The Real Cost of Nigeria’s 70% Tax Gap: A Call for Accountability

Nigeria is facing a critical fiscal challenge: a 70% tax gap that severely limits its ability to fund development and address pressing economic issues. According to Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reform Committee, only 30% of the country’s due taxes are collected. This shortfall not only threatens economic stability but also raises questions about accountability and governance.

Understanding the Tax Gap

The tax gap represents the difference between the taxes that should be collected and those that are actually collected. In Nigeria, this shortfall is a result of several systemic challenges, including:

• Tax Evasion: Widespread evasion among individuals and businesses significantly undermines revenue collection.
• Complex Tax System: A labyrinth of taxes—over 60 official and 200 unofficial levies—makes compliance difficult and discourages participation.
• Weak Enforcement: Limited capacity to monitor and enforce compliance exacerbates the problem.
• Informal Economy: A large informal sector remains outside the tax net, contributing little to national revenue.

The consequences of this gap are far-reaching, affecting public services, infrastructure development, and Nigeria’s overall economic trajectory.

The Economic Cost

1. Infrastructure Deficit: Nigeria’s inability to fully collect taxes translates into insufficient funding for critical infrastructure like roads, power, and water systems. This deficit stifles economic growth and deters foreign investment.
2. Social Services Underfunded: Education, healthcare, and social safety nets remain underfunded, leaving millions without access to basic needs. This perpetuates poverty and widens inequality.
3. Debt Dependency: To compensate for lost revenue, Nigeria increasingly relies on domestic and international borrowing, escalating the national debt and diverting resources to debt servicing.
4. Missed Economic Opportunities: Tax revenues are vital for creating a conducive environment for economic diversification. The inability to harness these funds limits Nigeria’s capacity to reduce reliance on oil and develop sectors like agriculture, technology, and manufacturing.

A Call for Accountability

The tax gap raises pressing questions about accountability at all levels:

• Government’s Role: Are the existing tax collection agencies equipped to tackle evasion and enforce compliance effectively? The government must ensure transparency and invest in modern tax collection systems.
• Corporate Responsibility: Businesses, especially in the formal sector, must comply with tax laws to contribute their fair share to national development.
• Individual Compliance: Citizens have a civic duty to pay taxes, and fostering a culture of compliance starts with public trust in how tax revenues are utilized.

Solutions to Bridge the Gap

To address the tax gap, Nigeria needs bold reforms and sustained action:

1. Simplify Tax Processes: Streamline the tax system by consolidating levies and providing a clear, user-friendly framework for compliance.
2. Leverage Technology: Invest in digital tools to improve tax collection efficiency, track evasion, and integrate informal sector participants into the tax net.
3. Public Awareness: Educate citizens and businesses on the importance of tax compliance and its impact on national development.
4. Strengthen Enforcement: Equip tax authorities with the resources and legal backing to pursue non-compliance aggressively.
5. Enhance Transparency: Ensure visible and impactful use of tax revenues to build public trust and encourage voluntary compliance.

The Path Forward

Closing Nigeria’s tax gap is not just a fiscal imperative but a moral and national one. By addressing the systemic flaws in the tax system and holding all stakeholders accountable, Nigeria can unlock billions of dollars in revenue. This would provide the government with the resources needed to drive economic growth, reduce poverty, and improve the quality of life for its citizens.

The cost of inaction is too high to ignore. It’s time for bold leadership, systemic reforms, and collective accountability to bridge the gap and secure Nigeria’s financial future.