Interview: Why Nigerians Don’t Pay Tax

Chief Mark Anthony Chidolue Dike is a seasoned tax administrator and chartered accountant. A former President of the Chartered Institute of Taxation of Nigeria, CITN and a member of the Institute of Chartered Accountants of Nigeria, ICAN, his experience spans the public world where he once held forth at the Federal Inland Revenue of Nigeria, FIRS, as Head of many departments sequentially and the corporate world where he now audits reports as well as organize training for professionals.

In this interview with Thisage, he explains why and how tax should form a major component of revenue for the government, what is to be done to ensure tax compliance among the taxable adult population and why the citizenry finds it hard to pay willingly. Excerpts:


 Minister of Finance, Mrs Kemi Adeosun disclosed recently that 600,000 out of 60 million taxable adults in Nigeria pay tax and even then only through P.A.Y.E. As a tax expert, doesn’t that worry you?

 Yes, it is worrisome and goes against the grain of our understanding of what taxation is all about. The question to ask oneself in such a situation is what is tax? Simply put, it is a compulsory payment, according to some, while others say it is a voluntary contribution. I emphasize compulsory, which any taxable adult must comply with.

Firstly, taxable adults, who earn income are of age to pay tax from sources such as earned and unearned incomes (that is from investments, shares, deposits, intellectual property). And because we live in a society we are duty bound to give back to society through making our own contributions for its sustenance.



There are common facilities and amenities, which individuals living in any society need to enjoy in common with others and for that reason they have to make contributions for the enjoyment of such facilities and amenities because there is a limit to which anybody can go in providing the facilities for his/her use alone. Yes, you as an individual can provide food in the house for you and your family, you can buy and fuel generator, dig boreholes but when it comes to things like roads, power and schools, there is a limit to which even a rich man can build for himself and his family. Even if he were to go on to construct roads, it may be in the same direction as others like him may choose to do and so there would be a cross-web of roads in the same direction which are counter-productive and useless to everybody. The same with power, water, schools and so on. So to avoid conflict, we have to agree collectively to allow an arbiter and aggregator, which is the government, to provide the facilities. And we then have to pay to that arbiter. That is what tax is all about. But then, the recurring question about stewardship and accountability must be answered positively at all times.


Chief Dike


Why then are Nigerians unwilling to pay? Is it something to do with, perhaps, the perception that government is not working for them?


 No. Unfortunately we have lost our innocence as a country. Before the civil war, before oil became a dominant revenue earner for the country and providing as much as eighty percent of our domestic resources and ninety percent of our foreign exchange earnings, we used to be a country that depended on cocoa, groundnut, palm oil and kernel, cotton and rubber. But in the aftermath of the Arab-Israeli war of 1973 when the Arab countries which dominated the oil cartel used oil as a weapon to constrain the super powers, oil price suddenly moved up from $2-$3 per barrel to $10 and Nigerian became awash with petrodollars. There was so much money such that even our then Head of State, General Yakubu Gowon, had to say our problem was not money but how to spend it. We were in a bazaar and there was an upsurge of construction activities, etc, such that contracts were inflated and projects over bloated and people started amassing ill-gotten wealth. Recall that the January 1966 coup plotters described the first republic politicians as ten per centers. I don’t know how to describe modern day politicians with the current level of primitive accumulation of wealth.


So it is now a culture?

No, it is primitive. And then our people have not helped matters. We all now worship money. We do not ask questions when persons we know their antecedents suddenly begin splashing money all over the place. We do not question the source of their sudden wealth. Even when the law manages to catch up with them we explain it away as one of those things. Look at what happened in Ozubulu in Anambra State, my dear state, last week Sunday.


 You mean the Catholic Church where gunmen shot many worshippers dead?

 Yes, it is all about drug money. Who was he? (the businessman who reportedly built the church). He just came from South Africa and started splashing money and nobody asked what kind of business he does to make that kind of money. So whether it is corruption or illicit drug, money worship has bastardized the economic landscape. Civil servants are even involved these days. Well, civil servants these days are being asked to go into agriculture. Ever heard of the words, conflict of interests? If you were to assume an office, people would come to meet and tell you how things are done. If you become bereaved, for example, people would send you trailer loads of the choicest wine and souvenir. Others would offer to provide food: For what purpose? What is the salary of the civil/public servant?

Chief Dike


What is the connection of this picture you have painted with tax avoidance?


 For instance, many MDAs do not deduct taxes from contracts awarded through disingenuous descriptions and where they do so, they do not remit the taxes. But they have cornered the money approved for the projects and the tax that is supposed to come from it has gone into private pockets and in the next year, they are budgeting again. It happens in the oil industry also where there is usually a huge gap between the turnover that is reported by the service companies and the withholding tax that is claimed. So even those in top echelons of government do not want to pay appropriate taxes on their incomes, official and unofficial. Everybody is using conduits to corner contracts.


The Federal Government recently passed a law granting defaulters nine months grace period from prosecution. Do you think that such measures would help?

 Yes and no. Yes, if properly implemented and enforced especially if the political will is there to ensure that there is compliance across board by all and sundry especially the rich and wealthy people.


Well, a correlation to that is the resolve by the Minister to deploy about 7,500 tax officials to educate Nigerians to pay tax. What is your take on it?

Enlightenment is good, but it is not enough. The stick has to be wielded to make sure that those who fall out of line come back and others stay on. If persons are brought to book and you make examples of prominent people who default, then there would be sanity. If you go by the ABC analyses or the Pareto rule, 20 percent of the population constitutes the high net worth payers who are expected to pay/contribute about 80 percent of the taxes. So if you make examples from the defaulters in this group, things would change. In our Constitution, your tax-free allowance can swallow your income. If you salary is, say, N1million and your tax free allowance is N1.1million, technically you are in a negative position and therefore there should be no tax. But the law frowns at it. It says that the issue of taxation is a constitutional matter. Democracy is about the rule of the majority. You cannot have a voice when you have not put your money down as an able bodied citizen who has a means of income. You must put something down, no matter how small. That is why a minimum of one percent of one’s income is prescribed as the tax that must be paid by anybody who earns an income. And that was why the Professor Dotun Phillips’ Study Group on Tax Reforms of which I was the Secretary, in its report of July 2003, stated inter alia thus: “Tax shall be regarded as a citizen’s obligation to the Nigerian state for which he expects in return, good governance, the provision of security, clean water, schools, healthcare and other amenities..”


Chief Dike

When was that?


That is the 2003 report, the key recommendations of which, later became part of the tax laws for the country. It made far-reaching recommendations on personal income tax for instance. Before then the emoluments of the President, Vice-President, Governors and Deputy Governors were previously exempt from income tax payment. Since then they pay tax like any other person on the emolument they earn. After all the state is taking care of them.


Talking about wielding the big stick, the FIRS, where you once worked, is sealing up business premises of big tax defaulters. But there is the reasonable argument that defaulters may be unable to pay because they would be out of business when their premises are sealed up?

 Well, some people are actually saying we should have a different approach. But we are talking about a different issue here, about taxpayers paying willingly, about those who are already in the tax net and have been filling returns but have defaulted. That is one case. There is another way that the revenue body finds that what was submitted and what was declared doesn’t add up. And then the defaulter failed to make reports, either because they do not care or simply ignored the tax people. The third category is that there is undisclosed income and the owners have not taken steps to report to the authorities. So the law says pay the amount not in dispute and if you do so no measure can be taken against you until the dispute is resolved or determined one way or the other.


So what do you advise?

 My advice is as follows. First, if you have created a business and have agreed to voluntarily pay tax, you should file appropriate returns and pay. That would stop the tax people from carrying out any enforcement against your business. If you disagree with the tax assessment and your premises is sealed up then go to court. You can challenge the revenue authority and engage the right tax advisers to advise you. Having said that, I hasten to say that dead men do not pay tax because if a company is liquidated, the extent of the authority’s ability to recoup tax is limited. In that case, we could adopt what the Internal Revenue Service does in the United States, whereby the banks of the defaulting business are put under obligation to meet the tax default of its customer. If it is a big supermarket, then the revenue people should, like that do abroad; take over the cash points working in concert with the company’s cashier so that as money is coming in, they take what is owed as tax until full payment is recovered. That way, the company is still in business and you get your money. The purpose of setting up a business is developmental. Don’t forget that tax is not just about revenue collection but also to generate employment, to bring down the level of insecurity as well as youth restiveness in particular areas that businesses are situated.


So in the face of increasing insecurity, broken down roads, unavailable potable water and low power generation, Nigerians may well have enough reasons not to pay?

 No. But in that case a certain plan has to be adopted which is that tax generated from an area is used to develop the place. This was what the government in Anambra State under Governor Willy Obiano adopted. The government asked communities, under the developmental plan, to name certain projects for which the money is allocated. Such specific tax principles are used and when the people see the executed projects, they would be willing to pay. On the strength of that government can then ask how much tax such community generates? Once this is identified, it is used to address the particular challenge of that community. Things like renovation of schools, health and community centers and so on. This does not mean that the community would be excluded from the general development to be carried out by the government for the state.


Chief Dike


You are a former President of the Chartered Institute of Taxation in Nigeria, CITN, and a member of the Institute of Chattered Accountants of Nigeria, ICAN. To what extent have your members helped to fight corruption through system checks and proper bookkeeping? Are they cooking the books?

When you talk about cooking the books, tax professionals do not prepare accounts but prepare tax returns for their clients. Given that the directors of any company have the primary responsibility for the preparation of accounts of the company for any given year, if any professional is cooking the books, that person is on his/her own because that is not what the professional and ethical rules instructed him/her to do. That is on the one hand. The other point that I also need to make is what Prof Wole Soyinka talked about the dialogue of the deaf. This is the case of taxpayers who are unwilling to pay commensurate amount of tax on their income refusing to listen to good and quality professional advice from their consultants. This may lead to that consultant losing the job and vice versa. The last point is that there can be some limit to the kind of compulsion you can bring to bear on members. The best you can do is to take a horse to a river but you cannot force it to drink. The issue is that we need Nigerians, ordinary folks, to return to the path of value orientation. We need to be all born again in the real sense of it. That is all.