By Onome Amuge
Taxes are considered compulsory levies paid by individuals and businesses to the government with the specific purpose of generating revenue for government expenditure. In other words, it can be defined as a levy imposed by the federal government and subnationals on the income profit of an individual, partnership and corporate organisation. The proceeds serve as a source of revenue for the government which is used in running the cost of governance and executing economic development-based operations.
However, like everything else that seems to be a clog in the wheel of Nigeria’s development, the country’s tax system is beset by a myriad of challenges. One of such is the menace of illegal tax collection across the country.
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A 2022 report by the International Centre for Investigative Reporting (ICIR) showed that about N82.1 billion or more is lost annually to illegal tax collectors on commercial vehicles popularly known as “Danfo” in Lagos State.
Similar occurrences have also been reported across the states and local government areas of the country,whereby unlawful compulsory payments are collected by local and state governments or fraudsters who pose as government representatives. In most cases,the tax collectors are without appropriate legal backing, resorting to intimidation and harassment to fleece the taxpayers.
Analysts have identified absence of robust application of technology in collection processes,lack of professional manpower in revenue administration,weak revenue administration capacity in most Internal Revenue Service (IRS), absence of reliable database in planning & for projections,among other factors as contributory factors to illegal tax collection in Nigeria.
Putting this into perspective, Kachi Nwoga-, partner,Nextzon Business Services and Nextautomate Limited, a management consulting and enterprise development company, noted that illegal tax collection is a major problem in many states and Local Governments in Nigeria as it places a burden on businesses and individuals and also leads to corruption and inefficiency in the tax system.
Nwoga, in a presentation obtained by Business A.M titled, “Curbing the Menace of Illegal Tax Collectors in States & LGAs”, defined illegal tax collection as the act of unlawfully obtaining money or assets from individuals or businesses under the guise of collecting taxes. This, according to him, typically involves fraudulent or coercive methods employed by individuals or entities who pose as tax authorities or representatives.
The rate at which illegal tax collection is eating deep into the dry pockets of small businesses and individuals suffer the brunt, as they are forced to squeeze out significant amounts that should have been used in covering relevant expenses.
Nwoga highlighted some of the negative impacts of illegal tax collection to include: Loss of vital revenue needed to fuel development at different levels of the state;burden on taxpayers who are forced to ‘pay again’ for taxes already paid to illegal collectors; possibility of uproar during legitimate tax enforcement ; and discouragement to foreign Investments.
On how to curb illegal tax collection, he called on the federal government to strengthen the legal framework, align with the World Bank requirement of harmonising state and LGA taxes, thereby giving the Bureau of Internal revenue (BIR) the exclusive authority to make collection.