According to the Federal Inland Revenue Service (FIRS), tax payer compliance will only increase when they are confident that money raised will be put to good use.
This was said in the opening remarks by Muhammad Nami, Executive Chairman of FIRS, at the Nigeria Governors’ Forum’s unveiling of the Public Finance Database in Abuja.
Nami argued that the breakdown of the social contract between the government and the taxpayers was the cause of the low compliance rate for tax payments in the majority of developing countries.
He stated that political leaders in the nation have a responsibility to encourage tax-paying culture by connecting the projects and infrastructure improvements they carry out to the taxes paid by taxpayers.
To be inspired to continue upholding their end of the social contract they have with the government, tax payers need to see what has been done with their money.
“I am pleased that a session will discuss how tax-for-service programs affect tax collections. Because there is a connection between the efficient use of tax money and tax compliance, this issue is important to us as tax administrators.”
“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. The government should be dedicated to using the revenues for the benefit of all residents if the citizens are committed to paying taxes, he said.
The head of FIRS also suggested that taxpayer-funded initiatives should be reported as such and not be given individual names so that people would start to associate them with their taxes.
“Those in political leadership should promote the tax-paying culture by linking the initiatives and infrastructure improvements they implement to tax,” he continued.
“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 urged the nation to embrace a radical paradigm shift by harmonizing its tax structure to maximize revenue collection.
“There has recently been a call for a comprehensive examination of our tax structure. Its supporters, including myself, have maintained that our tax system needs to be harmonised if Nigeria is to realize its potential for tax income as the center of economic development.”
“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.
