Taxation and Development in Nigeria: Bridging the Gap Between Policy and Implementation
Abstract
Taxation as a crucial fiscal policy measure is a factual tool for social economic development, which has been adopted by various countries around the world to improve their economic goals. The Nigerian tax regime is made up of a complex web of disjointed tax laws which leave much to be desired in terms of efficiency and effectiveness both in administration and in achieving the nation’s fiscal policy goals. It is therefore pertinent to examine the causes of the gap between policy and implementation with a view to proffering workable solutions which will aid the development of the country especially as it pertains to its fiscal setup. This paper employs judicial authorities, tax articles, journals and opinions of learned authors on the subject matter for a plenary discourse.
Keywords: Taxation, Tax System, Tax Policy, Policy Implementation, National Development.
- Introduction
Taxation plays a pivotal role in the economic development of any nation, providing the necessary resources for public services, infrastructure development, and social welfare programs. In Nigeria, the National Tax Policy (NTP) 2017 was formulated to guide the orderly development of the tax system and ensure its alignment with the nation’s broader socio-economic goals. It envisions a tax system that promotes voluntary compliance, provides stable government revenue, and ultimately fosters economic growth.
However, despite the NTP’s ambitious objectives, a significant gap persists between its policy pronouncements and its effective implementation. This disconnect undermines the potential of taxation to contribute meaningfully to Nigeria’s development agenda. It is thus imperative to interrogate this with a view to proffering a feasible solution.
1.1 The Current State of the Nigerian Tax System
The NTP defines tax as a mandatory payment to the state with the support of law, with no direct benefit or consideration, as long as it is designated as a tax. For a tax system to be efficient, it must be harmoniously balanced on the tripod of taxation: law, policy and administration. Without this synergy, the tax system will be in an utter state of disarray, leaving everyone to cultivate the wilderness of confusion, which aptly describes the current state of the Nigerian tax system, especially the great chasm between the tax policy and its implementation. The reasons for this discombobulation are examined next.
- The Chasm Between Policy Making and Implementation: The Causes
Several factors have been adduced for the gap between policies and their implementation.
2.1 Division of Taxing Powers
The policy has not adequately addressed the lack of fiscal federalism in the distribution of taxing powers, leading to proliferation of taxes. Some of the taxing powers are clearly delineated,[1] others are not. Quintessentially, is the VAT,[2] which like the mythical Phoenix bird resurrects from its ashes each time the matter seems to be laid to rest and given a befitting burial by way of a judicial pronouncement.[3] This leads to the next problem.
2.2 Multiplicity of Taxes
This problem emanates from the states’ complaints about the mismatch between their fiscal responsibilities and fiscal powers or jurisdiction,[4] and it has resulted into multiple taxes which is most evident in the areas of property[5] and income taxes.[6] It connects to the next problem.
2.3 Tax Avoidance and Evasion
While tax avoidance is minimising one’s tax liability within the ambits of the law, evasion is the total refusal to pay taxes which is illegal and punishable. Because the same income is subjected to multiple levels of taxes, the reasonable taxpayer will avoid taxes where possible while the unreasonable one will evade it outrightly. Avoidance or evasion has the effect of shifting the tax burden to the next available taxpayer.
2.4 Demographic Data
How can government tax the citizens that they do not know? There is dearth of the correct data of Nigerian citizens lending credence to the failure of the Nigerian government to capture the accurate data of her citizens and others dwelling within her borders and cannot therefore make veracious decisions.[7] Taxation is the oldest governmental activity since the country’s unification in 1914, so one would think that tax statistics would be easily accessible. However, this expectation is misplaced, as the government at almost every level, has serious data management failures. Additionally, there are no efforts to have the limited data that is available collated or analyzed on a regular basis, let alone stored or made more easily accessible or retrievable.[8]
2.5 Political Interference
It is counterintuitive that many politicians prioritize politics over professionalism when it comes to revenue generation. Many policymakers, administrators, and lawmakers do not fully comprehend the tax system. Tax collection will remain frustratingly low as a result of this, as well as excessive political interference and special interests.[9] This is closely linked with the rot that pervades every Nigerian system: corruption. Politics and corruption is like night and day. They are complimentary and both operate to negative good policies.
2.6 Complexity of Tax Laws
Nigerian tax regulations are complicated and challenging for the average taxpayer to comprehend; even literate authorities may encounter difficulties in certain situations. In addition to this, many taxpayers may not even know that certain taxes exist. Together with the absence of information, tax officials’ indolence, resistant taxpayers, and the propensity for quick fixes, these factors promote the application of ‘the best judgment’ method. This could be an indication of inadequate tax education and a failure on the part of tax authorities to perform their duties regarding public awareness which will aid implementation.[10]
2.7 Priority of Tax Efforts
The political economy of revenue allocation in Nigeria does not prioritize tax efforts, rather, it is anchored on factors such as equality of states, pollution, landmass and terrain, social development needs, and internal revenue effort. This discourages a proactive revenue drive as well as zeal for policy implementation, particularly for internally generated revenue, and makes all government tiers heavily reliant on unstable oil revenues.[11]
The more these problems linger, the farther the policies are from being effectively implemented.
- The Way Forward
Identifying problems alone do not solve them, rather, it is the first step taken towards solving it. The proposed solutions are discussed below.
3.1 Constitutional Amendment
A constitutional amendment involving inputs from all the stakeholders on a clear delineation of the taxing powers of all the levels of government is envisaged.[12] The constitution should be amended such that it would allow for more fiscal autonomy of the states and the local governments.[13] This will solve the first three problems earlier mentioned to a great degree.
3.2 Review of Tax Laws
Regular reviews of existing tax laws to ensure they are relevant and reflect current economic realities can help address complexities and ambiguities that confuse taxpayers. To address the urgent need for comprehensive tax reform in Nigeria, President Tinubu, formed the Fiscal Policy and Tax Reforms Committee in August 2023. The committee, led by the tax veteran, Mr. Taiwo Oyedele, was charged with formulating recommendations for improving the country’s tax structure and accomplishing fiscal policy objectives.[14] The Tax Reform Bills are the result of the Committee’s mandate to recommend changes to overhaul the Nigerian fiscal landscape, and promote consistency in the administration and operation of the tax laws.[15]
3.3 Modernized Tax System
Nigeria has been using an antiquated tax system for many years, one that has not kept up with post-pandemic reality, technology developments, and the ever-changing needs of the taxpayers or even changes in the economy. The tax reform aims to upgrade the system, making it more efficient, transparent, and aligned with contemporary economic conditions.[16] This would involve periodically training tax workers on the innovations and current practice obtainable in advanced countries. It would also necessitate the integration of technology like The Integrated Tax Administration System (ITAS) which is a significant initiative in Nigeria aimed at modernizing tax administration through automation and technology.[17]
3.4 Increased Tax Registration and Compliance Monitoring
Tax registration enforcement is increasing with the FIRS[18] requiring businesses and individuals to obtain a Tax Identification Number (TIN) before carrying out certain transactions.[19] This development is a move towards strengthening the Nation’s tax administration, ensuring that businesses, are properly registered and taxed. It reflects a growing emphasis on transparency and accountability in Nigeria’s business environment. By requiring all parties involved in Nigerian business activities to have a TIN, the tax authorities are widening the tax base and reducing informal or unregistered transactions that often evade tax obligations.[20]
3.5 Enhancing Accountability
Even though no one pays taxes with a smile, once there is evidence of the judicious use of taxes, which is clear to all and sundry, it will provide a good ground for justifying the government’s demand for taxes and overall compliance to policies.
- Conclusion
There is a quota that taxation is supposed to contribute to nation building and development. Without solving these problems, it will be impossible to achieve that. Nigeria’s economic landscape and population is like a forest of trees, with big ripe fruits, waiting to be harvested by the implementation of a bespoke tax policy, perfectly suiting Nigeria.
By Opeyemi Amodu, winner of the 2025 Adeola Oyinlade & Co National Essay Competition.
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[1] For example, Items 16, 25, 58 and 59 of Part I of the Second Schedule to the 1999 Constitution on taxation of customs and excise duties; export duties; stamp duties; and incomes, profits and capital gains, all of which are clearly within the purview of the National Assembly. Even in those clearly outlined, there is still problem in its implementation such as the tenement rates meant for local governments which came up for adjudication in Knight-Frank & Rutley & Anor. v A-G. of Kano State (1998) LLJR-SC.
[2] Value Added Tax regulated by the Value Added Tax Act, Cap V-1, Laws of Federation of Nigeria, 2004. The VAT began to be levied by the federal government in 1993 under military rule but they failed to grant it a constitutional status which has made it to remain an apple of discord.
[3] The VAT tussle dates back to the sales tax in A-G. of Ogun State v. Aberuagba (1985) LLJR-SC. The gravamen has now escalated and is yet to end with a suit still pending at the Court of Appeal since 2021, initiated by the Rivers State government, after so many cases have been adjudicated on such as Nigerian Soft Drinks Ltd v. A-G. of Lagos State [1987] 2 NWLR (Pt 57) 444 CA, Mama Cass v FBIR (2010) 2 TLRN 99 (FHC), and A-G. of Lagos State v. Eko Hotels Limited (2017) 12 SC (Part 1) 107. This is just to mention but a few.
[4] Micah Leyira, Ebere Chukwuma, Umobong Asian, “Tax System in Nigeria – Challenges and the Way Forward” (2012). 3(5) RJFA. Available at https://core.ac.uk/reader/234629280. Accessed on 18th, February 2025.
[5] There are multiple property taxes such as Land Use Charge, Tenement Rates, Neighbourhood Improvement Charge, etc.
[6] This includes earmark taxes such as Education Tax, Information Technology Tax, Local Content levy, Industrial Training Fund levy and so on. Despite the enormous amount of funds generated by these earmark taxes at significant cost to businesses, it is unfortunate that very little or no positive impact has been made on the people and the economy.
[7] The last official census in Nigeria held in 2006 which is appalling since there is no substitute to correctly monitor the figures. There are those citizens with multiple NIN numbers, voters’ card, etc, making the figures obtained from such estimation unreliable.
[8] Micah Leyira, Ebere Chukwuma, Umobong Asian, op. cit.
[9] Taiwo Oyedele, “2017 Tax & Fiscal Policy Prospects”, Taxwatch, The Guardian, Monday, January 23, 2017.
[10] Micah Leyira, Ebere Chukwuma, Umobong Asian, op. cit.
[11] Ibid.
[12] Like the Supreme Court said in Steve T. Ugba v. Gabriel Suswam SC.191/2012 (CONSOLIDATED), “if any area of the law is creating hardship or injustice for the people, they can sit down and do something about it through their lawmakers.”
[13] One factor for the financial success of the country in the earlier times was the decentralized system where the then legislative lists (under the 1960 and 1963 constitutions) had few items allowing the regions more autonomy. Professor Oyelowo Oyewo commenting on the current legislative lists in his inaugural lecture titled “Nigeria: What Manner of Federation is This?”, called Nigeria a pseudo-unitary state masquerading as a federation.
[14] Oyetola Atoyebi, “The Nigerian Tax Bill 2024 At a Glance: Highlights and Key Provisions ” (December 19, 2024). Available at https://omaplex.com.ng/the-nigerian-tax-bill-2024-at-a-glance-highlights-and-key-provisions/. Accessed on 21st, February 2025. The committee’s recommendations were in the form of four Tax Bills. They are: The Nigeria Tax Bill (NTB) 2024; The Nigeria Tax Administration Bill (NTAB); The Nigeria Revenue Service (Establishment) Bill (NRSEB); and The Joint Revenue Board (Establishment) Bill (JRBEB).
[15] Udo Udoma & Belo-Osagie, “Navigating Nigeria’s Tax Landscape: Key Trends And Developments In 2024 And Outlook For 2025”(Mondaq, 4 February 2025). Available at https://www.mondaq.com/nigeria/tax-authorities/1579484/navigating-nigerias-tax-landscape-key-trends-and-developments-in-2024-and-outlook-for-2025. Accessed on 21st February, 2025.
[16] Abdullahi Hashim, “Nigeria’s Tax Reform Bill: A Step towards Economic Transformation | TheCable” (TheCable, February 7, 2025). Available at https://www.thecable.ng/nigerias-tax-reform-bill-a-step-towards-economic-transformation. Accessed on 15th, February 2025.
[17] Nwamgbebu Obinna, Oketa Chiamake, Odom Amarachi, Nwambe Cynthia and Nweke–Charles Esther, “Electronic Tax System As A Panacea For Tax Revenue Leakages In Nigeria” (African Journal of Politics and Administrative Studies, Vol. 12(1); June 2019). Available at https://www.ajol.info/index.php/ajpas/article/view/247153/233774. Accessed on 21st February 2025. Launched by the Federal Inland Revenue Service (FIRS) in 2013, ITAS seeks to enhance the efficiency of tax collection and compliance processes.
[18] Federal Inland Revenue Service. The federal body in charge of tax collection.
[19] For instance, the FIRS’ stamp duties portal has been updated to capture a variety of transactions and entities so that foreign counterparties to agreements relating to transactions in Nigeria are required to provide their TIN as a prerequisite for stamping their documents in Nigeria. Also, vendors who fail to provide a valid TIN face penalties of twice the applicable Witholding Tax rate.
[20] Udo Udoma & Belo-Osagie, op. cit.
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