Indian Tax System: What Nigeria Can Learn

Taking a trip from Delhi to Agra, India, a 210 Km journey to the Taj Mahal, you pass through about 4 or 5 toll gates. The equivalent of that journey in Nigeria would be Abuja to Kaduna. Having 4 toll gates along that road would irritate most people but the Indians are not complaining, in fact they strongly support it.

So why is that? They know that every single Rupee they pay in tax goes into developing their society and everyone gets the benefit. You don’t need to look far to see the impact the government is making. India is building a massive overhead rail system which has gone a long way in providing affordable and effective means of transport.

When Russia recovered from its economic crisis in the first term of Putin’s presidency, tax system reform was one of the vehicles for that impressive economic recovery.
Tax is one of the major ways any government including India gets fund to provide social amenities touching the lives of common citizens. The citizens are happy to pay these taxes as the government accounts for every single money it receives in tax. If politicians cart the tax monies away to purchase personal properties in Dubai and London, the populace would not be as receptive as they are now to taxation.

So what does India tax? Everything. India tries to be self reliant; the massive metro construction is done by local engineers, not foreign contractors. Locally manufactured products are taxed but not as much as foreign goods. An imported HP laptop in India is costlier than same in Nigeria. The high taxation on foreign good gives local manufacturers an advantage and encourages foreign companies to move manufacturing to India thereby creating more local jobs.
When it comes to shopping, I prefer sitting behind a computer screen – actually more like lying on my back with my mobile phone in hand. I wonder why people would want to face the hassle of the Indian traffic to make it to a shop when you can actually be on a couch and placing your orders on your mobile phone. Amazon.in is my online shopping destination and I enjoy how they handle taxing. To get the full picture, I will compare it with a shopping experience on Amazon.com.

On Amazon.com, the US site, I place a Fire tablet of $49 in my shopping cart, I select free shipping since I am not in a hurry to get the tablet; who doesn’t love free shipping? 50 bucks for a tablet is a great deal but the surprise comes when I check out. I see $0.00 shipping charge and a smile grows on my face. Looking down seeing a tax of about 10% the smile quickly straightens out. So the tablet is costing about $55. It’s not so different in a brick and mortar shop. You see a Nexus 7 tablet on display at $250, ok not bad for a tablet in 2012. However, while making payment at the counter, you are informed that you have to pay about $270 tax inclusive. Now you have to check your wallet if you can part with another $20.

So how does that compare to Nigeria? Well, I can’t really tell as there is no indication that the Lumia 620 I bought for my wife on Jumia or the Lumia 520 I bought for myself at a local shop included tax in the amount I paid.

On Amazon.in, the Indian site, I see this Puma running shoes and it cost Rs2,400. Upon checkout I am asked to add Rs 50 for a 2-day delivery. Sure I want the shoes right now so I happily add Rs50. At checkout, total price Rs2,450. Hey where is the tax? On the detail page for the shoes where the Rs2,400 is displayed, I am told it includes tax. So the idea is What You See Is What You Pay (WYSIWYP). If I am happy with the Rs2,400 I see, I proceed with the order and no surprise additions at checkout. I receive my package in 2 days and a slip comes with it which breaks down the cost and how much tax was paid. Taxation is typically between 12% and 18% and it includes normal tax as well as VAT.

The experience isn’t different at my favourite mall, D Mart. I see a 3M Magic Tape on the shelves, priced at Rs 120, I pick it, walk over to the counter to pay and the final price is Rs 120. All taxes were included in the prices as evident from the breakdown on the receipt.
So what does my country Nigeria stand to learn from this? With dwindling oil revenues we need to look at other means of shoring up earnings, a transparent and effective tax regime is one of those ways.

Sweden has a Personal Income Tax rate of over 50%, yet they are happy with it. That is because they know that with their taxes their government is developing infrastructure and ensuring tuition free university education. Once a government can be trusted that tax payers money would be spent improving the society for the general good of all, then people would be willing to pay these taxes. However, if we perceive that taxes paid are going to be spent on political campaigns or finding their way into private pockets, then all form of taxation would be resisted.

A holistic tax reform is over due in Nigeria. It is not enough for state governors to manufacture taxes of any kind in the name of increasing Internally Generated Revenue (IGR). The taxes need to be made clear. Having a hair dressing saloon around the street corner, I should understand what kind of taxes I am to pay and to who. I should understand if I am taxed based on my profit and loss or an arbitrary tax being slammed on me? It is not uncommon to see a tax regime like: Barbing Saloons 15,000 Naira, Provision Shops 20,000 Naira. You wonder how the hell the tax authorities arrived at these figures.

We need to be civil about how we go about collecting taxes. When tax collecting agents violently storm business premises mafia style, you can’t help but wonder if they are agents of the government that claims to represent you or that of a mob boss.

In conclusion, for any tax system to be successful, there has to be transparency. How much is the government collecting and what are they spending it on? People have to understand the kind of taxes they are paying and whether it is to the Local, State, or Federal Government. Any tax regime should also be complementary in a way that encourages the patronage of local goods and services.