Someone gracefully availed me of this very recent report (authored in August 2017) by a team of tax experts from the International Monetary Fund, who were on ground in Nigeria for a comprehensive assessment at the behest of the Honorable Minister of Finance, Mrs Kemi Adeosun. The IMF it must be said was set up to lend to, and advise countries about their finances in such as way as to reduce global shocks caused by economic mismanagement in countries – though there are a plethora of reasons for which people say their agenda is quite different. So, whereas I believe that local consultants who understand the nuances of Nigerian economy, culture and history may have done a more adaptable work, the effort of the IMF team was nonetheless commendable. I hereby share some of their – and my own – insights on Nigeria’s tax system and its challenges, as well as what we could do much better going forward.


The IMF team was as expected very heavy on the need for Nigeria to increase VAT from its present level of 5% which is indeed low compared to most other jurisdictions (Ghana was17.5% until July 1, 2017 when the policy changed to 3% of all turnovers at all stages of production which critics say take the VAT above 20%). They assert that a 5% increase in VAT should deliver a 2% growth in GDP (which will take us out of recession).

Now I want us to dwell on the growth effect for a while. In spite of the flaws of GDP, if we train our minds on what can achieve growth for us, some picture begins to get clearer. The focus is on HOW we can grow the economy. VAT is only one way. The emphasis on VAT is usually because it is adjudged fairly easy to administer. All a government has to do is raise the rates and many businesses begin to remit. The disadvantage of the VAT route for Nigeria today is that it applies to almost every business, in which case almost every Nigerian will feel the effect immediately. Already the FIRS says 70% of VAT-able companies simply do not remit. Given the anger in the land and people’s distrust of government – many times well-deserved in view of how taxpayers’ money is embezzled and misappropriated (which we read in newspapers everyday and see in broad daylight) – I believe raising VAT in Nigeria for now will be very problematic. The currency is trust, which our leaders have consistently frittered away in recent times. The team believes that a well-administered VAT will have zero effect on the cost of goods in a country (i.e. no Inflation), but such administrative competence is alien to Nigeria, therefore Inflation will certainly spike, with many of the cheaper goods (like sachet water and transportation) climbing 50-100%. All Nigerians have to hear is that VAT was increased and higher prices will be unleashed on hapless salary-earners and even those who have no income in a country with high unemployment rates.

Of note is the fact that in Nigeria there is no threshold for qualifying to pay VAT. There is also no provision for companies to net off their VAT payments from their VAT receipts as is done in places like the UK. There is of course no VAT refund for foreigners departing the country after shopping. This means that our VAT – even at 5% – is lopsided, and could effectively be over 10% in real terms already on those who pay. The burden of this ad valorem VAT is heavy on society and may be a reason why it’s usually avoided and evaded.

The issue still remains; how is tax revenue being spent?


Curiously, the IMF team warned against the levying of luxury taxes in these words; “The introduction of separate excise duties on a wide range of luxury goods should not be considered”. This is curious because the World Economic Forum (WEF), which partners with the IMF and World Bank, has it that for as far as the eye can see, income inequality will be the biggest problem economies will have – especially economies like Nigeria’s. See http://www.theweek.co.uk/80473/rising-inequality-biggest-threat-to-global-economy-says-wef.  We are daily regaled by past corruption. Diezani’s cases are just one. We see the number of properties that she acquired and how she truly lived a life of opulence. She’s not alone. Most privileged powerful Nigerians are like that. A serving Senator even accused the Inspector(s) General of Police of collecting N10billion monthly in protection money from businesses; monies which are totally unaccounted for. I believe Nigeria could raise a lot of money from taxing luxury items because in this country there is presently no cost borne for living lives of luxury – except of course the monies paid to police for protection. Nigeria’s money class have since found out that this country is the best – and perhaps the only – place on earth where you can enjoy to the hilt and oppress your fellow man even with monies stolen from him, with absolutely no consequence. We are the country with the most numbers of exotic cars plying roads full of craters. A luxury tax should be encouraged, not discouraged.  The team in another paragraph did recommend that only luxury cars be considered for this luxury tax – eventually, but I proffer that the tax base for luxury cars will be too narrow to make any difference. If our government is serious they will effect luxury tax immediately.


This is where most of Nigeria’s money is lurking. It is even cheaper to administer compared with VAT, and it is very broad based. Excise Duties are such as are administered on goods produced within a country in a way that will internalize the external costs of the enjoyment of such goods. Some goods have external costs when enjoyed, which is borne by a larger population. Therefore producers of such goods must pay the cost that their goods cause to society.  Sumptuous consumptions such as cigarettes, alcohol, gambling are such items. Alcohol has been found to have a high correlation with crime, road accidents, and a high public health bill. It is therefore surprising that Nigeria being the highest consumer of Alcohol on the continent, also has the least tax on such products even on the continent! What will it cost us to effect this tax and start raking in billions, while reducing our people’s propensity for alcohol?


One thread that ran through the report is the need to focus on the environment. As an accidental environmentalist myself, this is an area that has preoccupied my thoughts for years now, and one in which I believe lies too many potentials. You see, for me, I am less interested in the task of swelling the coffers of government but in what the monies are used for. I am more concerned with the quality of the Nigerian person; the same quality which sees nothing wrong in the mal-appropriation of the commonwealth. Since our leaders are chosen from amongst us, it goes without saying that we are stuck in a vicious cycle of bad leadership as myopia takes over from myopia, and we continue doing things in substandard manners. How do we improve the level of our humanity? How do we understand the need to improve the collective and to live for one another? How do we understand that it is silly to simply take what belongs to others for oneself and then create a society where we cannot even enjoy that which we’ve stolen? I believe the answer lies in the environment. Respect for the environment is respect for humanity. I don’t intend to sound like a tree-hugger. I am not even talking about Climate Change here. I am more concerned about the connection of the average Nigerian with his surrounding. I am more concerned with the way we live our lives here that made racists and eugenicists at the turn of last century believe we were sub-humans. Why do most Nigerians see nothing wrong with filth and stench especially in public areas? What can we do better? Those are the concerns.


And so the IMF report noted that Nigeria is notorious for having the lowest taxes on environmental issues even in Africa. That is shocking, given that we are the ‘giant of Africa’. Will we wake up one day and the likes of Kenya and Ghana would have surpassed us in everything good and sustainable? What could be responsible for this state of regression? How come we are being told to copy tax codes and research work from Ghana, South Africa, Kenya, and even smaller countries? Recently, politicians who contested for elections in Kenya started removing all their posters the moment the election was over. They also paid government for the privilege of littering the cities. In Nigeria, nobody cares. And our politicians are more powerful than the state.

I recall visiting Kigali, Rwanda in 2014. One thing I found remarkable is that even small shops never use plastic/nylon bags (which we funnily call ‘leather’ here). In Kigali they only use brown paper bags because they are futuristic and truly love their country. Perhaps that is the place to start – for both leader and the led to love this country.

These are the items upon which Nigeria collects little or no excise duties in comparison with even other African countries and in spite of the externalities (cost to society at large e.g. high public health costs, road accidents, domestic violence, pollution, soil damage etc), which need to be provided for;

  • Cigarettes
  • Alcohol
  • Gambling
  • Plastic Bags
  • Aluminum cans
  • Sugary drinks
  • Chocolates and sweets
  • Motor Fuel
  • Among others.

The way things work in Nigeria, I will not be shocked if just because a powerful policymaker indulges in any of the above, he prevents any additional taxes which takes care of other people. Sometimes, it is that simple here. The man smokes, and so legislation that could increase taxes on cigarettes never see the light of day. He drinks, and so nothing can touch alcohol. This is not the way to run a country. Why should we not be able to tax gambling for example? Recently, it was revealed that Nigerians spend N308billion betting daily.  The fastest growing business in Nigeria is Sports Betting, after Hotels and drinking joints. Nigeria should study other countries even in Africa and see how they are able to tax gambling.

Anyway, according to the IMF Report, Excise duty on tobacco and alcohol is 2.3% of tax revenue and 0.1% of GDP in Nigeria, a dismal performance compared with 12.3% of tax revenue and 3.2% of GDP in similar countries like Kenya, Ghana and South Africa. Can we begin to see where Nigeria is hemorrhaging money and how we can grow this economy in leaps and bounds?

Let’s look at the IMF Report once more; Excise duty on Tobacco is 16% in Nigeria. There is little consideration of the social cost of smoking, and the ban on smoking in public places was never taken serious. Elsewhere, especially in advanced countries, where they care about their citizens and are tired of treating cancers and other smoking-related ailments, the excise duty is 100% and above.  Cigarettes are therefore extremely cheap in Nigeria. In Kenya and South Africa, excise on cigarettes averages 35%. Also despite knowing that 10% of disease burden is caused by alcohol, Nigeria, which the IMF Report described as ‘the highest alcohol-consuming country in Africa’ takes a paltry 20% excise duty on a value-added basis. The IMF advised that we could immediately double what we collect on alcohol. The argument against this – which I’ve often heard is that Nigerians wipe away their sorrows using alcohol. That argument is simply untenable and unserious. We cannot be a nation of drunks. A friend of mine tells me of the untold amounts that young Nigerians spend on alcohol in our nightclubs every night. They have every right, but they should pay for the luxury. These are the young men who have destroyed almost every street light pole in the city because of drunk driving, including narcotic addiction. Abuja where I live is a clear example of how taxes and fines should have been used to organize a city. However, Abuja presents an evidence of total neglect… or just plain insincerity over the years.

The Report also weighed the benefits of taxing sugary drinks given their health effect but decided to shelve that for now. I believe such should be introduced with immediacy and not shelved. Again excise duties will be better than VAT increase in my view. We do have a predisposition as a people, to obesity, with the exception of a few tribes like the Fulanis. We should start working towards healthier lifestyles. The IMF Report treated healthy lifestyle as something that is beyond us for now – perhaps because of the general consensus that Nigeria is a food-poor country. But for those of us who know, we see that we can start emphasising healthy living among the rich and middle class, in such a way as to generate funds to take care of the very poor and disadvantaged. More so, we need to lower public health bill, especially the now frequent occurrences of lifestyle diseases like diabetes and high blood pressure, to which we are also more disposed than other races.


One of my areas of disagreement with the report is in its recommendation of excise duties on petroleum products like Diesel and Petrol. Additional taxes on diesel may fly, but petrol has become too combustible in Nigeria, pardon the pun. A wise government will look elsewhere. However, a properly-implemented carbon-dioxide-linked car tax is way overdue in Nigeria, and was dwelt upon in the Report, but will our untouchable ‘big men’ subject anything of theirs to proper inspection and tax-valuation?

This is what the IMF recommends in this area:

These taxes can and should be differentiated in ways that reflect attributes of the vehicle related to environmental friendliness (type of fuel, polluting emissions, presence of catalytic converters), passenger vs. goods transport (number of passenger seats, weight, number of axles), social considerations (exemptions for disabled people) and vehicle age. This differentiation has the potential to influence car purchasers’ decisions towards vehicles meeting specific requirements

We can see that the purpose of tax is not just revenue-generation, but also to influence public choices and organize society. Our focus here has always been revenue-generation. To make matters worse revenues are not well-accounted for.


Also I do not agree that airtime (calls on GSM) should be taxed just because many people use phones. This advice from the IMF Team is one that plays to the mistake of seeking revenue by every means.  Yes Nigerians call a lot. It may be smart to introduce taxes which they may not feel that much. But it’s a strategy that can bite government for the same reason that it affects most Nigerians. Nigerians don’t joke with their calls even if most of it is idle chatter.

The distrust stemming from years of mismanagement will also come up in this area. Just facing the ethical issues alone, as well as environmental issues will do the trick for us. In my book ‘Change is Going to Come’, I didn’t have to be an IMF expert when I advised and urged along these lines as far back as 2014. In 2015 in begged the Buhari government to just introduce a program titled ‘The Cleanest, Safest and Most-Organised Country in Africa’ and to coalesce our youths’ energies behind and around such a program as a sure way of getting out of the doldrums. Of course I was ignored. Now we have to pay the guys at IMF so much money to tell us the same thing, and insert their own agenda here and there. I note though, that the same importance that I put on recycling and other environment engagements as job-creators was a core plank of the IMF Report.


The thing is that we all know the right things to do in this country. Nigerians travel too often – more often than any other peoples on earth – and we see how other countries are run. It’s certainly no rocket-science. It’s all about ORGANISING society.  I wrote recently that if we organize ourselves there is money to be made. The entire document from IMF is merely urging us to organize ourselves and get serious. I recall the only Economic Summit organized by the APC after they won the election. A lot of professors came there and everyone was complaining about how to fund our lofty ideas. At plenary a white lady was recognized to ask a question. She said “Nigeria is the only country I’ve been – and I’ve been to a few in my time – where no one gets fined for over-speeding. How then do you intend to fund anything?”. Two years and some after, we are still wondering how to fund the budget, and worse, we are borrowing money copiously from abroad when everything we need is well within our reach, if only we will rearrange our sitting room. I believe we can fund this economy without borrowing from anywhere.


Other issues worthy of consideration but no less important, stemming from the report, include the fact that Nigeria hardly bothers with property taxes despite its huge potentials and being a work-horse for taxation in other countries. Property-owners, many of whom are super-rich, simply want to pay zilch. I recall a motion raised months back in the Akwa Ibom House of Assembly, on property taxes. It was the residents of the uber-beautiful Ewet Housing Estate who killed it with much venom. They don’t understand why they have to kick anything to those who are less-privileged. Or perhaps they are suspicious of the way those in government (who also live in Ewet), will use the money. If it is the earlier, then it reminds me of the adventures of Jack Black in the movie titled “Year One”. They showed in the movie, that an attribute of a primitive society is selfishness. If a thatched hut was burning, others refused to help because it wasn’t their hut… until their own hut catches fire too and by then its too late…. The whole community is razed to the ground.


Of course corruption is a major issue. In Nigeria, it is one-week-one-scandal, too many to mention here. Some of the stories are simply mind-boggling. What about the continuous break in connection and distrust, fanned by the decisions of our National Assembly members. How can the Senate still be buying luxury SUVs in a recession and now we are talking of the people, and their businesses, paying more taxes? How can the House of Reps be buying N17million cars each even though a similar transaction was done last year? Of course the IMF noted this misappropriation/distrust as the biggest impediment to tax collection in Nigeria even though in my view it did not paint a picture that was vivid enough for our marauding politicians. Our tax compliance rate is less than 30%!


The report equally complained about the misuse of tax waivers and exemptions as well as different regimes of incentives. It also noted that different ministries maintain different waivers for different stakeholders and that such should be harmonized. Businessmen are always arm-twisting government for more and more waivers and exemptions. The issue is always politics. In the Jonathan government we learnt how all sorts of entities obtained these waivers, but even presently it isn’t certain that some new set of people are not getting their ways and getting away with super-profits. The IMF recommends a total stoppage of waivers, but that if taxes are reasonable enough, and well-designed, there will be more compliance. They recommend the government hinging its tax policies on the need to fulfill the commitments arising from the Sustainable Development Goals (SDGs) of the United Nation so as to get more buy-in. This is logical enough only that our politicians seem disinterested. The IMF must have known this when it complained in the report that our state and local governments do not even bother to render accounts of whatever they collect as taxes or rates!


One important tax workhorse which I didn’t find in the Report is the Capital Gains Tax. In countries like the UK, these are payable on property sales, or indeed anything that is held and sold for profit. They are chargeable on the profit element of say property of shares. I am aware that hardly do people pay taxes on property sales in Nigeria and it’s as if the law does not exist, but it does. People have bought lands for N1,000,000 and resold at N100million, only to pay tithes in churches. The non-prioritization of this kind of important tax shows we have a long way to go. And these should be fairly easy to collect when people step up to perfect land and other assets documents. Trillions lurk in CGT for Nigeria every year. It’s our considered choice that we have simply neglected it.

I still see no reason why our economy should not grow by 15% yearly, or at least 10%, if we were half-serious. The gaping holes have been laid bare and we will be doing ourselves a big favor if we hang the large egos for a minute and do what is needed for humanity – our own humanity. It tells a sad story of recent economic management that non-oil taxes which was 15% of GDP as at year 2000, declined to 4% of GDP in 2016. Yes, the rebasing is a factor, but the decline is unacceptable. The IMF did also say that all its previous reports were not properly disseminated through the Nigerian government system, therefore MDAs with follow-up responsibilities did not know what to do. Hopefully we will not again go to slumber on this new report.


I end by considering – from my own perspective as a chartered accountant – what makes for a good tax. It should be justifiable. It should also be payable, meaning those on whom it is levied should be able to pay without having to go through so much pain. Again a good tax should be progressive, because at the end, it is about creating a better society. Hence the heavier burden should be on the right strata and echelon of society. This is where the luxury tax is okay for Nigeria. A good tax should also be accountable. When you collect, make it known how much. This builds confidence. Also let people know why they are paying and what monies are to be used for. For now, the ongoing Stamp Duty collections reintroduced on every banking transaction in 2015, and which is levied on students, pensioners, minimum wage earners, and the physically challenged alike, does not qualify as a good tax.

In the final analysis, a good tax should help to organize society by prodding people to take certain decisions that are beneficial with social progress and collective development. The focus should not only be on volumes. In the case of Nigeria, the handwriting is on the wall because the more we try to raise big money, the more people evade. And what is more, the choices that we put taxpayers’ money to has made them more and more cynical and unwilling to comply.