Presentation by Neil McCulloch, Development Economist, at the 7th annual ICTD meeting in Kigali on February 5th 2019.

1. The Nigerian tax perceptions
survey
Dr. Neil McCulloch & Tom Moerenhout
The Policy Practice/Associate Fellow, Institute of Development Studies; Columbia University
In collaboration with the Nigerian Economic Summit Group & Practical Sampling International
ICTD Annual Meeting, Kigali, Rwanda
5-7 February 2019

2. What determines tax compliance – the
international evidence
Internationally there is lots of evidence about the factors that may determine whether
people pay their tax:
1. Economic factors: tax rate, enforcement, penalties (Allingham and Sandmo, 1972)
… but much more than this
2. Knowledge and complexity: the more people know about the tax system, the
more they pay. But people are put off by complexity (Coolidge, 2012)
3. Fiscal exchange/social compact: people pay more if they feel that they are
getting something back for it (Oberholzer, 2005)
4. Social/individual norms: some people pay because they believe it is right; some
people pay because they see those around them paying (Frey and Torgler, 2007)
5. Legitimacy/trust/fairness: people will pay more if they trust the government and
believe the tax system is fair (Jiminez and Iyer, 2016)

3. Purpose
 The purpose of the NESG Nigerian Tax Perceptions Survey
is to understand the factors that influence attitudes towards
tax compliance (and non-compliance) with a view to
formulating more effective policies to increase tax revenue
in ways that promote inclusive growth

4.  Households (10,000) and Small firms (<50
employees) (5,000)
 Nationally representative
 Representative of 6 geo-political zones and
rural/urban
 Over-sampled in 6 states (Abia, Bauchi,
Kano, Nasarawa, Ogun, Rivers)
 Extra 6000 households across 6 states
 Extra 3000 small-firms across 6 states
 Adult individuals in households (50:50
male/female)
 Focus Group Discussions in rural/urban in
each zone with households (24) and small
firms (24)
 Key Informant Interviews at Federal, State
and LGA level in 6 states (17 in total)
Design of the Survey

5. Key Findings

6. Tax Morale is awful
 We define ‘tax morale’ as the attitude towards paying tax. If tax morale is high, then tax
compliance is likely to be higher
 More than a fifth of the population think that it is ‘not wrong at all’ to not pay your taxes!
Only 17 percent think it is ‘wrong and punishable’.
What do you think about people not paying taxes
on income?
Percent
Not wrong at all 22.1
Wrong but understandable 54.3
Wrong and punishable 16.8
Don’t know 6.3
Refused 0.5
Total 100

7. Tax morale is bad
everywhere, but
varies by region
 Almost a third of people in the
South West regard not paying
tax as ‘not wrong at all’ …
 … but care in interpretation –
neither region nor language
are significant in a multi-
variate context
What do you
think about
people not
paying taxes on
income?
SOUTH
EAST
NORTH
EAST
SOUTH
SOUTH
NORTH
CENTRAL
SOUTH
WEST
NORTH
WEST Total
Not wrong at all 19.3 19.2 18.1 21.4 30.4 21.2 22.1
Wrong but
understandable 51.9 49.5 60.3 60.0 53.5 51.8 54.3
Wrong and
punishable 20.2 19.2 16.6 16.3 10.1 19.6 16.8
Don’t know 6.4 11.5 4.8 2.1 5.7 7.2 6.3
Refused 2.3 0.6 0.3 0.3 0.2 0.3 0.5
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

8. People agree that the government has the right
to tax them … but many believe that not paying
is justified
Q35. I am now going to read you a series of statements
about your views of taxation and fees in this State. For
each statement please tell me if you agree, disagree or
neither agree nor disagree Disagree
Neither
Agree nor
Disagree Agree
Don’t
Know Refused
a) The tax authorities always have the right to make people
pay taxes 15.4 15.0 65.8 3.6 0.2
b) Tax Evasion is never justified 22.7 22.0 48.5 6.6 0.2
c) Almost every taxpayer would cheat to some extent if they
could get away with it 24.7 18.7 51.4 5.1 0.1
d) I would not pay my taxes if I would not be caught 33.9 16.0 45.9 4.0 0.3
e) People should refuse to pay taxes until they get better
services from the government. 22.1 14.7 58.5 4.4 0.3

9. Few people pay tax … and they pay very
little
Type of tax Liable Actually
Average
amount
(N/year)
Value added tax 42.8
Income tax (PAY-E) 34.4 18.9
22,989
Income tax (self-assessment) 36.0
Land use or property tax 28.8 6.7 17,751
Business premises registration fee 38.8 15.5 9,882
Tenement rates 26.8 7.8 26,975
Market taxes and levies 41.3 17.4 16,309

10. Why do people pay so little tax?
The survey suggests four core reasons:
1. People receive relatively little information about tax – resulting in widespread
ignorance, confusion and frustration about certain taxes
2. Their day-to-day experience of the tax authorities is bad
3. Most people and small firms feel they get nothing back for the taxes they pay
4. As a result, they do not trust the government
We explore the evidence for each of these in turn.

11. Information and knowledge of taxes
 Overall, 48% of people say that finding out what taxes and fees they need to pay is
difficult or very difficult (as opposed to 38% that say it is easy or very easy).
 Only 12% of Nigerians have received any kind of communication from the government
about the taxes that they should pay in the last year.
 Focus Groups provide some nuance on these results
 Most people have no difficulty in obtaining information about PAYE and VAT, but they
expressed frustration at the confusion over what taxes they are supposed to pay and how
taxes are determined particularly for market fees and shop premises
“Getting information on how much you need to pay, we don’t know where, which office,
who we are to go and get information from. There is nobody. We don’t even know their
offices. We should be told at least, we have come to a stage that you should tell us the day
you are coming to collect tax, what we are supposed to pay and know what you are into;
you cannot come blindly and say madam because you have a shop bring #4, 000 and
maybe what I’m selling is only charcoal and at the end of the day such person cannot give
#4, 000, so it is not good enough”. NE, Bauchi, F, U, 32+

12. Taxpayers day-to-day experience
 Taxpayers day-to-day experience of the tax authorities is quite negative
0
10
20
30
40
50
60
70
80
90
100
South East North East South South North
Center
South West North West Total
Frequency of being asked for a bribe by tax officials
Never Occassionally Often Always Don't know Refused
0
10
20
30
40
50
60
70
80
90
100
South East North East South South North
Center
South West North West Total
Frequency of paying protection money
Never Only once A few times Often Don't know Refused
 … and in addition many have to pay ‘protection money’ to non-state actors

13. The amount of bribe and protection payments is
a significant share of income tax
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
South East North East South
South
North
Center
South
West
North
West
Total
Nairaperyear
Income tax paid Bribe amount Protection money

14. Typical experience of individuals and firms
with the tax authorities
Individuals
 “Mostly, people coming from the
local government collect bribe, …
For instance maybe they want to
lock up your shop, and you tell
them that you don’t have the
money or it is incomplete, and so
they will tell you that for me not
to lock it up, give me something,
and they collect.”. SW, Lagos, R,
Mx
Small firms
 “Most of these guys are empowered by
government agencies and politicians.
For me, when they come, I ask them to
give me the account details of River
state internal revenue to pay tax directly
to them, and when you tell them that,
they tend to negotiate with you, and
tell you to give them whatever you have
and they will give you the receipt”
 “Well, some are professional while
some are not. Like the one I came in
contact with, he knows his job and he
knows what he is doing. Because he
gave me the breakdown. … when he
gave me the breakdown I feel
convinced to pay.”

15. Reciprosity and the social contract
 Most taxpayers are pretty dissatisfied with the services that they receive
0 10 20 30 40 50 60 70 80 90 100
Schools
Health clinic
Water supply
Garbage collection
Street cleaning
Public toilet
Bus services
Market place
Road maintenance
Policing/Security
Electricity supply
Level of satisfaction with services
No such Services in my area Very Dissatisfied Somewhat Dissatisfied
Neither Satisfied nor Dissatisfied Somewhat Satisfied Very Satisfied

16. In general, people believe that government acts
in its own interests and not those of the people
 Although trust in Chiefs and Traditional Leaders is higher than that in government
and the national Assembly
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
South East North East South South North Central South West North West
Share that believe government acts in own interest
Federal government
State government
LGA government

17. There is a pervasive lack of trust in tax officials at
all levels … but it varies by state
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
SouthEast NorthEast SouthSouth NorthCentral SouthWest NorthWest
Sharethat'Don't TrustatAll'oronly'Trustalittle'taxofficials
Federalleveltrust
Stateleveltrust
LGAleveltrust

18. This lack of trust has a negative impact on
tax morale
 When people trust tax
officials more, they are
more likely to have high
tax morale … and less
likely to believe that
evading taxes is not
wrong at all.
0
10
20
30
40
50
No trust at all Trust just a little Trust somewhat A great deal of trust
Percentageofrespondents
Level of trust in Federal tax officials
How trust affects tax morale
Not wrong at all Wrong and punishable

19. What matters most?

20. A model of attitudes towards tax avoidance
𝑇𝑀∗
= 𝛽1. 𝐸𝑐𝑜𝑛𝑜𝑚𝑖𝑐 + 𝛽2. 𝐾𝑛𝑜𝑤𝑙𝑒𝑑𝑔𝑒 + 𝛽3. 𝐸𝑥𝑐ℎ𝑎𝑛𝑔𝑒 +
𝛽4. 𝑁𝑜𝑟𝑚𝑠 + 𝛽5. 𝑇𝑟𝑢𝑠𝑡 + 𝛽6. 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝜀
𝑇𝑀 =
0 𝑖𝑓 𝑇𝑀∗
< 𝜇0
1 𝑖𝑓 𝜇0 ≤ 𝑇𝑀∗
< 𝜇1
2 𝑖𝑓 𝜇1 ≤ 𝑇𝑀∗
where TM* is a latent variable for tax morale; TM is the observed, ordinal value for tax
morale.
𝛽1−6 are a set of coefficients; and 𝜇0, 𝜇1, 𝜇2 are a set of cut offs.

22. Key results
Our results suggest that tax morale/attitudes about non-payment are influenced by many of the
pathways suggested in the literature including:
 Neoclassical explanations – a higher perception of penalty increases tax morale
 Knowledge – ease of finding information improves tax morale
 Social compact – improvements in services clearly linked to tax morale
 Which suggests that a critical part of raising more tax revenue may be out of the control of the tax
office
 Social/individual norms – these were generally not significant
 Trust - appears to have a strong impact on tax morale – particularly trust in tax officials
But we also get one interesting surprise:
 The experience of paying tax appears to raise tax morale
 Those that admit to being liable have higher tax morale
 Those that say that the tax burden is higher have higher tax morale

23. Where next for tax research?
We see a few potential avenues for exploring further research on tax perceptions:
1. Does improving tax morale actually make people pay more tax?
2. Do service improvements actually increase taxes?
 And what are the sorts of interventions that might improve tax morale? E.g. how can we
improve information, build trust, and improve service delivery.
3. Does greater experience with the tax system really improve your tax morale?
4. How do the influences of such factors vary by country and context?