay as You Earn (PAYE) scheme, which was designed to ease collections of personal income tax, revolved around the compliance of federal civil servants on the IPPIS platform and the employees of FCTA and the Area Councils, most of whom were understandably compelled by their employers.

As the home of the nation’s topmost political leaders and public servants, from the president and his legion of ministers and diverse appointees, down through the pampered 469 federal lawmakers, to the vast judiciary, FCT is a tax goldmine. Each politician or bureaucrat comes to office with a battalion of aides so much that if the employees of just the Three Arms Zone, which is where the three branches of government meet to function, would adhere to their income tax obligations, FCT-IRS wouldn’t have been appealing to high-come residents to file tax returns and stop falsifying their income records.

Last month, Federal Capital Territorial Internal Revenue Service (FCT-IRS) announced a collaboration with the Nigerian Financial Intelligence Unit (NFIU) to build a lasting firewall against tax cheats and drive compliance across the territory, with Mr. Abdullahi outlining that his office has the administrative capability to generate as much as N400 billion per year “in the near future.”

Being the newest of the nation’s tax-collecting agencies, having taken over a responsibility previously undertaken by the Federal Inland Revenue Service (FIRS) until early 2018, FCT-IRS is stepping into huge shoes for a necessary march to the doorsteps of the most powerful men in Nigeria and must ruffle the feathers of self-styled big men, whether a serving minister or a presidential aide, to deliver on their mouthwatering multi-billion Naira target.

But the big men aren’t the agency’s main villain. Nigerians are collectively wired against tax and are always quick to cite a lack of basic social services as motivation to evade or avoid tax. This mindset, unfortunately, breeds the cultural lack of interest in the utilisation of the oil rents accrued over the past decades by successive federal governments, and it can only be redeemed by judicious allocations of tax revenues and strong institutions to promote tax culture.

Nigeria’s tax revenue-to-GDP ratio has been alternating between five and eight per cent in the last decade, but the policymakers must perish the thought of increasing taxes to catch up with countries that record higher ratios. Denmark, for instance, generates almost 50 per cent tax revenue-to-GDP ratio but university education is free there. Its tax structure can’t be a model for Nigeria. The solution for our policymakers in heeding the advice of the International Monetary Fund (IMF), that countries need a tax-to-GDP ratio of at least 12 per cent to drive accelerated economic growth, isn’t overtaxing the citizens. It’s more practical to build an enabling tax environment to redeem the calamity underlined by Mr. Abdullahi.

So, the task ahead of FCT-IRS isn’t just this strategic partnership with NFIU or the re-training of its personnel to explore the untapped goldmine in their jurisdiction, from the high-earning public servants at Three Arms Zone to the spare part retailers at Gudu Market, but creating a system impossible for illegal extortions and also educating the target demographic on the technicalities of the nation’s progressive tax.

That 90 per cent of FCT’s registered tax-payers aren’t filing tax returns shows the revenue problem isn’t just the existing tax structure but the lean tax base, and yet this base is still undermined by complying taxpayers who engage the services of rogue consultants and assessors to cut corners and pay less than obligated. Such leakages would be a problem even if 100 per cent of chargeable persons in the FCT embark on adhering to their tax calendars as done in countries with strict tax systems.

My Nigerian-American friend who works for an international NGO in Abuja treats her tax like a religious obligation. Every April or thereabouts, she rushes to file her tax returns under the Foreign Earned Income Exclusion (FEIE) scheme of the American IRS, which exempts certain citizens from paying tax either based on the size of income earned or proof of commitment to tax payment as a national of the country of residence. But she files tax returns nonetheless, because, beyond being a pledge of identification with the country, it guarantees her access to certain social and financial services in the United States.

The US government has adopted a budget of $5.8 trillion for the 2022 fiscal year, and over $4.8 trillion, which is about 83 per cent of the budget, is estimated to come from federal revenues. Over 50 per cent of US federal revenues come from personal income tax, and this tells why the penalties for evasion are strict and failure of the citizens to file tax returns wherever they are on this planet is treated as a grave sin.

In Nigeria, the fiscal projection for 2022 is a frightening contrast, with the cost of repaying debt surpassing the federal government’s revenue even in the first quarter of the year. While the nation’s total revenue stood at N1.63 trillion, debt servicing consumed N1.94 trillion, a variance of over N300 billion, and that alarmed the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, to tell both the federal and state governments that there was indeed trouble in paradise. The federal government projected revenue of N3.12 trillion for the quarter under review, but only managed to realise N1.23 trillion by the end of April, which was just about 39 per cent performance.

The trouble in the central paradise is a challenge for all sub-national governments, especially those that can’t function without the monthly credit alerts from Abuja, to revamp the institutions tasked with generating revenues to ease pressure on the centre. IMF’s Resident Representative for Nigeria, Mr. Ari Aisen, also shared in Mrs. Ahmed’s pessimism when, in contributing to the nation’s fiscal performance debate last June, he observed that “Almost 100 per cent (of Nigeria’s revenue) is projected by 2026 to be taken by debt service.”

Nigeria’s progressive tax system favours the FCT because of the social ranks of its residents. Last February, FCT-IRS advertised the optimism of having 100 per cent  of the territory’s budget financed by the internally-generated revenues secured by the agency and counted on their resolve to harmonise the operations of all revenue-generating agencies in the FCT and boost their capacity in achieving this objective. It’s an audacious bid, no doubt, but it also means going to war with the politically-advantaged residents who believe they are either too big or protected to file tax returns.