Fiscal Legistimacy in Nigeria

“Taxes, after all, are the dues that we pay for the privileges of membership in an organised society.” Franklin D. Roosevelt: October 21, 1936.

There has been a growing interest among policy makers in correlating taxation with the role of government in providing public goods and services to its people. This more than anything brings to fore the question of a Fiscal Legitimacy.

 

According to the OECD, “fiscal legitimacy is a reflection of the confidence people grant their government’s performance in collecting and spending its tax revenue”.
Fiscal Legitimacy can be best understood through the prism of the Social Contract Theory, which requires that the government utilises the taxes paid in financing public expenditure to the benefit of its citizens. This amongst other things should result in building the confidence of taxpayers in government, thereby increasing Tax Morale (the intrinsic motivation of taxpayers to pay taxes voluntarily ).

Tax Morale can be influenced by a number of factors, but several studies have shown that the provision of public goods and services by the government remains chief.

When the government fails to provide public goods and services, the citizens adopt a reluctant relationship with the tax authorities. This is even worse if the government is tainted with a reputation for corruption and mismanagement. Taxpayers develop the impression that taxes paid are either looted or at best spent on frivolities. This anomaly often times lead to low tax morale, increase in the propensity to evade tax, poor tax compliance and loss in revenue due to the government.

Nigeria is a case study on corruption, with a worrisome ranking of 136 out of 168 countries according to Transparency International (2015). With this level of corruption due to the looting of funds, illicit financial outflows and mismanagement of scarce resources, it would seem unfair that citizens are continuously obliged to pay taxes. The question is: Can we survive without taxes?
What is interesting is; that the government never falls short in highlighting the importance of taxation as a catalyst for development, however, over the years, the taxes paid by citizens have not translated into the much-needed development.
According to the UNDP in 2014, Nigeria’s HDI value was 0.514, putting the country in the low human development category, ranking 152 out of 188 countries in the Human Development Index.
The looting of these funds does not only deprive the government of providing adequate public goods and services, it also increases inequality, because these looted monies mostly flee to tax havens, escaping the tax net and causing fatigue to the wealth redistribution effect of taxation.
This new government must invest in the confidence of its people by providing public goods and services and also ensure that there is a synergy between development and tax policy. This will go a long way in forging the type of relationship that is needed for sustainable domestic resource mobilisation and state building in Nigeria.

write up by Mustapha Ndajiwo .