There are three key stakeholders in the RMI effort. These are citizen and corporate taxpayers, tax revenue managers who hold the revenue generated in trust and deploy it as approved, and those who ultimately consume the revenue generated. Tax revenue managers essentially coordinate the process of paying and consuming taxes. As IGR coordinators, this group ensures consistent revenue mobilization and transmission to consumers based on contractual agreement with payers. Assuming correctly that citizens primarily pay taxes to purchase their welfare through a coordinating mechanism – their government – there are two main divisions in the IGR effort model. A better way to appreciate this is to consider the financial market model where the bank or stock exchange facilitates and coordinates buyers and sellers of credit. Under the IGR model, the government naturally replaces the role of the market. Therefore, taxpayers and tax consumers should be the same as in a typical market model, with supply equaling demand. This argument is easier to appreciate by acknowledging that taxpayers’ revenues should ideally be equal to the total well-being and good governance of citizens received. [consumed] having paid for them through their fiscal and non-fiscal contributions. The problem begins with the distortion of this balance.
The public expects the level of efficiency of government revenue allocation to be so high that this balance is maintained. For example, when the revenue mobilized far exceeds the value of good governance and welfare received, citizens are worse off because a third party who did not pay for it might have consumed the unused portion. In such circumstances, a litany of undesirable approaches are put in place to make up for the shortfall. Some examples include borrowing, printing money, and heavier tax policies. On the other hand, when revenue mobilization is significantly below desired levels of well-being and good governance, the government must restore the balance through additional revenue mobilization and borrowing initiatives.
Unfortunately, the Nigerian situation is one where the two conditions for creating imbalance exist. The taxes paid by individuals and businesses and the collective incomes earned over the decades fall entirely short of the desired levels of well-being and good governance that they are worth. From our analysis, all of this means that we are victims of an exclusive set of tax-revenue-consuming prey that robs us of this well-being that is rightfully paid for. But only about 14% of individuals and businesses that should contribute to the revenue pool to access this well-being and good governance do so. To what extent does the dominant presence of taxpayers’ well-being-consuming prey thwart the will of these taxpayers to fulfill their obligations?
Similar to the process of fundraising in financial markets, the deployment of internally generated revenue usually comes in the form of public consumer goods that are sometimes too expensive or simply inefficient for a single person to produce for their use. . Additionally, administering the IGR process also reduces third-party costs. Therefore, combined with the first objective, RMI’s expansion efforts, when significantly productive in efficiently providing desirable expendables to taxpayers and reducing or regulating activities that impose unnecessary burden, diametrically favor entrepreneurial growth. This optimized consumption of tax and non-tax resources pooled by facilitating entrepreneurial growth leads to structural and tax diversification. IGR consumables must therefore be consumed by those who paid for them in precisely a way that would lead to the well-being of individuals and growth opportunities for businesses. The reverse occurs when these opportunities corruptly flow into the pockets of unaccredited consumers of collected revenue external to the model.
The process of good governance reinforces the cycle of prosperity for citizens and businesses. Its presence at some reasonable level also demonstrates that an adequate measure of accountability is in place regarding the fiscal resources mobilized. Accountability, in turn, builds taxpayers’ trust in the coordination system [the government and tax administration]. Accountability and trust facilitate citizens’ levels of tax compliance more than other factors and considerations. Thus, while the optimized deployment of the RMI creates good governance, the latter significantly signals the presence of accountability and trust, which further incentivizes citizens to mobilize even more revenue resources. Unfortunately, while the optimized model presupposes that the citizens who are the taxpayers must also be the consumers of the tax paid, the main beneficiaries hide behind the veil and represent less than 3% of the population.
Unfortunately, historical evidence in Nigeria shows that the idea of mobilized RMI government officials is substantially incompatible with the identity model already described, ensuring a continued flow of good governance and high levels of taxpayer compliance. While there is cosmetic satisfaction with the process and requirements of constitutional budgeting and resource allocation on paper, the outcome is entirely different. At the budget design level, the revenue hawks of government ministries, departments and agencies start by inflating and overcharging the costs of running programs and projects for the year. These fraudulently created extras are easily converted into private pockets once the budget goes through the final stages of approval. At the implementation level, up to 60% of these scheduled programs and projects are either poorly executed or intact. This reprehensible behavior releases more revenue for their private pockets. And because corrupt rent-seeking behavior characterizes the social norm, other minor cankers eat away at outstanding program projects. At the end of the fiscal year, the IGR mobilized by taxpayers and entrusted to government coordinators to buy well-being and good governance can only provide at most less than 20% of the real value of the fund. Up to 80% of revenue goes into the private pockets of illicit tax consumers outside the model. The apparent legitimization of this illegal behavior of expropriation largely excludes taxpayers from the benefit of their payments. Nigeria’s problem lies at the heart of the exclusion of genuine taxpayers by tax-consuming hawks from access to the welfare and good governance they should normally possess. The consequences include the perpetuation of public sector corruption that propels the illegitimate sharing of the IGR pool.
Non-taxpayer IGR consumers who embezzle more than 80% of the budgeted sums represent less than 2% of the population. They represent more than 90% of Nigerian elected officials and about 20% of senior civil servants in Nigeria. The rest are very few entrepreneurs used in the process of recovering illegal income. This anarchy is a historical truth. Although the numerical estimates are not precise, they are nevertheless reasonably indicative of the reality on the ground. How can a country progress when government officials and their fellow fraudsters who make up less than 3% of its population are constantly draining its lifeblood? This category of citizens receives 80% of the tax and non-tax contributions of approximately 97% of taxpaying citizens and their dependents. Going back to the historical origins of tax payments to kings and royalties, we can correctly describe these 3% of the population who consume taxes as the lords holding their subjects – the 97% of Nigerians – in a certain tax bondage. Push the argument a little further, and we discover that most relatives and associates of political power do not pay taxes, especially at the level of local authorities. They are the untouchables.
Imagine a group of buyers discovering that the company handling their orders defrauded them and bought less than 20% of the value of the fully paid shipment. Lagosians call such a situation entering a bus a chance. For those who haven’t had the experience, a once-in-a-lifetime bus robs its transiting passengers and leaves them stranded halfway to their destination. The situation aptly describes what Nigerian taxpayers generally face due to the disenfranchisement of the tax and non-tax revenue they contribute to the resource pool. For several decades, Nigerian citizens have received unique experiences at the hands of government officials and their politician cronies who hijack their paid tax consumption experiences and fraudulently turn them into their private wealth. This explains the source of the lack of trust in tax administrations and the governments that support them. Regardless of what the law says about paying taxes, several taxpayers outside the tax net deliberately refuse to comply in protest. Worse still are the transaction costs and the multiplication of tax burdens by depriving them of the public goods they desperately need. The costs of inadequate infrastructure have historically exceeded 35% of overall operational costs in most businesses in Nigeria. The exhaustion of profitability prospects and the weakening of competitiveness make it difficult to comply with tax obligations. Most of the time, rightly so!
The opportunity for large-scale illicit consumption of taxpayer-mobilized revenue appears to be a significant incentive for people aspiring to hold government positions. Unfortunately, a significant proportion of civil servants are available to help them resign and realize these motivations. Our legal codes also provide a generous window of escape even when caught. The efforts of the EFCC and ICPC do not seem to scratch the surface of the calamity orchestrated by these shameless one-shot experiments that invade our system. So what is the output? One of the many workable solutions that we have rarely exploited is the power of independent citizen inquiry. Journalists and concerned civil society groups are more successful in investigations of this nature and often provide unassailable evidence that the justice system can use to identify perpetrators where possible. Until citizens who suffer the consequences of these tax evasions get involved in finding the sources of their problem and help get those behind them to book, the status quo would remain the same as the unique experience of Lagosians.