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98% of Nigerians operating in the informal economy pay taxes-Report

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A recent report has revealed that up to 98% of Nigerians operating in the informal economy pay taxes daily, with some businesses paying taxes 3 times a day. In Lagos, for instance, some bus drivers pay as much as N3,000 a day in taxes to different groups.

This report by socioeconomic research firm, SBM Intel, titled “Under the Hood: A look into Nigeria’s informal sector,” states that the informal sector plays a crucial role in many economies and accounts for 60% of the global workforce.

Highlights of the report

  • 98% of Nigerians in the informal sector pay taxes.
  • 54% of Nigerians earn a daily income between N2100 and N5000 a day, and 38% earn 5000 and above.
  • Those earning N5000 and above a day include Bus drivers (52%), Open Market traders (52%), Okada riders (48%), Hairdressers (33%), and Dressmakers (30%).
  • The lowest tax bracket (N2,400- N12,000 a year) comprises Okada riders (66%), Hairdressers (61%), and Vulcanizers (62%).
  • For yearly tax payment, 14% of drivers pay N36,000 and above, while 18% of bus drivers pay between N24,000 and N36,000 a year.
  • In the most common tax brackets per day for bus drivers, drivers in Lagos state (67%) pay N3,000 per day; Delta state (89%) N2100-N3000 per day; Kano (92%) N50-N200; and Oyo (77%) N210-N500.
  • In case of default in tax payment, 50% of respondents revealed that their wares and equipment got seized, 32% said they got fined, 5% cited cases of arrest, while 13% said they experienced cases of violence if they defaulted on taxes.
  • The report also revealed different frequencies of payments, with 45% of respondents saying they paid taxes daily, 33% yearly, 17% monthly and 5% weekly. Meanwhile on the frequency of daily payments, 63% said once a day, 19% twice a day, and 18% reported thrice a day or more.

Groups paid to

Taxes were predominantly received by four different groups, according to the report state governments, local governments, market organisations and unions.

39% of the respondents were taxed by the local government, 30% said they were taxed by their unions. 16% of the taxes accrued to market organisations, while 15% of the taxes went to the state government.

“Our qualitative interviews revealed that some of the participants were not able to tell which group collected taxes from them but simply had to oblige because of the violent nature of the enforcement. We gathered that almost all these tax groups had used the services of agberos ( thugs) to collect the taxes which came with a lot of intimidation,” the report stated.

It also added that 58% of respondents in the informal economy paid to one group, 29% to 2 groups, and 9% to 3 groups.

“This points to the multiple taxes that informal sector participants pay. The location of the informal sector participants is also a determining factor with regards to the number of groups they pay taxes to. For instance, while the responses show that all participants in Bauchi paid taxes to only one group, there is a significant number of respondents in Delta and Lagos who pay taxes to more than three groups. Also, the type of business that a respondent is involved in also determines the number of tax collectors they may encounter,” they said.

Multiple taxations were recorded across all the business types. There was no business group that had not experienced multiple tax collection by different groups.

On age demographics of the respondents, the majority (67%) of respondents who participated in the study were male. Both genders were represented across all the states. With regards to respondents’ age, a majority (40%) were between the ages of 26 and 35 years.

“This age group according to the NBS had the second-highest unemployment rate of 37.2% in the fourth quarter of 2020,” they said.

The main categories of informal business participants covered in the survey were Open market traders (30%), Bus drivers (18%), dressmakers (16%), Okada (motorcycle-taxi) riders (15%), Hairdressers (14%) and Vulcanizers (7%).

SBM stated that study findings revealed that the tax base of Nigeria is much larger than thought, but much of it is in the informal sector. They added that due to the informal nature of the businesses, most of the taxes are not captured in any official records at state or federal level, reflecting the inability of the state to properly project itself, leaving the door open for other actors to come in and secure relevance.

“When Nigerians are asked why they do not pay tax, they say it is because they get no services from the government. However, the entities that collect various levies from bus drivers, okada riders, hairdressers and vulcanisers, do not deliver much in terms of benefits either.

“This means that the capacity of state and federal governments to enforce tax collection, is directly proportional to their ability to enforce penalties for tax default,” they concluded.

Bottomline

Nigeria’s administrators need to formalize and strengthen policies that move commerce from informal to formal sectors of the economy. According to a 2018 IMF report, as of 2016, Nigeria only had 56,329 corporate taxpayers accounting for company income tax. The report added that, according to data on individual taxes, only 16.7% of Nigeria’s economically active population paid taxes, with about 80% attributed to the informal sector.

Formalising the informal economy will draw more Nigerians into the tax net and provide the government with a greater revenue pool to fund development initiatives nationwide.

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