INSIGHT: Tax Revenue Mobilization In Nigeria

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Adeniyi Adeyemi and Adedapo Adeduro of KPMG Nigeria consider the low level of tax compliance in Nigeria and make the case for further collaboration between taxpayers and the Nigerian government, in order to raise tax revenue and support the economy.

Taxes remain the most sustainable and reliable source of public revenue of any modern state. According to recent estimates from the International Center for Tax and Development, tax revenues account for more than 80% of total government revenue in about half of the countries in the world and more than 50% in almost every country.

In Nigeria, the search for a sustainable source of public finance has brought taxation to the forefront of public discourse and attention. This is further reinforced by dwindling oil revenue which has led to increasing reliance on debt as a way of financing the country’s annual budget. In this regard, the International Monetary Fund has maintained that borrowing to shore up revenue is not sustainable. The Minister of Finance has corroborated this with continuous calls to ramp up domestic resource mobilization with a focus on taxation.

This article examines the tax profile of Nigeria as well as some of the factors limiting tax revenue mobilization. In addition, the authors draw lessons from other countries, and ongoing efforts of the Nigerian government with respect to tax revenue mobilization, to highlight key areas where the government and taxpayers can collaborate to further boost tax revenue for the benefit of the country.

Tax Compliance in Nigeria

Current Assessment

A review of the country’s tax revenue position and other relevant statistics reveals the low level of tax compliance in Nigeria. According to the Federal Inland Revenue Service, the country’s total tax collection in 2019 was 5.26 trillion naira ($13.5 billion). Assuming this amount relates to income tax from the 3.1 million registered businesses in Nigeria (Corporate Affairs Commission (March 2019), this will bring average tax payments per business to 1,710 naira (less than $5). This is an abysmal figure considering the tax payments by publicly listed companies and the remittances from the oil and gas sector, and for a country where companies pay a minimum tax irrespective of their profitability.

The statistics on tax payment by economically active persons in Nigeria are equally disturbing. The Nigerian Bureau of Statistics (NBS) puts Nigeria’s population of employed persons at 69.5 million people as at September 2018. However, the individual tax-paying population is estimated as 19 million, indicating that about 50.5 million employed Nigerians operate outside the tax net. In 2018, the 36 states of the federation and the Federal Capital Territory (FCT) generated a total tax revenue of 669 billion naira, resulting in an average of 35,211 naira per registered taxpayer and a paltry 6,021 naira per economically active person. Evidently, the level of tax compliance is dismal, and this accounts for the low ratio of tax revenue to the country’s gross domestic product. This is even more alarming when Nigeria is benchmarked against South Africa, where tax revenue per employed person is approximated at 570,370 naira and tax-to-GDP ratio is above 25%.

Obstacles to Tax Revenue Mobilization

Given the above, the tax revenue profile of the country reflects the state of the fiscal contract between its citizens and the government. The tax revenue issue in Nigeria can be traced to a broken social contract which has perpetuated a culture of tax evasion among citizens. In other words, tax morale is low, and this has become a stem bearing fruits of tax evasion, involuntary tax compliance, tax fraud, apathy to tax matters and other issues hampering government efforts to ramp up tax revenue. The result of a survey conducted by the Nigeria Economic Summit Group on tax perception reveals that more than a fifth of Nigerians believe it is “not wrong at all” to not pay income taxes, while about 54.3% admit that tax evasion is wrong but that it is justifiable and understandable.

Several studies have alluded to a combination of factors as obstacles to sustainable tax revenue collection in Nigeria: the perception that taxes do not result in provision of services remains an obstacle to tax revenue mobilization.

However, the tendency in most conversations about tax revenue performance is to advance one side of the argument either in favor of the government or of taxpayers. Our view is that, to reverse the trend of poor tax compliance, the narrative must move beyond the ‘’blame game’’ to exploring areas of collaboration between government and taxpayers in the short to medium term. This is without losing sight of the need to address the fundamental issues of inclusive economic growth, fiscal discipline and effective resource utilization, among others, in the medium to long term.

Stimulate Collaboration Between Government and Taxpayers for Improved Tax Revenue

The relationship between the taxpayer and the tax authority is a contract that involves a complex interaction, and which must include the tenets of fairness and reciprocity. Government must prioritize removal of the pain points of existing compliant taxpayers and ensure the economic benefits of paying tax are delivered to taxpayers and citizens at large. A mutually beneficial relationship will lead to an increase in the number of taxpayers and, therefore, tax revenue for government on the one hand, and direct economic benefits and growth for taxpayers, on the other hand.

While the government has implemented several measures to foster government–taxpayer partnerships, the current tax revenue indices reflect that these measures are yet to materially change the tax revenue position of the country.

Based on lessons from other countries and global practices in domestic revenue mobilization, we have outlined below some considerations that the government may evaluate to further deepen government–taxpayer collaboration towards boosting tax revenue performance.

Strengthen Connection Between Access to Public Services and Tax Compliance

A direct link between payment of taxes and usage of government-provided infrastructure and interventions may increase awareness of tax obligations and consequently, the rate of tax compliance. Lagos State has attempted to do this by stamping ‘’pay your tax’’ on most of its infrastructure and documents relating to public services. As a result, residents of Lagos are fairly aware of the link between tax payment and continuous provision of and access to public services. Arguably, this approach is working, as Lagos State alone collected over 30% of the total taxes generated by state governments and the FCT in 2018.

Beyond public awareness, evidence of tax compliance should be a precondition to access certain benefits. For instance, companies or businesses without evidence of tax registration should not be able to access Central Bank of Nigeria’s intervention facilities. In this regard, the provision of the Finance Act, 2019 which requires mandatory tax registration as a precondition to operate a bank account is highly commendable. Government, at all levels, must ensure full implementation of this initiative and promote more initiatives that restrict access of delinquent taxpayers and tax evaders to certain public benefits.

On the other hand, government must put provision of services at the center of its tax compliance efforts to motivate willingness. Sweden has one of the highest tax rates in the world, with tax contributing an average of 48.2% of GDP. High income earners in Sweden could pay as much as 49–60% of their income as personal income tax. However, research has shown that Swedes are happy to pay taxes as tuition is free for their children up to university level, students enjoy free lunch in schools, free health and dental care for under-18s, and child allowance in a sum of $1,500 per child annually.

Implement Policies on Tax Transparency

The viability of the social contract between taxpayers and government is dependent on the taxpayer’s perception of the government. A positive perception of government’s use of tax receipts will lead to an increased willingness of citizens and businesses to be tax compliant.

Tax transparency is a concept in the context of tax revenue mobilization which developing countries should adopt and implement. The concept addresses disclosures on how tax revenues are utilized, expenses for tax collection, as well as the percentage of the total tax collection that is attributable to high net worth individuals (HNWIs), multinational corporations and those at the bottom of the economic pyramid, among others. According to the Organization for Economic Co-operation and Development, tax transparency can put an end to tax evasion.

Given the above, government should implement policies on mandatory periodic disclosure of relevant information on tax collection and profiling of taxpayers by all states and the federal government. In Finland, as part of the government’s tax transparency drive, the country publishes the taxable income of all its citizens, including the tax data of celebrities, HNWIs and politicians. This action has helped to broaden the country’s tax base as shown by the result of a survey conducted by the country’s tax administrator in 2017. A policy of this nature should be adopted in Nigeria (with slight modifications to cater for individual characteristics in Nigeria) to boost tax morale and broaden the tax base.

Foster Partnership with Taxpayers on Direct Utilization of Taxes on Infrastructure

In 2019, President Muhammadu Buhari signed the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme Executive Order 007. The scheme, which provides the opportunity for businesses to utilize their income tax in constructing any approved road infrastructure, launched with six companies granted tax credits to construct 19 federal roads across the country. This scheme is laudable and can be extended and strengthened by streamlining the administrative process for obtaining approvals under the scheme.

Our view is that schemes of this nature help taxpayers, especially large corporates, to collaborate with government in deciding the most equitable utilization of their taxes. Such schemes should be promoted and more initiatives that grant tax incentives for positive actions from individuals and corporations should be encouraged to motivate voluntary tax compliance.

Involve Informal Sector Groups in Tax Compliance Efforts

Several trade unions and informal groups have existed in Nigeria for decades. Members of such unions and groups are usually loyal to their leaders, paying their dues as and when due. Government can leverage this trust to collaborate with trade associations and informal groups to expand the tax net. This is particularly useful in places where presumptive taxation is used to assess individuals and trade blocs to tax.

In this arrangement, trusted members of the respective trade associations are appointed to serve as agents of the tax authorities for collecting and accounting for all funds collected. This can help to build a culture of tax compliance within this group. The government may also link consistency in tax compliance and payment with promise of access to training, workshops, group credit facilities and provision of critical infrastructure to clusters of informal traders and artisans across the country.

Expand Whistleblowing Policy to Gather Intelligence for Tax Enforcement

In 2016, the federal government, through the federal ministry of finance, launched a whistle-blowing policy in Nigeria. The policy seeks to encourage people to disclose information about fraud, bribery and looted government funds, with the promise of 2.5%–5% of recovered funds as reward. The policy has started bearing fruit, as over 2,150 tips have been received from the public and billions of naira recovered by the federal government .

This initiative can be extended to the tax system to further demonstrate government’s intolerance for tax evasion and any indiscretion around tax matters. The whistleblowing policy, among other things, would expose corporations who do not pay tax and HNWIs who hide all or part of their income from the tax system. In addition, it would uncover instances of tax waivers and exemption granted in defiance of established procedures or for political expediency. It is, however, important that protection of tax whistleblowers is assured to encourage participation by citizens and successful implementation of the policy.

In 2018, the U.S. Internal Revenue Service realized $1.441 billion in taxes, penalties and interest from its whistleblower program, while paying out $312 million in rewards. In 2012 alone, Greece collected 4.5 billion euros ($5 billion) in fines from its whistleblower program under the Financial and Economic Crime Unit.


The need to accelerate tax revenue mobilization in Nigeria cannot be over-emphasized. A collaboration between taxpayers and the government would go a long way to addressing the age-old obstacles to improved tax revenue performance in Nigeria. We hope that government, at all levels, would consider the various areas of collaboration, as examined above, to foster tax compliance and change the narrative around the tax profile of the country.

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