Nine (9) Reasons for and Benefits of Paying Taxes in Nigeria

INTRO: The history of taxation is age-long, dating back to 3000 – 2800 BC in ancient Egypt. Tax by definition is a charge (money, in the modern times), imposed by authority on persons, businesses and sales for public use. Oftentimes, tax is seen as a bad and exploitative instrument which government uses to deprive the citizenry of their hard-earned money. In spite of this negative perception, tax remains a civic duty that every citizen must perform so that the state could reciprocate with rights and privileges.  The types of taxes in Nigeria include Capital Gains Tax (CGT), Companies Income Tax (CIT), National Information Technology Development Levy (NITDL), Personal Income Tax (PIT), Value Added Tax (VAT), and Withholding Tax (WHT). Additionally, there are Stamp Duties (SD) and Tertiary Education Tax (EDT).

 

Reasons for and Benefits of Paying Taxes in Nigeria are:

 

1. Provision of Public Services: Public services are range of utilities that only the government can offer at prices with little or no profit, such as security, education, communication and health services. Governments provide these services to the citizens using the tax-payers’ money. Paying taxes simply puts more money in the public coffers for those services, and also justifies the citizens’ rights to the services.  As it concerns security services, taxes are germane to the Nigerian government needs for financial resources to maintain and equip critical agencies in security services including its military, police force, and other security agencies. These entities are essential for protecting the country from external threats and maintaining internal order. Effective security is fundamental for creating a stable environment where businesses can thrive and citizens can live without fear of violence or crime. Thus, paying taxes directly supports the provision of a safe and secure society.

 

2. Wealth Redistribution: Some tax systems such as the progressive tax system are designed to collect more money from the rich than the poor. This tax system demands that the higher you earn, the higher you pay; and by so doing, bridges the gap between the rich and the poor, and when by social spending, reduces poverty. Huge taxes levied on goods of ostentation and luxury are also meant for wealth redistribution at least to the extent that a poor has not gone for such goods or services. In other words, wealth re-distribution  is one of the major reasons for paying taxes in Nigeria. In this regard, the rich pay higher than the poor. It is called Pay as You Earn (PAYE) in Nigeria.  The tax rate ranges progressively from 7 percent to 24 percent of taxable income. Taxable income bands span from NGN 300,000 to over NGN 3.2 million annually. However, a minimum tax of 1 percent of gross income is applied if an individual has no taxable income or if the PAYE tax is lower than the minimum tax. Employers are responsible for deducting the monthly PAYE tax from employees' salaries and remitting it to the relevant tax authority through designated banks within 10 days of the following month. Through progressive taxation, where higher income earners pay a larger percentage of their income in taxes, the government can redistribute wealth and provide social welfare programs to support the less fortunate. These programs might include unemployment benefits, food assistance, housing subsidies, and pensions for the elderly. By funding these programs, taxes help to reduce poverty and ensure that all citizens have a basic standard of living, which contributes to social stability and cohesion.

 

3. Economic Regulation and Control of Target Goods and Services: Another reason for paying taxes in Nigeria is regulation of the Nigerian economy and control of certain goods and services in the country. This is obtainable in a place where the government is interested in dissuading patronage of a given number of goods and services on health or social grounds. Heavy taxes levied on tobacco and alcohol are geared towards increasing the prices of the goods against affordability. As a matter of fact, The government uses fiscal policy, which includes taxation, to influence the economy. By adjusting tax rates and introducing new taxes, the government can control inflation, manage public debt, and influence consumer and business behavior. For example, higher taxes can reduce consumer spending and curb inflation, while tax incentives can encourage investment in certain sectors. This regulatory function of taxation is crucial for maintaining economic stability and promoting sustainable growth.

 

4. Taxes are Paid in Nigeria in Order to Handle Emergencies: Disasters are real, and can occur when it will occur. Governments are able to come to the aid of victims of disasters within their territoriality and beyond with tax-payers’ money. Several lives have been saved from timely governmental interventions in disaster-stricken areas. The duo hurricanes of Harvey and Irma of 2017 that devastated parts of the United States, and Caribbean in which the governments swung into action, providing succor to the victims, are very good examples.  Tax revenues enable the government to respond effectively to natural disasters, pandemics, and other emergencies. Funds are needed for disaster relief, rebuilding infrastructure, and providing support to affected populations. Another good  example is during the COVID-19 pandemic, tax revenues were vital for funding healthcare services, supporting businesses, and providing relief to individuals affected by the economic downturn. A well-funded emergency response system can save lives and reduce the long-term impact of disasters on the economy and society.

 

5. Provision of Public Infrastructure: Government requires money to develop and maintain good infrastructure. Taxes are paid in Nigeria because it provides government with money for good roads, schools, hospitals, housing, railways, bridges, airports, recreational facilities, etc. The citizenry need those infrastructure for comfort and improved standard of living, and payment of tax makes them possible. In other words, government relies on tax revenues to build and maintain essential infrastructure such as roads, bridges, schools, hospitals, and power supply systems. These facilities are crucial for economic activities and improve the quality of life for the population. Without adequate tax revenues, the government would struggle to provide these fundamental services, leading to poor infrastructure and limited public services, which can hamper economic growth and development.

 

 

6. Civic Responsibility:  One of the major reasons for paying taxes in Nigeria is to fulfill legal and civic obligations. Under Nigerian law, citizens and businesses are required to pay taxes. Compliance with tax laws is a demonstration of good citizenship and adherence to the rule of law. By paying taxes, individuals and businesses contribute to the functioning of the state and support the collective well-being of society. Non-compliance, on the other hand, can result in legal penalties and undermine the social contract between the government and its citizens.

 

7. Tertiary Education: Education is a key driver of national development and social mobility, and it is significantly supported by tax revenues. The government uses taxes to fund public schools, universities, and vocational training centers. Education funding is crucial for developing a skilled and knowledgeable workforce capable of driving economic growth and innovation. By paying taxes, citizens contribute to creating opportunities for the younger generation to gain the education and skills necessary for personal and national development. "tetfund" in Nigeria is a consolidated fund for improving the infrastructure, manpower and service delivery of the tertiary educational institutions in Nigeria, and it is funded with Tertiary Education Tax. This represents another good reason why we pay taxes in Nigeria.

 

8. Furthermore, payment of taxes help in Promoting Environmental Sustainability. Environmental taxes, such as those on carbon emissions, plastic use, and other pollutants, can be used to discourage environmentally harmful practices and encourage sustainable ones. The revenues generated from these taxes can be invested in renewable energy projects, reforestation efforts, and other environmental protection initiatives. By paying environmental taxes, citizens and businesses contribute to preserving natural resources and combating climate change, ensuring a sustainable future for generations to come.

 

9. In the Interest of International Trade: Another economic importance of paying taxes is its role in facilitating international trade and investment. A well-structured tax system can create a favourable business environment that attracts foreign investment. Investors are more likely to invest in a country with a clear and stable tax regime, as it reduces uncertainty and ensures that they can anticipate their tax liabilities. Moreover, taxes on imports and exports regulate trade, protect local industries, and generate revenue for the government.