Why 'Nobody' Pays Tax in Nigeria

First, consider these scenarios:

A 25-year-old entrepreneur stands looking over the new batch of Turkey dresses she ordered, sprawled out on her grey two-seater couch, taking inventory of her latest stock and counting her marketing costs. This young lady launched her fashion retail business in 2018 and has never paid taxes to the government, because well, she just runs an online business, and is barely making ends meet.

A young startup founder whose team is rapidly growing into the '11-50' company size range decides to take a company-wide poll about what the employees thought about deducting taxes from their monthly pay, in compliance with the country’s regulations. However, this business owner receives the shock of his life when his staff raised valid concerns about paying taxes. The question on the lips of most was, ‘We don’t see what it’s being used for. So, why should we pay?’

There’s also the case of the business owner who genuinely wants to file her taxes but has not the faintest idea as to how to start, what office to go to, what forms to fill or whom to speak to.

According to a 2020 report by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), at least 39.6 million small and medium enterprises (SMEs) were in operation in Nigeria, accounting for 46.31 of the country’s GDP and 96.7% of Nigerian businesses.

Yet, it is reported that about 80% of these businesses do not pay their taxes regularly to the government. Do you now see why we said ‘nobody’?

By law, SMEs are required to pay income tax, company tax, sales tax, employment tax, and self-employment tax. However, many have managed to avoid paying these structured taxes, depriving the treasury of billions of naira annually.?

Based on the scenarios highlighted above, these are some of the common reasons most Nigerians do not pay taxes:

Difficulty of doing business

Nigeria is ranked 131 out of 190 in the World Bank's Doing Business 2020 ranking for overall ease of doing business, and 159 for paying taxes. Those who have endured a difficult business climate, such as the economic recession, COVID-19 lockdowns, inflation, high production cost, and government import prohibitions, frequently find it difficult to comprehend why they should file regular taxes, as they are barely keeping the business afloat.

Lack of transparency

In the natural order of tax systems, the government keeps its half of the bargain by ensuring that individuals pay their fair share of taxes and have access to the public services they require to enhance their lives. But the word 'tax' conjures up a lot of images for the typical Nigerian. There's the recollection of him being obliged to pay a portion of his meagre salary to a country, only to be denied power supply or quality education for his children. This is the case for a large number of Nigerians because they believe the government has broken the social contract of taxes, and not kept to its end of the bargain. It’s become a cyclical pattern of citizens evading taxes, leaving the government with less to provide amenities, and citizens not receiving the infrastructures they need to thrive and thus not paying taxes.

Low level of tax education

The concept of taxation is complex for the average citizen. There’s a heavy need for tax simplification, especially with definitions, laws and calculations. Millions of individuals and business owners see the tax process as tiring - as they are expected to visit the tax office to fill out forms and submit relevant documents, leaving many unsure of what they are expected to pay.

To solve this, technological solutions like Eazipay are helping individuals and businesses process and remit taxes, compliance and statutory deductions at no extra cost. They take up the rigorous process of filing taxes and make the process seamless without leaving your work desk. While the Nigerian tax process isn’t perfect yet, tax evasion still stands as a punishable offence in the country. Embracing solutions that simplify the process for you and your business is highly essential.

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