Why We Need A Gift Tax

Sometime ago, I titled an article “Reverend Sir, the Tax man needs your tithe”.  I received a few emails questioning my motives. I also received some other emails applauding me.  I got an epistle from one interesting fellow who questioned the title of the article and suggested I broaden this to include Imams and herbalists.  I agreed with him without arguing. Some other fellow questioned why I should advocate tax compliance at all in an environment that is so overtly corrupt where it is guaranteed that the tax would be embezzled as soon as it is paid. I do not have answers for all these questions but I was happy that one or two people were truly interested in my message.

The key issues I raised in that article were that churches, mosques and schools should pay taxes on income derived from a trade or business carried out by such institution.  This is what the Law says.  I also requested that the religious leaders should pay their taxes since the income of individuals involved in running churches, mosques or other ecclesiastical bodies as well as schools are not exempt from taxation under any statute. This has brought a very interesting dimension. What is the income of a religious leader who does not draw a salary but receives “gifts” from his flocks? There is no ceiling on the quantum of gift that these religious leaders can receive.  But we can extend this question.  What is the true income of a politician who has no source of employment but is a godfather to, say, two governors and several political appointees from whom he receives regular “gifts” or returns?

Thus anybody can structure his or her affairs such that the person lives on gifts from his business affairs. While the persons making the gifts may pay tax on their gross receipt (if this is itself not a gift) at the time of earnings, the recipient would not have cause to pay any tax.

Taxing Every Egunje
It is for this reasons that gifts are regulated and taxed in countries that have not institutionalised corruption.  We do not need to go very far. In Ghana, gifts must be documented and tax returns made on them.  Gift tax in Ghana is the tax payable by the recipient of gifts on the total value of taxable gifts received within a Year of Assessment. The gift tax rate is currently 15%. Imagine how much the State would receive if every egunje that changes hands is taxed at 15%!

I just heard someone call me an idiot.  How would egunje be reported in the first place? This is precisely my point. If there were a requirement that gifts be reported and taxes paid on them, then this singular act would go a long way to limit corruption. Religious leaders would then need to declare and pay taxes on gifts in addition to income.

The giver would also be entitled to a tax deduction on his gift.  In the United States, donations to charity are tax-deductible expenses. These donations can reduce your taxable income and lower your tax bill. It means that all tithe payers and givers do not have to pay tax on their donations.

However, recipient of the gifts would pay a gift tax unless they are specifically exempt.  I just heard someone else say laws are meant to be broken in Nigeria. My point is that we should at least block the loopholes. Tax compliance fosters good corporate governance, transparency and accountability. Ethical corporate governance is a demonstration of responsible leadership.  Every church or mosque leader owes his congregation a duty to be accountable.

The Need To Engage Religious Leaders
Why do I appear to be focusing on religious leaders? Why not the politicians? Nigerians are very religious a lot. You will be surprised how much power religious leaders wield in this country. They were privileged to see the late President Yar’Adua in his last days while most of us could only hope that we see the then President in a vision.  Beside, the average Nigerian has given up on the State. It is little wonder that he is sold out completely to God whatever that name means to him. He knows something extraordinary has to happen to change his situation. He is thus very vulnerable to his priest no matter the deity the priest represents. This is why the class of the priest today are as powerful as in ancient Egypt. This powerful class cannot be ignored in the quest for social change. They should be engaged.

Let the battle for doing things right start with those wearing the moral cloak. Then perhaps the leadership would listen and more people would willingly comply with their tax obligations. We have said in this column in the past that the most effective tool for increasing tax collection is to engender wilful compliance. Governance begin with our own affairs.

Eben Akinyemi, an Associate of the Institute of Chartered Accountants of Nigeria and the Chartered Institute of Taxation of Nigeria, is a partner at the transactions advisory firm Stransact Partners.