The Federal Inland Revenue Service (FIRS) has said that tax compliance will only improve when payers are convinced that revenues are going to be used for the common good.
The Executive Chairman of FIRS, Muhammad Nami, stated this in his opening remarks at the launch of the Public Finance Database by the Nigeria Governors’ Forum in Abuja.
Nami argued that the low compliance rate in tax payments in most developing countries was a result of the failure of the social contract between the taxpayers and the government. He noted that those in political leadership in the country have a duty to promote a tax-paying culture by relating projects and infrastructural development executed by them to taxes paid by taxpayers.
“Taxpayers need to see what has been done with their money to be encouraged to continue to fulfil their obligations under the social contract they have with the government.
“I am delighted that one of the sessions focuses on the tax-for-service programmes as they impact tax revenues. This issue is dear to us as tax administrators as there is a nexus between the effective utilisation of tax revenue and tax compliance.
“The low level of tax compliance in developing countries can be attributed to the failure of the social contract between the taxpayers and the government. It is expected that if the citizens are committed to paying taxes, the government should be committed to using the taxes for the common good of all citizens,” he said.
The FIRS boss further argued that projects funded by taxpayers’ money should be reported as such and not personalised so that citizens would begin to relate with the projects as the proceeds of their taxes.
He added: “Those in political leadership should promote the tax-paying culture by relating projects and infrastructural developments executed by them to tax.
“The government at all levels are doing a lot with taxpayers’ money but citizens do not easily appreciate these facts because of the way and manner the projects are reported. There is the need to de-emphasize and de-personalise projects so that the citizens will begin to relate all the ongoing laudable projects in the states to tax revenue. This singular act to a great extent will increase the tax morale and enhance compliance.”
He called for the country to make a bold paradigm shift by harmonising the country’s tax system to optimise revenue collection.
“Recently, there has been a clamour for a holistic review of our tax system. Its proponents, including myself, have argued that if Nigeria must achieve its tax revenue potential as the fulcrum of economic development, harmonisation of our tax system must be undertaken.
“Tax harmonisation for enhanced revenue generation, which was the theme of the Second National Tax Dialogue was carefully chosen to reiterate the need for us as a nation to rethink the current tax system being operated.
“There was a consensus at the dialogue that Nigeria needs a transition to a unified tax administration as practised globally by most of the efficient and effective tax jurisdictions that have achieved optimum tax revenue collection.
“Certainly, there is no gainsaying that if Nigeria must be less dependent on external borrowing and buffer from the volatility and dwindling oil revenue, there should be a paradigm shift. Beyond politics and sentiment, the country should be willing to make those bold and hard but beneficial tax reforms and there is no better time than now if we must avert the looming debt crisis. The gains from a harmonised tax system far outweigh the fears expressed in some quarters, if dispassionately analysed,” he said.