When we talk about tax or taxes, we mean a mandatory payment or charge collected by governments—local, state, or national—from individuals or businesses according to their income, value of their property, etc., to pay for the things that governments do.
What is a Tax Base?
Tax base is a term that is used to describe the total value of assets, income, and economic activities that are subject to taxation by the government through the tax authority.
The four most used tax bases are:
- Individual Income Tax
- Corporate Income Tax
- Sales Tax
- Property Tax
Nigeria’s Tax Structure
Nigeria operates a decentralized tax system in which the various levels of government are responsible for the taxes within their jurisdiction. They also employ the progressive tax system, where those with higher incomes pay higher taxes.
- The Federal Inland Revenue Service (FIRS) is the national body saddled with handling all tax matters at the federal level.
- All states and local governments equally have Internal Revenue Boards saddled with the responsibility of tax collections and remittances.
Why Taxation Matters
Federal, states, and local governments across the nation need money to finance their expenditure, which includes infrastructure and social services. There are two major ways for governments to do this:
- Borrowing
- Taxation
Taxation is a preferred option, since borrowed funds have to be repaid—most times with an interest element.
Based on the above premise, there is a need to widen the tax base at all tiers of government in the country, being hopeful that those in charge of governance at all levels will judiciously use income generated via taxes for the benefit of the entire nation and its citizens—and not for their selfish interests at the expense of the teeming populace.
Types of Taxes Paid in Nigeria
Some of the taxes paid in Nigeria include:
- Personal Income Tax / Pay As You Earn (PIT / PAYE)
- Company Income Tax (CIT)
- Value Added Tax (VAT)
- Withholding Tax (WHT)
- Petroleum Profit Tax (PPT)
- Capital Gains Tax (CGT)
- Education Tax
- Stamp Duties
How Can We Grow Our Taxes?
- Enlightenment
Creating awareness through the National Orientation Agency on the need for compliance by citizens in meeting up with their tax obligations and what the entire society stands to gain from the pool of funds will make more citizens willing to pay. - Accountability
Intentionality by government in using taxes generated thus far for society building in terms of infrastructure and social services will encourage those who are unwilling to see the need and begin to pay. - Sanctions
Getting defaulters to face stipulated sanctions (not self-driven sanctions for personal gains by revenue workers) will serve as a deterrent to defaulters. - Reorientation of Revenue Staff
Reorienting revenue staff in the core values of integrity and patriotism in carrying out their duties and remitting every kobo collected to the appropriate account. - Automation
Building of automated systems that make it very difficult for diversion of all generated funds into personal pockets.
FIRS Tax Collection Performance (2020 – 2024)
In the most recent years, the FIRS has grown their tax collections commendably and should continue to improve even as the government and their officials commit to using the generated revenue for effective nation building.
Below is a summary of total taxes remitted to the federal government of Nigeria between 2020 and date by the FIRS, in naira:
| S/N | Tax Year | Tax Generated in Trillions (₦) |
|---|---|---|
| 1 | 2020 | 4.95 |
| 2 | 2021 | 6.40 |
| 3 | 2022 | 10.18 |
| 4 | 2023 | 12.37 |
| 5 | 2024 | 19.40 |
The table above shows a steady growth.
Some persons may want to water down the efforts of the FIRS by putting up the argument that the value of our naira today is far worse than it was in 2020 and 2021 with an inflation rate of over 300%.
As much as this may be true, the income of taxpayers has not risen considerably, and as such, the increase in tax figures seen above actually reflects great work by the tax board in getting in more revenue for the government.
We do hope that the Nigerian government will step up their game in the judicious use of the revenues generated. Otherwise, this widening of the tax base in Nigeria will be an exercise in futility.