This discuss seeks to demystify taxation and explain to our young children (primary school pupils and secondary school students alike) why taxation is not bad, punitive and painful.  It aims at portraying taxation as a good and necessary obligation.  It is also useful in teaching adults the necessity of taxation and our obligation to pay our taxes as a civic responsibility.

What is tax?

Tax is a compulsory contribution to the revenue of a State – federal, state or local government. It is levied by the government on workers income and business profits of companies. Taxes can also be added to the cost of some goods, services or transactions.  The person or company that pays tax is called The Taxpayer. If tax is levied on the price of goods or services, it is called Indirect Tax. If it is levied directly on a person’s or company’s income, it is Direct Tax.

Q: Do children pay tax?

A: Yes. When children buy products like biscuits, candies,  toys, etc on whose price tax has been added, they pay tax indirectly. It is an indirect tax.

 

Different types of taxes.

Income Tax

Income Tax is government levy imposed on taxpayer’s income.  A taxpayer can be an individual or a company.  Income Tax varies with the income or profits of the taxpayer. Government also determines the income that taxes are paid on. This is called Taxable Income.

Q: Is it only people that get income like workers and businessmen and businesswomen that pay Income Tax?

A: Yes. Income Tax is levied on people’s income. So, if you do not earn income, you do not pay Income Tax.

Consumption Tax

Consumption Tax is the tax you pay when you buy goods and services. Consumption Taxes are usually indirect – such as Sales tax or Value Added Tax (VAT). A Sales Tax typically applies to the sale of goods, less often to the sales of services.

Service Charge (Tax) is the tax you pay on services.  It is common in restaurants, bars, cinema, hotels and recreational centers. A Sales Tax is paid at the point-of-sale (where the good or service is bought).

Value Added Tax (VAT) is also a form of Consumption Tax. It is a tax on the Purchase Price of a product or service.  The purpose of VAT is to generate tax income to the government similar to the Income Tax paid by individuals or companies.

A Dividend Tax

A Dividend Tax is an Income Tax on the dividend payments to shareholders (stock holder) of a company.

A Property Tax

A property Tax is a levy on property. The owner is required to pay it to the government.  Types of property: Land;                 Improvements to land like buildings and immovable man-made objects;               Personal property (movable man-made objects and intangible property (something which a person, institution or company can have ownership of and can transfer such ownership to another person, institution or company, but has no physical appearance)

Why do we have to pay tax?

It is true that everyone pays taxes in one form or another, mostly through Income Tax and Sales Tax. Some people believe that Taxes are punitive and unnecessary. In their thinking, tax causes pain on the Taxpayer.

 

Q: Is it necessary for people to be forced to pay tax?

A: Taxes are very necessary. The gains and benefits of taxation make it imperative that people pay their taxes. The problem is that many people are ignorant of the benefits and importance.

Reasons why we must pay taxes

These are the reasons why we pay taxes: We pay taxes to support governments’ expenditure. Governments use the revenue from taxes to fund or provide services to the people. These services include:   Governments use tax money for healthcare services like hospitals, immunization clinics, portable water, etc.  Governments also use the monies from taxes to provide security – national police, army, air force, navy, etc.  Tax money is used by the Government to build roads, highways, prisons, bridges, markets, etc.

Electricity is also provided by the government through the tax monies we pay. Tax monies are also used by government to provide schools, give scholarships, build libraries, and pay salaries of workers who help make these services. We all admit that these services are very necessary. However, you may wonder why taxes are the chosen option for financing these services.

Why shouldn’t we pay for what we use ourselves? The answer is simple. We cannot afford the cost of these services individually. We can’t build roads, hospitals, bridges and other amenities individually. Can we individually have our own army, navy, police and others whose services we enjoy every day? No! We cannot. Also it would also mean that each person would have to pay the full price for these services regardless of the person’s ability to pay.

It is important to point out that our tax system is based on “ability to pay”. The more you earn the more taxes you pay. If we earn small income, we pay less tax. Taxes are for our future good. Past generations paid taxes for what we enjoy today – schools, hospitals, courts of law, good roads, markets and lots more. The taxes we pay now will help us pass along these benefits to future generations – our children, grandchildren and great grandchildren. So, we have to pay taxes to make life better for us and the future generations. Taxes are for our common good.

“Taxes are the price we pay for civilization” – Oliver Wendell Holmes.

Q: Is it necessary and proper that we pay taxes?

A: Yes.

Q: Who collects and manages the various taxes we pay in Nigeria?

A: Taxes are collected and managed for the Federal Government of Nigeria by the Federal Inland Revenue Services (FIRS).

This piece is adapted from Ike Ezugwu’s  book: Taxes Are Good.

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This discuss seeks to demystify taxation and explain to our young children (primary school pupils and secondary school students alike) why taxation is not bad, punitive and painful.  It aims at portraying taxation as a good and necessary obligation.  It is also useful in teaching adults the necessity of...