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29 September 2023

Taxation should not become a tool for harassment but for Economic Prosperity.

Every Tax Accountant knows that tax is a bitter pill to market and for the taxpayer to agree to swallow the pill; the pill must be made appealing and quoted with benefits. It is demoralizing that the national policy defines ‘tax as any compulsory payment to government imposed by law without direct benefit or return of value or service’. It looks like the definition presumes that the taxpayers have no feelings and they are robots that just comply because it is government duty and backed by law.

As simple as this definition is, it effects the administration of taxation; many taxable persons are overburdened by tax receipts from various agencies of government. In all cases the incidence of tax is on the same income and the economy suffers.

The rich who are very good at transferring cost, end up transferring these tax cost to the final consumers, these cost appear as high prices and ultimately inflation.

Taxation should be civil and not militant in look and operation. Therefore it will much  more simpler and less expensive to sell tax as a mandatory(instead of compulsory)payment of money paid by the citizens to government in exchange for public goods and services.

The focus will shift the crafting of the word compulsory to a more warm word mandatory, this will shift the tax practitioners approach to taxation and genuinely view the taxpayer as king.

The taxpayer by this shift is aware that although there is no quid pro quo, paying of tax is transactionary in nature and he will get benefit in some way.

Government is an aggregation of the taxpayer’s remittances. Whenever government has budget deficits it looks up to the taxpayers to finance the deficit through tax increase.

Therefore it is common sense to know that it is safe for any institution to treat the taxpayer well and that tax is a way in which the ordinary tax paying citizen has representation in government.

The taxpayer should have his representation felt in the way his tax is being administered and used for the common good.

This is what taxation should not become:

  • High handedness

Bully tactics and coercive tax administration should be mitigated through continuous training of tax officers on civil engagement with the taxable persons. On the other hand the taxpayer should be educated and enlightened by the tax authority on why it is necessary to remit part or all his tax obligation as when due.

High handedness by tax officials and their agents should be discouraged and avoided.

In one of the functions of the FIRS, Section 8(r) of Federal inland Revenue Establishment Act, 2007, it says the function of the FIRS is to ‘carryout and sustain rigorous public awareness and enlightenment campaign on the benefits of tax compliance within and outside Nigeria’. In my opinion, they have not done enough to rigorously carryout enlightenment campaigns within Nigeria, talk less of outside Nigeria.

To build a sustainable tax compliance culture in Nigeria, the following should be considered:

  • Treat taxpayer as king

This mantra should not be a lip service, but should reflect in the way tax administrator’s respect and treat the tax payers. Recalcitrant taxable persons should be handled by professional people who will attentively listen to their pain points and guide them to comply with tax notices and assessments.

Bully tactics hurts the image of the tax authority and in most cases build up uncollectable tax debts.

  • Tax should be marketed to the public as a mandatory tool for genuine economic prosperity.

When the taxpayer perceives that tax revenue generated is efficiently allocated by government for the common good and not embezzled without sanctions. The taxpayers will voluntary file his tax returns.

The benefit to the taxpayer may be indirect but the provision of public goods by government in exchange for tax payments by citizens is a signal that tax paid is work in action leading up to a win- win situation, for the government and the governed.

At this juncture, you may be wondering what the difference between mandatory payments and compulsory payments is, the true meaning is not lost in the way the taxpayer perceives both. While one word is warm and inviting, the other is harsh and discouraging.

  • Tax Authorities should treat tax administrators with respect.

Officers within the tax institutions are also taxpayers. The way these internal customers are treated will translate into how the external customers (taxpayers) will also be treated.

A harsh tax regime will lead to transfer of aggression down the line. A robust equitable tax employee capital culture will yield high return on tax collectible.

When tax administrators are happy, tax payers are treated with courtesy, friendly and fairly and government revenue increases.

  • Taxation as a tool to stimulate economic development

Economic development can be stimulated through vibrant tax regimes that promise friendly tax policies, easy tax laws and a cultured tax administration.

A tax system that does not prioritize economic growth as the core of its operation, will tax poverty. Economic growth is prosperity. Taxation in the hands of the right minds can become a tool to re allocate resources that stimulates economic progress.

Taxation as a tool for redistribution of income can be achieved through well-articulated economic agenda that is growth focused and not poverty minded.

A growth focused taxation direction discourages consumption of goods and services and encourages production by working closely with monetary policy.

Government can change the behavior of its citizen by discouraging conspicuous consumption of luxury goods, fine wine, high end ostentatious display of ill-gotten wealth by heavily taxing these activities.

Corruption can be curtailed by cutting down the cost of governance by making it unattractive for those who produce nothing but consume all from vying for public office especially those who cannot turn one naira to two naira in a free trade, real life scenario.

Bottom Line

A vibrant and effective tax system will benefit the government and the tax payer.

The right attitude to tax administration will yield a culture of performance and civility.

Tax revenue to GDP in most cases is a function of how the economy is stimulated for economic prosperity.

A prosperous economy is a prosperous taxpayer. A prosperous taxpayer is happy to pay his tax and government benefits.

Compliance is the name of the game. Treat the taxpayer well and the taxpayer in turn will comply voluntarily. Win – win.

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