The role of taxation in the socioeconomic development of any country or society cannot be overemphasized. Taxation is the foundation of modern state because it is the primary source of public finance. Taxation enables the government to mobilize the needed resources to fund the provision of social amenities and infrastructure towards the improvement of social welfare of the citizens.
It is necessary to point out, however, that while taxation is an indispensable tool in the development of the society and the sustenance of democracy, the manner it is administered is crucial to the attainment of these goals. That explains why no government can easily overlook the key issues of efficiency, effectiveness and transparency of tax policy and administration, even though it also keeps an eye on the quantum of the revenues from taxation that go into government coffers.
Thus, in a situation whereby tax assessment and collection, including the utilization of tax revenues are not optimal, there will be problems of disincentives to the private sector, which will in turn lead to lower productivity, job losses and capital flight.
A critical element in tax administration that could have adverse implication on economy-wide growth and welfare is the phenomenon of multiple taxation. Multiple taxation has several dimensions, but it is typically the arbitrary, sometimes unofficial imposition of exorbitant levies, taxes and charges on individuals and businesses across different levels of economic activities and jurisdictions.
Indeed, multiple taxation, no matter how it is executed, is akin to extortion of the citizens. It not only undermines the economic health of the society, it also has moral implications, in the sense that government cannot just be emptying people’s pockets because it has the power. It distorts economic decision of firms and households, it stifles initiative, it impairs the overall operating environment, making it harsher for the private sector to operate, and generate inequalities amongst citizens.
In fact, it has been established that one of the best ways to create an enabling, clement environment for business and the private sector and enthrone economic fairness amongst citizens, is to make taxation friendly. This of course include confidence building in the taxpaying public; it also relates to the modus operandi of the tax authourity, and more importantly, how the tax revenues are deployed in terms of the provision of quality infrastructure. Once this is achieved, production costs and cost of doing business would be significantly lowered and the profitability of firms boosted.
However, as we pointed out above, the efficiency, effectiveness and transparency of revenue collection also have an important role to play towards the creation of a sound business environment that encourages the private sector to willingly come forward to fulfill the civic duty of paying tax without resort to coercion or legal processes by the government.
It is in the light of the foregoing that we must situate the significance of the recent report submitted to the National Economic Council (NEC) by the Manufacturers Association of Nigeria (MAN). The 96-page report titled: “MAN Presentation on Multiple Taxation Across the Country at Various Levels and its Effects on the Manufacturing Sector’s Productivity” which comprehensively surveyed the business environments of the 36 States of the federation, including the FCT. The report which singled out Edo State as the most tax friendly State in the Federation also showed that while majority of the States in the federation impose many taxes and levies over and above the approved the 19 taxes approved by the Federal Government as contained in the Taxes and levies (Approved List for Collection) Act cap T2 LFN, 2004, in Edo State manufactures pay altogether 16 taxes and levies.
To underscore the friendliness of the Edo State tax environment, the report indeed, showed that while some States imposed up to 97 taxes and levies paid by manufacturers, others make manufacturers to pay up to 20 levies and taxes and at the same time allow local governments to also impose similar taxes. The report concluded that majority of the States operate a very a harsh tax environment that is characterized not only by double/multiple taxation but by a cumbersome process of assessment and collection and without mechanisms for redressing inequities.
It should be noted that before the advent of the Comrade Adams Aliyu Oshiomhole’s administration, the practice arbitrary collection of taxes and levies through illegal ticketing were common place in Edo State. Often times, these activities were exacerbated by outright extortion because they were carried out by groups and individuals not recognized officially as tax collectors and were hardly remitted to the treasury. The result was that besides the fact that no revenue goes into government’s coffers, considerable hardship was inflicted on the citizens.
However, recognizing the critical place of taxation both for augmenting internally generated revenue (IGR) and creating the enabling environment for the productive sector of the economy, the State Government made it a cardinal priority to put an end to the indiscriminate and haphazard multiple taxation and the diversion of tax revenues to private pockets.
The Government started by first, streamlining tax operations, in terms of the rates, levies and fees charged by the government throughout the State. This singular action alone has the effect of creating a predictable and optimal environment for business and drastically reduced down wards the tax rate payable. To reinforce this new direction in tax administration, the State Government proceeded to implement far-reaching reforms covering the legal, institutional and regulatory environment for tax assessment and collection.
The government not only overhauled the Edo State Internal Revenue Service (EIRS) and staffed it with capable leadership and hands under Chief (Sir) Oseni Elamah, as Executive Chairman and an equally tested and experienced administrator, but it enacted a new legislation, the Revenue Administration Law, which gave strong legal backing to the reforms in 2012. This law was undoubtedly a watershed in tax administration in Edo State, underscoring the determination of the people’s centred administration of Comrade Oshiomhole to breaking the mold, including the repositioning and professionalization of the EIRS.
On its part, the EIRS under the leadership of Chief (Sir) Oseni Elamah have been working tirelessly to discharge its mandate. It introduced laudable innovations and incorporated elements of international best practices in tax administration in its operations. It also sought ways to deepen the tax culture in Edo State through concerted sensitization and public engagement of the citizens of the State.
The EIRS, also implemented measures that included the modernization of the tax collection processes; the restoration of confidence of the taxpaying public through a credible conflict resolution mechanism (the Tax Assessment Review Committee, TARC); the increase in tax compliance through simplification of procedures, and the expansion of the tax net through continuous update of the tax database. All these have no doubt, improved performance in revenue collection quite considerably, including lowering of the defaults rates and under-remittance by over 80%. Overall, tax payment in Edo State is now made easier, it’s a total break from the past in which people paid taxes with tears, and can hardly see the result in terms of concrete provision of amenities and infrastructure.
Not surprisingly, as a consequence, the IGR was boosted from N280 million monthly on the average to a peak of about N2 billion monthly in 2011. It has now stabilized within the region of N1.5 billion monthly owing to the series of reliefs granted to low income earners to cushion the effects of hardships occasioned by some government’s policies, notably, the removal of subsidies on petroleum products in 2012 and the attendant inflationary pressures. Yet, there are huge potential for growth in the coming years and the EIRS is not resting on its oars.
There is no questioning the fact that the status of Edo as the most tax friendly State in the federation is very assured. It is the culmination of the vision of the Comrade Governor and his unyielding support to the EIRS. It is important to mention at this juncture that positive verdict from MAN, as the leading private sector body in Nigeria has punctured to smithereens the partisan reading of some individuals that negatively portrayed Edo State as a high tax jurisdiction just to score political points. It is now clear that in Edo State taxation is not only optimal; it is purposeful and not burdensome. The MAN’s endorsement surely is an ample testimony to the current administration’s strategic efforts to make Edo State the hub of investors and entrepreneurs operating in the commercial, industrial and other productive spheres of the national economy through the instrumentality of taxation.
Furthermore, the report has, indeed, said it loud and clear that the reforms put in place in the last six years are working and positively so. Commendably, it has provided the needed encouragement to do more in terms of making the tax environment friendlier through new innovations, not just for the purpose of garnering accolades but for the singular purpose of using taxation to build an enduring and productive economic base for Edo State, as well as improving the welfare of the Edo people. The State Government under the current administration is ever more committed towards sustaining its developmental strides through the judicious utilization of tax payers’ money.
EIRS Corporate Headquarters
