Month: September 2024

Nigeria is challenged but we could also just focus on practical ways the government can address the many hurdles ahead of us, including the friction that makes getting anything done painstakingly difficult. 

Interestingly, what’s happening in Nigeria isn’t peculiar to us alone; it’s the same story across many countries in Africa. So rather than dwell on what’s wrong, I’d rather spend more time discussing solutions. After all, if you keep blaming a child for how bad they are, at some point, they just won’t give a d*mn anymore.

Are Nigerians evading taxes or is the government evading tax collection?

Now, let’s talk about Nigeria. I care about issues across Africa, but Nigeria holds a special place in my heart because it’s my home. Nigeria is severely broke but that doesn’t stop the government and Tinubu wasting money on unnecessary things, and it’s true. But here’s the thing; it’s hard to save money and be cost-effective when you’re not even great at managing what you have or when there’s simply not enough money coming in to begin with.

Take taxes, for example. The Federal Inland Revenue Service (FIRS) has been doing a fantastic job, no doubt, but there’s still much room for improvement. The mistake the government keeps making is that they’ve been trying to raise taxes which only just adds to the misery people are facing. It’s even worse because the leadership isn’t showing the same level of prudence they’re forcing down everyone’s throats. Instead of doing this at the risk of provoking the ire of Nigerians, why not focus on collecting what’s  already owed? Why create new taxes or increase existing ones when the government could 10x revenue just by properly collecting what they’re already entitled to? 

Statistics show Nigeria has one of the lowest tax-to-GDP ratios in the world, standing at 10.8% as at July 2023. With such poor performance, the next logical step should be to close that gap. But here’s the issue, like I’ve previously discussed, even for those who want to comply and pay their taxes, the system is so complicated and full of friction that people give up before they can complete their mission. A few large companies pay because they’re too big to hide; but most people just coast along. Even trying to get a proper tax assessment is a big wahala. Personally, I couldn’t even pay my own tax assessment on time because the process was so frustrating.

What I know about myself and many law-abiding Nigerians, is that if we knew the exact taxes we owed and if the process was simple, we’d pay. We might grumble, but we’d get it done and move on with our lives. 

We run three tiers of government in Nigeria, and fortunately, we have something called the Joint Tax Board (JTB), which is supposed to help streamline things by coordinating between federal and state tax bodies to harmonize the tax administration across Nigeria.

I have an idea of how this could be fixed

Moving on to solutions, here’s my proposal: imagine if I were given the opportunity to automate the entire tax structure for Nigeria. This is an idea, right? And I imagine that it’ll work and it could make a significant difference at all levels of government. It’s possible that as I piece this together, there may be nuances I’m missing because even the best ideas may turn out differently when they meet reality. But the concept is sound. A national tax system, managed by the JTB, that would serve as a centralized platform for all Nigerians to easily pay their taxes; helping the government to increase its revenue and reduce the friction currently crippling the system.

The Federal Government collects money through taxes, dues, etc. The parastatals and MDAs are silos and mostly collect payments through TSA. Right now, states like Lagos, despite their relative success, are still leaving a lot of money on the table, and local governments are even worse off. They’re so backward that they don’t have a functional structure or decent technology for collecting taxes; and the quality of leadership at that level is too mediocre to handle these problems. We could sit around and blame them till Jesus comes, but that won’t help. They need sound minds that can implement a solution to help Nigeria get its tax collection system in order.

Keep reading. I’ll break it down for you.

Nigeria needs an automated National tax system .. like yesterday!

Here’s how the centralized tax platform I’m proposing would work:

All tiers of government are already members of the JTB and there’s an existing system for identifying Nigerians (individuals are identified by their National Identification Number (NIN) and businesses by their registered name/ RC number with the Corporate Affairs Commission (CAC)). So, a crucial step would be to integrate with these databases—National Identity Management Commission (NIMC) for individuals and CAC for businesses—to synchronize all identification data. This ensures that the system has access to all the information the government already knows.  

Next, every tax entity, whether local governments, state governments, federal agencies, or MDAs, would have their own profile on this platform. These entities, whether working with consultants or even their own staff, can then get into the system and define their own tax structure, allowing for flexibility. For instance, a local government could create taxes for waste collection, parking fees, television fees, etc. and specify which individuals or businesses these will apply to. The platform could also allow them to easily define xyz taxes specific to their areas, so the platform will automatically display that tax only to the residents of that area.

Similarly, state or federal entities could define taxes by industry or special groups e.g. importers or manufacturers. This approach allows each layer of government to manage its own tax rules and categories, and allows the platform to automatically match taxpayers to the taxes relevant to them. Makes sense so far, right? 

The Joint Tax Board could partner with the Central Bank of Nigeria (CBN) and the Nigeria Inter-Bank Settlement System (NIBSS) to create a pseudo-bank specifically for tax payments and taxpayers would be assigned virtual accounts on the platform to pay their taxes into. So these monies come directly to that platform and not through any other agency or whatnot. 

This swaps the clunky and opaque tax payment process for a more seamless and transparent one. So, if you need to pay a total tax of ₦1 million, you can transfer that exact amount into your tax account on the platform, without any additional cost of payment and from there, you can assign funds to the different tax obligations; whether local, state, or federal.

Individuals can log into the platform using their NIN to view and manage their tax information, while businesses can be set up by a director or shareholder and linked to their own NIN. They can then profile their finance teams and other relevant parties to manage the tax obligations for the business. 

The beautiful part is that the money would go straight to the taxing entity, eliminating worries for the local and state governments such as the federal government collecting taxes on their behalf and not releasing the funds to them. This system would be able to show each entity their collected taxes, outstanding amounts, in real-time.

I think this system provides a highly efficient, transparent, and scalable tax solution for all tiers of government. And I’m not just saying that because it’s my idea.

But let’s not forget to hold people accountable still

As great as the idea of this centralized platform is, will it solve all our problems? I can’t say for sure, but it’s definitely better than doing nothing. It also doesn’t mean the money the government collects won’t still be wasted or stolen, but at the very least, everyone will have a better idea of how much is being collected. This would make it easier to hold the government accountable, and remove the current friction that makes paying taxes such a hassle.

Finally, there’s the matter of enforcing compliance. My recommendation for this is that the  government could mandate certain institutions, like banks, to verify people’s tax status every year. This information would be made available automatically through the platform. Where anyone is found to be non-compliant, their banking services could be suspended until they get up to date with their tax payments. Basically, just like one needs a valid ID for certain services, you’d need to show proof of tax payment to access government benefits or conduct certain transactions. 

Simple as that.

Normally I’m not the type to get into political matters and I don’t look forward to serving in the government; it’s a difficult task. Nevertheless, we own this country, so we have a responsibility to find ways to solve our never ending problems.

When we look at Nigeria today, we see that there are so many challenges but corruption and mediocrity are the poster children. Our people also complain about the government spending money unreasonably—on new planes and fancy stuff—and it’s true. But if we take a step back and look at the dollar value of these expenses, the money the government is spending isn’t so much. Nonetheless, the perception that resources are being wasted remains valid.

However, the real problem we have in Nigeria is a revenue problem. We’re just not making enough money. This country should probably be generating around half a trillion dollars in government revenue every year. So, why isn’t that happening?

I’ve already mentioned the issue of mediocrity, and that’s a big part of it. I don’t focus as much on corruption, because corruption, to me, feels more like a symptom. It exists in most countries. But the lack of consequences sets our corruption apart as a special breed. Corruption in Nigeria is fueled by mediocrity and allowed to thrive because no one is held accountable.

There’s a symbiotic relationship between friction and mediocrity in Nigeria

Some of this mediocrity I’m talking about comes from friction. Maybe mediocrity causes the friction, or maybe the friction causes the mediocrity; it’s hard to tell. But one thing that is clear is that the friction in Nigeria is intense. Remove friction, and the country will grow.

So, what exactly is friction? It’s the lack of ease in doing what needs to be done; the barriers you face, the hurdles you have to scale before you can get anything done.

Where does this come from? Let’s look at everything. In Nigeria today, if you’re a good person trying to do the right thing, it’s hard to stay good. Take paying taxes, for example, it’s difficult to do so. If you wake up one morning and set out on a mission to pay your taxes, you might not even know all the taxes or dues you’re supposed to pay. Where do you go? There’s no single place that tells you everything. And because of this, bad agents can just hustle you from all sides.

Imagine you want to start a business and wish to export your goods, you have no clue about all the steps involved. You might apply to a government agency and still be lost because you have to do 10 things just to complete one task. So, if you want to start exporting today, is there a place where you  can get a simple list of the 1, 2, 3, 4, 5 things you need to do and you just start? The answer is no.

Let’s also look at it in reverse. If you’re a Local Government Chairman, you probably don’t even know who you’re supposed to tax. And if government agencies don’t communicate with each other, as simple as this thing is, it creates a massive barrier for Nigerians who genuinely want to do right and create value.

Even the Nigerian government is getting robbed by friction

Let’s set aside Nigerians who want to do right for a moment. The government itself is struggling. When you look at the state of the economy today, and the huge debt figures, it further frames the scale of the problem. There’s so much infrastructure that needs to be built, schools that need funding, and better quality education that needs to be delivered, but there’s no money to do any of it. Why? Because the government doesn’t even know how to collect revenue effectively and that’s another layer of friction.

Here’s the thing; while friction remains a challenge, we can learn from past examples. In the early 2000s, when Lagos State was having problems with the Federal Government and its money was seized, this same President created Alpha-Beta to help the state collect  its internally generated revenue. This move significantly reduced the friction Lagos faced in collecting revenue back then; it didn’t eliminate it entirely, but things were much worse before. The state’s revenue surged and they were able to fund their activities while they were still fighting with the Federal Government.

That template is what others replicated. The Federal Government later introduced the Treasury Single Account (TSA), which made it easier to collect and track revenue. Unfortunately, their bad spending negates the gains, but the concept works.

I believe that if the government systematically addresses this friction—something I’ll talk more about in future posts—Nigeria’s revenue would increase 10X. For example, imagine if the government made it easier for everyone to know the taxes they’re supposed to pay, and every government agency that should receive taxes, knew exactly who they should be collecting from; with automated, systematic data to track it all. Revenue would skyrocket. But right now, most people don’t pay their taxes, NSITF contributions, or other dues meant to go to the government. So, the government doesn’t even need to think of increasing taxes immediately; they just need to remove the friction first.

Today,if the government understood that reducing friction is key to improving the ease of doing business in Nigeria (which is perhaps currently among the worst in the world), everything would change. If setting up a company, paying taxes, applying for permits, and filing returns became easy, this country’s growth would be explosive.

The private sector can drive Nigeria’s growth; just remove the friction

We need government spending, but the private sector, even without government funding, is more than happy to spend money and create value. 

Take Dangote for instance; because of their relationship with the government, they approached the government for them to take on the reconstruction of the Apapa Wharf with their own money in exchange for a tax credit in the future. And Dangote went ahead, spending ₦72 billion to redo the Apapa Wharf road, including a toll gate and that was it. Magic happened in that place. The road got fixed, and nobody’s complaining anymore. If the government made such processes easy and straightforward, this kind of progress would be common.

Now, let’s look at Nigeria more broadly. We talk about encouraging people to come in and out of the country, and we know Nigeria has its issues, but tourism could generate so much more revenue if we reduced the friction. It’s not even about Visa-On-Arrival. Imagine if we made visas free, or allowed people to apply and pay online, then they’d simply scan a QR code upon arrival and move on. That alone would drive tourism and business. We can take a cue from what the new minister did with automating the passport application process to work end-to-end online. After this, we literally saw the entire backlog of applications disappear, and with it, the chance for corruption. 

To sum it all up, friction is like a cancer in the Nigerian system. If the government puts in the effort to remove it, this country could grow tenfold without even needing to raise taxes. Even corruption would decrease, though it may not disappear completely. The best part? The government doesn’t even need to spend money to eliminate friction; they just need to be open-minded and willing to collaborate with the private sector to make this work.