At a public presentation and breakdown of the 2022 appropriation bill last week, Muhammad Nami, the Federal Inland Revenue Service (FIRS) chairman, disclosed that compared to the population of over 200 million people, many Nigerians are evading tax.
While acknowledging that Nigeria has 41 million taxpayers as of 2021, he expressed concerns that Nigeria has earned less despite the population and number of taxpayers when compared to other African countries.
Personal Income Tax (PIT) is the topmost tax paid by Nigerians, either as Pay as you earn or Self-assessment. Although the tax is a federal responsibility, it is collected at the state level.
Considering the young population of Nigerians, net taxpayer demography is expected to grow as additional thousands join the workforce. However, the NBS unemployment statistics might already explain why the tax revenue numbers dwindled in the last couple of years. The unemployed persons between Q3 of 2018 and Q4 2020 rose by another 2.2 million persons, meaning an estimated 2.2 million persons lost their jobs within this period.
Meanwhile, data from the World Bank revealed that self-employed persons in Nigeria make up 79.8% of the total employed population of the country (data as at 2019). With this figure on self-employed persons, it could be safe to say, the bulk of Personal Income Tax (PIT) payers in Nigeria are self-employed.
A survey jointly conducted and published in 2019 by the National Bureau of Statistics (NBS) and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) revealed there are 41.543 million MSMEs in Nigeria. 41.4 million micro-enterprises; and 73,081 small and medium enterprises.
With Covid-19 leading to job losses, it may mean the numbers of self-employed persons may have increased as of 2021. An estimated 20% of Nigerians were reported to have lost jobs due to Covid-19.
Data from the World bank using the International Labor Organization estimates showed that there were 62.24 million persons in Nigeria’s Labor force. Comparing the number of the Labor force and the number of MSMEs in the country, it may be safe to say based on data, tax collection problems lie on self-assessment tax remissions.
Could multiple taxation and unawareness explain why MSMEs & Self employed don’t pay tax?
A report had hinged the non-payment of tax by Nigerians on ignorance. The report noted that while Nigerians owning companies are meant to be equipped with laws required with setting up companies, many are ignorant of processes of paying tax, by implication, there is no actual tax provision for their staff to fulfil the P.A.Y.E obligation.
Also, a survey by the Nigerian Economic Support Group noted the challenge of the tax system in Nigeria as related to administrative issues of how to pay, when to pay and where to pay taxes.
Many organizations have been deducting taxes of their workers but those who are to pay tax on the basis of self-assessment since they are self-employed have become challenging.
A report had revealed how multiple taxations, mostly business levy, weigh down small and medium scale enterprises in Nigeria. Although the business premises levy is being enforced at the local government level in Nigeria, income tax remains a problem in Nigeria for self-employed persons.
The issue of identity management may also have hindered the decision on the actual database of employed Nigerians and those at the threshold of Tax payment, the government hopes the National Identity Number being deployed to be used as a tax payment tool will be effective.
Doing the calculations, with 62.2 million persons on Nigeria’s labour force (2019) and 41.5 million MSMEs, providing over 76% of Nigeria’s labour force, analysis of the prevalent and relevant data says there may be a need on strengthening tax payment by Nigerians under the context of MSMEs especially direct assessment tax.
Does Nigeria Have Data for MSMEs?
Nigeria may not formally have the actual number or records of MSMEs in the country.
Nigeria through the SMEDAN and Nigerian Bureau of Statistics last carried out a survey for MSMEs in Nigeria in 2017. Surveys were also carried out in 2010 and 2013.
Although the MSME sector is said to account for 59 million jobs in Nigeria, many of the organizations in the MSME are not registered with the Corporate Affairs Commission (CAC).
This leaves them out of the tax net, thereby leaving the country with no taxable data about the organizations nor allow self-assessment for tax nor for their employees.
The CAC reported that over 40 million MSMEs were unregistered in 2018. The federal government tried to mobilise MSMEs to register in 2020 when the government announced free registration for 250,000 MSMEs in the country.
It was then announced in January 2021, that 100,000 MSMEs had benefited from the free registration.
With the chunk of taxpayers in the country not captured by adequate data, this may be a peculiar problem with tax payment in the country.
Which Way Forward?
An expert, Samuel Atiku, advised better data management and harmonisation of the database of taxpayers across levels of government could be the way to go. In his view, while many of those in the informal sector pay tax, some of those that could be said to be personal income tax, there is not enough legal structure on defining many taxes paid by the informal sector.