“But can we continue to service external debt with over 90% of our revenue? It’s a path to destruction, we cannot continue that. We have to make hard decisions” —President Tinubu’s speech at the NBA Annual General Conference of 2023.

The increasing decay of public infrastructures and the apparent inability of the successive governments in Nigeria to fund basic social amenities call for some concerns. Our public institutions that offer basic amenities are at the verge of total collapse. Public universities have become ghost of themselves, while many public secondary and primary schools are not fit for animal habitation, let alone humans. Our public health service is appalling while transportation infrastructure is crying for help. Our children study under dilapidated school buildings with leaking roofs, libraries lack basic books let alone latest publications while school laboratories are without basic reagents. It is also apparent that the governments at all levels have been recording budget deficits due to the increasing gap between government revenue and expenditures.  This work posits that wealth taxation is one option open to Nigeria to overcome its infrastructural decay challenges.

The work explains the fundamentals of a wealth tax including the practicability and policy issue considerations involved in the design and implementation of a wealth tax. It concludes that as controversial as it may seem, with the declining economic fortunes of Nigeria, the super rich in the society must be made to contribute a token of their wealth to rescue the country.

A wealth tax is a tax levied on the market value of assets owned by a taxpayer. It is a tax that applies to the net fair market value of all or some of a variety of a person’s wealth stock including but not limited to cash, bank deposits, shares, fixed assets, cars, real estate, pension, ownership of unincorporated businesses, financial securities and trusts. It is a tax on an individual’s net worth which is generally the difference between someone’s assets and liabilities.

Historically, a wealth tax seeks to achieve some public policy goals including raising revenue to fund government programmes. A very unique tax, a wealth tax, historically, is often a response to a state of emergency. It has been used in the past by countries to raise revenues to fund State expenditures in the event of disasters, war or pandemic.

The Nigerian State presents a paradox of some super rich individuals living in a society where the majority wallow in abject poverty amidst infrastructural decay. The case for a 2% one-off wealth tax in Nigeria appears not very complex especially where the applicable threshold is, for instance, N10billion. This ensures that the tax burden is borne by the super rich only. A one-off 2% to 5% wealth tax with a relatively wide base would be an efficient way to mobilise revenue for critical infrastructures in the country. The fact that the imposition is one-off may “calm down” the rich and it may be taken as a sacrifice to be made in the overriding interest of the society. A wealth tax is often an interventionist fiscal measure rather than a recurring imposition. A one-off wealth tax (unlike an annual wealth tax) will certainly generate much less uproar and resistance among the wealthy class.

Special payment arrangements may also be made to enhance ease of payment. These arrangements may include deferred or instalmental payment, especially for the “assets rich but cash poor”. These will include dormant assets held by the aged. Government may also consider payment in kind with a portion of the asset. Beyond the immediate revenue generation, a wealth tax is also capable of reducing the spate of civil unrests such as the 2021 “end SARS” protests which appears to be a protest by the poor against the rich. With the increasing wide gaps between the “haves” and the “have nots” in Nigeria, a wealth tax is capable of creating a feeling of social justice among the less privileged. The recent removal of the fuel subsidy and its attendant economic hardship being experienced by the masses might have been prevented by the introduction of a wealth tax which targets only the super rich in the country. A one-off wealth tax could have generated enough funds to cushion the effect of the subsidy removal. With this arrangement, social justice is enhanced as the masses get the feeling that the wealth tax operates to reduce the wide gaps between the rich and the poor. A society like ours, where the rich and the poor are made to bear equal burden in national growth and development, may be sitting on a time bomb.

As controversial as it may seem, a tax system that makes the super rich to support the State appears to be very compelling at this time in our overall interest as a people. It also seem to be in the enlightened best interest of the rich class as well. The country is at the cross road and the rich elite should wake up to the reality of the discontent of the poor and its implications for security of lives and properties.

Accountability and trust is crucial to the success of a wealth tax, especially in a country like ours. Being a special fiscal measure, the tax must be administered in a way that engenders public confidence, especially the confidence of the tax payers. We recommend that while the tax may be collected by the FIRS, the use of same must be entrusted to a special committee comprised of distinguished Nigerians with clean and impeccable records of service both in the private and public sector. 

In designing a wealth tax for a country, it is important to determine whether the tax will be global or domestic. A domestic wealth tax charges residents’ assets within its jurisdiction while a global wealth tax imposes tax not only on residents’ assets within its jurisdiction but also nationals’ assets located in foreign jurisdictions. It is a matter of common knowledge that the Nigerian wealthy class have a significant part of their assets in foreign jurisdictions including tax havens. A global wealth tax will, therefore, be the most appropriate for Nigeria with the potential for a very high yield. To achieve this objective, the government must have access to reliable data of foreign assets owned by Nigerians. This will require international cooperation. Exchange of information between Nigeria and other countries, particularly in Europe, UK and America, is critical to the success of a global wealth tax. The federal government may need to enter into multilateral and bilateral treaties in this regard.

Nigeria is a Federal State with each layer of government exercising certain fiscal powers within its jurisdiction. As noted earlier, international cooperation including bilateral and multilateral treaties is crucial to the success of a global wealth tax. Foreign relations including treaties fall under the exclusive jurisdiction of the federal government through the National Assembly. The federal government, through the Federal Inland Revenue Service (FIRS), will be in the best position to administer a wealth tax. The revenue authorities in most States of Nigeria lack the capacity to administer an efficient wealth tax.

The prospects of a wealth tax in Nigeria are not without its challenges. These challenges will include poor data on property ownership, disguised assets ownership, the problem of valuation, endemic corruption among others.

Nigeria has no reliable data of property and asset ownerships. The success of a wealth tax will depend largely on the level of property and assets ownership data available to it. The federal government may overcome this challenge by calling on all the States revenue authorities in Nigerian to forward their taxpayers database for harmonisation.  Relevant data may also be collected from agencies such as Land Registries, vehicle licencing authorities, and authorities that licence luxury goods such as private jets and yachts.  Other potential sources include registers of political offices aspirants in Nigeria, Nigerian Immigration Service and Passport offices and Code of Conduct Bureau.

There is also the problem of disguised asset ownership. A wealth tax is customarily imposed on individuals and families, but many high worth properties and assets in Nigeria are held in the name of corporate entities especially limited liability companies. Because the dominant tax units for wealth taxation are individuals and families, assets and properties held in corporate names may escape the tax net. Accordingly, the tax net should cover corporate entities including those with significant market presence whether with or without permanent establishment in case of foreign companies. The FIRS should be assigned the core role with support from bodies such as National Intelligence Agency, the State Security Service, CBN and EFCC. This is to enable the authorities have adequate and full information about those who ought to be in the tax net in respect of assets both within and outside the country.

Valuation is a major challenge of any wealth tax. A wealth tax is often imposed at a percentage of the value of the target asset or property. Will the method of valuation be the open market value of the assets, self-assessment or other methods of valuation such as insurance valuation? While self-assessment method may promote voluntary compliance, the tax yield may be poor due to undervaluation. The process of valuation, tax assessment, collection and general administration of the tax may also be bedevilled by the culture of endemic corruption in Nigeria.

There are various concerns and policy objectives that may motivate a government to consider a wealth tax. The current state of infrastructural deficit and decay in Nigeria calls for some drastic measures to save the situation. This has become very important in view of the level of our current national indebtedness which we are told is being serviced with over 90% of our revenue. Surely, this is a recipe for disaster which must be arrested. Wealth tax, if properly designed and well implemented, offers a great window. It should not be delayed till election cycle is around the corner otherwise the political will may be lacking. It should be now. A one-off wealth tax is a fiscal option which this current government may consider to achieve a massive urban renewal and infrastructural development.  This is also in the enlightened self-interest of the Nigerian super rich elites class.

• Raji, a Senior Advocate of Nigerian, FCIArb (UK), has a Master’s degree in Taxation from the University of Oxford, United Kingdom