Ineffective tax collection, a sign of state weakness

An ongoing drama over the federal government’s attempts to collect N30 billion in import duties from private jet owners demonstrates the country’s fiscal mismanagement and failure to force the elite to obey the law. Weeks after the government mandated the Comptroller General of Customs, Hameed Ali, to immobilize 91 private jets owned by wealthy Nigerians for their refusal to pay import duties, no plan to implement the presidential directive has been made public by the competent authorities. Incidentally, the Nigerian Civil Aviation Authority, the Federal Airports Authority of Nigeria and the Nigerian Airspace Management Agency have been expressly mandated by the Nigeria Customs Service to stop the affected private jets “with immediate effect”.

A sure sign of a weak and corrupt state is its inability to compel a significant portion of the population to obey the laws. The government’s weakness in collecting taxes owed from the elite class in the midst of a severe cash shortage is an unacceptable drift into state bankruptcy.

Owners of failed private jets collectively owe import duties of around N30 billion. That’s a huge slash on Nigeria’s income profile at a time when the country is in the throes of a borrowing frenzy to address a severe income shortfall. No serious government looks helpless when one of its revenue streams is compromised.

Regulators were specifically required to indefinitely deny failing private jets administrative and operational permits to fly. Those affected by the order include some high-ranking clerics, business tycoons, and CEOs of banks and oil companies.

A letter from NCS to the agencies read: “The Federal Government, in its quest to increase revenues, has mandated the Nigeria Customs Service to immediately recover from defaulting private aircraft owners the required legal import duties on their aircraft. imported planes. ” Nothing has been heard about this since the announcement. It should not be swept under the carpet like many previous scandals.

It is a sad reflection of the fiscal reality in Nigeria that those who should pay taxes often fail to pay, while many of those who do end up doing one crime or another at the country’s expense. Without a doubt, most rich Nigerians are not paying their due. Indeed, taxes are the main source of government revenue worldwide, and tax evasion is a serious offense that carries severe penalties from both government and the courts. No matter how high up they are, tax evaders are bound to face all the wrath of the law.

In 2017, Argentine soccer superstar Lionel Messi and his father Jorge were found guilty of defrauding Spain of € 4.1million between 2007 and 2009 while playing for Barcelona. A Spanish court sentenced him to 21 months in prison, which was later turned into a fine. As a result, he had to pay € 252,000, or € 400 per day of sentence. Two years later, Portuguese footballer Cristiano Ronaldo was fined € 18.8 million for tax evasion. Prosecutors said he dodged taxes in Spain between 2010 and 2014, while playing for Real Madrid. He only avoided a potential 23-month prison sentence by agreeing to a settlement.

These are countries where the law is no exception. This is not the case in Nigeria. In January 2021, Federal Inland Revenue Service chairman Muhammad Nami lamented, “Many wealthy multinational corporations do not pay the taxes owed to them, let alone pay their taxes voluntarily. The country lost $ 178 billion to tax evasion by multinationals in the 10 years leading up to 2017, he said.

Earlier in 2017, a government report commissioned by FIRS and the Joint Tax Board found that “only 40 super-rich Nigerians pay the correct income tax.” This is quite disheartening and does not bode well for the economic well-being of the country, especially since the tax-evading wealthy class has an insatiable taste for luxury. The African Business Aviation Association has estimated that although China is leading the way globally, Nigeria is the world’s second fastest growing market for private jets and is home to more private jets than Africa. from South. Then-Finance Minister Kemi Adeosun reported in 2017 that only 214 Nigerians paid more than N20 million in income tax and they all resided in Lagos. In a country with so many billionaires, it is scandalous.

Among other factors, the lack of political will is at the heart of the failure to improve the country’s tax revenues. This should not be allowed to continue. Government at all levels should develop the capacity to collect taxes. A country that suffers from a huge capital deficit should do everything in its power to ensure that it mobilizes all of its income, especially from the privileged class. The inability to effectively collect the tax component of the country’s income explains why Nigeria’s tax-to-GDP ratio, at 6.3% in 2018, is considered very low. According to the OECD, it was 10.2 percentage points lower than the average of 16.5 percent for 30 African countries, and lower than the Latin America and Caribbean average of 23.1 percent.

The OECD study found that in 2018 alone Nigeria’s non-tax revenue stood at 3.1% of GDP, compared to an average of 6.5% for 30 other African countries. Interestingly, rents and royalties made up the largest share of non-tax revenue in 2018, amounting to 2.0% of GDP and 66.6% of non-tax revenue. These numbers could have been improved if the government had widened the country’s tax net to attract more taxpayers and was determined to enforce tax payments without fear or favor.

The scenario at the sub-national level is more disheartening. The collection of taxes by state governments is extremely low, as it is mainly government officials and employees of a few companies who pay taxes. This should be reversed to increase the revenue base of states. It is only when a large population of the country pays their taxes that the economy can become more formalized. States should promote productive economic activities and reform their fiscal policies to end the current dependence on monthly federal allowances.

The law must be applied to the letter. The NCS should act quickly and impound all aircraft whose owners refuse to pay the corresponding taxes and levies. The government should stop treating wealthy deviants with gloves while brutalizing the poor and young people for real and fabricated crimes. FIRS should step up its game, improve its processes by applying the latest technological tools and show zero tolerance for delinquencies.

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