One of the characteristics of Third World nations is that the efficiency ratio of the independent class (people between 18 to 60 years) is low. Nigeria has a high ratio of people in this class. Most people in this category are unemployed; as a result they cannot contribute to the development of the nation. Any attempt to tax these people will be regarded as “taxing the poor”, based on our extant law on personal income tax. In a country with a huge population, like Nigeria with over 220 million people and with a high rate of unemployment, should people of working class age be left without paying taxes? Should able-bodied men and women who are supposed to be fending for children (0 to 18 years) and the elders (60 years and above) be catered for by the few taxpayers and the government? The answers depend on the personal income tax laws of a nation.

Personal Income Tax (PIT) is a direct tax charged on the income of a person. In the context of personal income tax, a ‘person’ means an individual, a sole proprietorship (non-juristic person), communities and families and executors and trustees (of an undivided estate). Personal income tax in Nigeria is guided by the Personal Income Tax Act Cap P8 LFN 2004 (as amended). In Nigeria, the tax is imposed on income of individuals, corporate sole or body of individuals, communities, families and trustees or executors of any settlement or an individual. A PIT payer is entitled to a Consolidated Relief Allowance of N200,000 or 1% of gross income whichever is higher, plus 20% of gross income. Section 24(f) [11] of the 1999 Constitution of the Federal Republic of Nigeria (as amended) provides that “it is a duty of every citizen to declare his income honestly to appropriate and lawful agencies and pay his tax promptly.” Cost of tax collection is a bane in Nigeria.

The rate of personal income tax in Nigeria ranges from 7% to 24%, depending on the amount of chargeable income – individuals are subject to minimum tax of 1% of gross income where the income is less than N300,000 per annum. The tax is administered by Federal Capital Territory (FCT)/States Internal Revenue Service (IRS) in respect of their residents. The tax is also administered by the Federal Internal Revenue Service (FIRS) on non-residents, members of the Armed Forces, Police, Officers of Nigerian Foreign Service. The due date for filing returns of the tax is 31st March of every year. The due date for remittance of Pay As You Earn (PAYE) is the 10th day of every succeeding month. There is usually “tax amnesty” to those who are not in employment and those who are not employable in some countries. PAYE workers hardly pay their taxes because of the distrust in government using the tax judiciously and the high rate of corruption in Nigeria.

According to the tax law of Nigeria, an employer shall file return of emoluments and tax deducted from the employees in the preceding year not later than 31st January of every year. A person who fails to file a return shall be liable on conviction to a fine of N5,000 and a further sum of N100 for every day during which the failure continues or imprisonment of six (6) months or both. Any employer who fails to file a return, shall be liable on conviction to a penalty of N500,000 for body corporate and N50,000 in the case of an individual​. The N5,000 fine and a further sum of N100 for every other day thereafter is an incentive for tax evasion and should be changed to commercial bank interest rates’ equivalent to the amount of tax.

Nigeria is one of the countries with low tax rate and tax collection rate in sub-Saharan Africa. At 7.5 percent, Nigeria has one of the lowest VAT rates in the world, well below the regional Economic Community of West African States (ECOWAS) requirement of 10 percent. Achieving the Sustainable Development Goals (SDGs) and implementing the Addis Ababa Action Agenda and the African Union’s Agenda 2063 requires mobilising additional finance, in particular domestic resources, to fund public goods and services. Nigeria needs to harness the personal income tax, especially as it has a more independent population than dependent population. There is a need for tax policy reform to ensure domestic resource mobilisation.

In 2019, the unweighted average tax-to-GDP ratio for 30 African countries in a study (the “Africa (30) average”) was 16.6% (see Brochure: Revenue Statistics in Africa 2021 – OECD). The tax-to-GDP ratio refers to total tax revenues, including compulsory social security contributions, as a percentage of gross domestic products (GDP). The Africa (30) average in 2019 was below the averages of 24 Asian and Pacific economies (21.0%), Latin America and the Caribbean (LAC) (22.9%), and the OECD (33.8%). Tax-to-GDP ratios in Africa in 2019 ranged from 6.0% in Nigeria to 34.3% in the Seychelles and Tunisia, exceeding 28% in four countries (Morocco, the Seychelles, South Africa and Tunisia). With the dwindling oil revenue, Nigeria must think outside the box to be able to finance its statutory responsibilities without recourse to loan.

All nine resource-rich countries in this publication had tax-to-GDP levels below 15% in 2019, whereas most non resource-rich countries had ratios above this level. Resource revenues are mainly generated through rents and royalties, which are not classified as taxes in the report. Nigeria cannot be classified as a resource-rich country because of the low ratio of oil revenue to the population of the country (over 220 million). The only solution to the situation of Nigeria where debt payment now exceeds revenues being generated according to the minister of finance, Zainab Shamsuna Ahmed, is for the government to make tax compulsory for the people in the working class as a civic responsibility. Tax compliance level in Nigeria is too low for the responsibilities of the nation. Young and able Nigerians do not work because they do not have responsibility to the government. Compulsory personal income tax for every able-bodied Nigerian of working age will put more people at work and act as inducement to individual productivity, national wealth creation and efficiency.

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