Analysing The Impact Of Road Taxation In Nigeria

By Oyetola Muyiwa Atoyebi, SAN

INTRODUCTION

Because of the state’s casual attitude toward collecting the roads fee, the majority of Nigerians consider it inconsequential, due to the fact that the daily revenue from road taxes is so small in comparison to other taxes, some states even regarded it as unimportant to the state’s revenue.[1] In Nigeria, road charges are still acceptable for at least three reasons. The most evident is money generated for both building new roads and maintaining old ones. For instance, repairing all of Nigeria’s roads will cost the federal and state governments a combined N17.61 trillion. This projection also counts on no new buildings being built.[2] Sadly, this estimate is higher than 70% of the combined federal and state governments’ overall spending. Even worse, neither of these two tiers of the Nigerian government has allocated a combined 15% of their total budget for road infrastructure.[3]

The consequence is that our roads’ future conditions will become even worse than they are right now, without fresh sources of funding for improvements to the road infrastructure.[4] Secondly, while idealistically funding road infrastructure should come from road taxes, these money sources can also be used to enhance other aspects of governance. The safety of human lives is the third justification.[5] The pertinent responsibility of any component of tax is to upsurge revenue generation in such state[6] Due to the federal government’s distribution of crude oil proceeds to the states a decade ago, many states neglected their road taxes.[7] Many drivers avoid paying their road taxes, and some drivers fail to even register their vehicles, even if they have been on the road for a long time.

Road Tax Administration in Nigeria

Road tax refers to a tax compulsorily paid on wheeled vehicles using public roads. All states require an annual registration fee for vehicle owners in order to permit the usage of such vehicles on roads.[8] The road tax levy varies from state to state, depends on vehicle kinds, and is also based on the capacity, engine, and categories of vehicle. These categories of vehicles are passenger cars, taxis, lorries, trucks, buses, motorcycles, tractors, vans and tricycles.[9] Annually, the vehicle owners, based on engine displacement, and manufactured years, pay annual road tax to government so that their contributions are felt by the government for the effective discharge of fiscal roles. In Nigeria, states collect annual vehicle road tax, which is imposed at a fixed rate on vehicle categories as determined by each state.

The road taxation laws in Nigeria are primarily governed by the Federal Road Maintenance Agency (FERMA) Act[10], the Federal Inland Revenue Service (FIRS) Act[11], and the State Road Traffic Management Authority (SRTMA) Acts and regulations. These laws outline the various taxes and fees related to road usage and maintenance. Although the law vests the rights to collect road taxes on state governments, the mechanism involves a tripartite arrangement. The three critical players under this arrangement are the Federal Road Safety Commission, the Joint Tax Board and the Road traffic department or vehicle inspection officers [VIOs].[12] Understandably, the Federal Road Safety Commission has statutory rights for producing and issuing driver’s licenses while the Road Traffic Department tests and recommends candidates to the FRSC for licensing. It also has responsibility for inspecting vehicles involved in accidents, certification of driving schools and other kindred concerns.[13]

IMPACTS OF ROAD TAXATION ON THE NIGERIAN ECONOMY

Road taxation in Nigeria, like in many other countries, has several impacts on various aspects of the economy and society. Here are some of the key impacts of road taxation in Nigeria:

1. Infrastructure Development: Road taxation plays a crucial role in funding the construction and maintenance of road infrastructure in Nigeria. The revenue generated from road taxes is typically allocated to road development projects, including the construction of new roads, rehabilitation of existing roads, and the provision of essential road amenities such as street lighting and signage. These investments contribute to improved transportation networks, enhanced connectivity between cities and regions, and increased economic activities.[14]
2. Revenue Generation: Road taxation serves as a significant source of revenue for the government. Taxes such as fuel levies, vehicle registration fees, and toll charges generate funds that are utilized for various public purposes, including infrastructure development, provision of public services, and social welfare programs. The revenue generated from road taxation helps to finance government budgets, reduce budget deficits, and support overall economic development.[15]
3. Transportation Costs: Road taxation can have an impact on transportation costs for individuals and businesses. Taxes imposed on fuel, for example, can increase the cost of vehicle operation and transportation services, leading to higher prices for goods and services. This can affect the affordability of transportation for individuals and may have implications for the competitiveness of businesses reliant on road transportation.[16]
4. Compliance and Enforcement: Road taxation policies necessitate compliance and enforcement mechanisms to ensure that individuals and businesses fulfill their tax obligations. The enforcement of road tax regulations can help curb tax evasion and promote accountability.[17] Effective enforcement measures, such as vehicle inspections, registration checks, and the use of technology for toll collection, contribute to increased compliance and revenue collection.[18]
5. Revenue Allocation: The allocation of road tax revenue is a crucial aspect that can impact different regions and sectors within Nigeria. The equitable distribution of tax revenue ensures that funds are allocated to areas with greater infrastructure needs, including underserved rural areas. Fair revenue allocation can help reduce regional disparities, promote balanced development, and improve access to essential services and economic opportunities.[19]
6. Environmental Impact: Road taxation policies can also have environmental implications. Taxes on carbon-based fuels can reward the use of more fuel-efficient vehicles or alternative energy sources, thereby contributing to reduced greenhouse gas emissions and air pollution. Additionally, road taxes can be designed to encourage the adoption of cleaner technologies, such as electric vehicles, by providing incentives or exemptions.[20]

It is important to note that the specific impacts of road taxation in Nigeria can vary depending on the design of tax policies, the effectiveness of revenue collection and allocation mechanisms, and the overall governance and management of road infrastructure.[21]

CONCLUSION

Road taxation has had a significant impact on Nigeria, both positive and negative. On the positive side, road taxation has played a crucial role in generating revenue for the government, which has been used to fund infrastructure development and maintenance. The funds generated from road taxation have contributed to the construction and improvement of roads, bridges, and other transportation infrastructure, enhancing connectivity and facilitating economic growth.[22] Moreover, road taxation has encouraged compliance and accountability in the transport sector. By implementing tolls, taxes, and fees, the government has created a system that holds road users accountable for their contribution to road maintenance and upkeep. This has helped in curbing the problem of inadequate funding for infrastructure projects and has promoted a sense of responsibility among road users.[23]

However, road taxation has also faced challenges and criticism. One of the major concerns is the mismanagement of funds generated from road taxes. There have been instances of corruption and embezzlement, where funds intended for road infrastructure development have been diverted or misappropriated. This has hindered progress and created a trust deficit between the government and the citizens.[24] To maximize the impact of road taxation in Nigeria, it is crucial for the government to address the issues of transparency, accountability, and efficient fund management. Strict measures should be in place to prevent corruption and ensure that the funds generated are utilized effectively for road infrastructure development, maintenance, and safety measures.

Furthermore, the government should consider the socio-economic implications of road taxation, particularly on low-income individuals and vulnerable groups. Efforts should be made to mitigate the burden on these populations by implementing progressive tax systems, providing exemptions or discounts, and investing in alternative modes of transportation to reduce reliance on road networks.[25]

RECOMMENDATIONS

When designed and implemented effectively, road taxation can have a significant positive impact on the economy, promoting sustainable growth, improved efficiency, and enhanced quality of life. To optimize road taxation to maximize economic benefits this work recommends as follows:

1. Implement Fair and Efficient Taxation Mechanisms: To ensure a positive economic impact, road taxation should be fair, transparent, and efficiently implemented. In doing so, the Government should adopt a user-pays principle and utilization of technology.
2. Direct Revenue towards Infrastructure Investment: One of the primary objectives of road taxation should be to generate funds for infrastructure development and maintenance. By allocating tax revenue directly towards transportation projects, governments can stimulate economic activity and create jobs. Investing in road infrastructure leads to improved connectivity, enhanced trade, and increased mobility, facilitating the movement of goods and services within and across regions.
3. Support Innovation and Research: By dedicating a portion of road tax revenue to innovation and research, governments can drive technological advancements that boost economic growth and sustainability. In actualizing this, the Government can consider the following measures:
4. Fund research and development: Support initiatives focused on smart transportation systems, autonomous vehicles, and sustainable road construction materials, fostering innovation and competitiveness.
5. Encourage private-sector partnerships: Collaborate with private companies to develop and implement new technologies, leveraging their expertise and investment capabilities.
6. Ensure Transparency and Accountability: To maintain public trust and optimize the economic impact of road taxation, transparency and accountability are vital. To implement this, the Government should do the following:
   1. Publish clear reports: Regularly communicate to the public how road tax revenue is allocated and the progress of infrastructure projects funded by taxation.
   2. Conduct periodic reviews: Evaluate the effectiveness and efficiency of road taxation mechanisms, making necessary adjustments based on feedback, changing needs, and technological advancements.
   3. Engage stakeholders: Encourage public participation and gather feedback through public consultations, ensuring that road taxation policies align with the needs and aspirations of citizens.

SNIPPET:

It is important to note that the specific impacts of road taxation in Nigeria can vary depending on the design of tax policies, the effectiveness of revenue collection and allocation mechanisms, and the overall governance and management of road infrastructure

Key terms: Road taxation, road revenue

AUTHOR: Oyetola Muyiwa Atoyebi, SAN

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Corporate Law Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

CONTRIBUTOR: Ifediora Obiora

Ifediora is a member of the Dispute Resolution Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Taxation Law Practice.

He can be reached at ifediora.obiora@omaplex.com.ng

[1] Ike-Muonso M, ‘Of road taxation in Nigeria’ <https://www.businessamlive.com/of-road-taxation-in-nigeria/> accessed 19 May, 2023.

[2] Ibid

[3] Ibid

[4] Adegbite T.A ‘Personal Income Tax and Government Revenue: Evidence from Oyo State. International Journal of Social and Administrative, [2017] 2(2), 45-51.

[5] Adegbite T.A. An Investigation on the Influence of Taxation on Economic Growth in Nigeria. Academic Journal of Economic Studies, [2020] 6(2), 12-20

[6] O C Ogbodo & C L Nweze, ‘Effect of Tax Revenue on Economic Development: Evidence from Nigeria’ Research Journal of Management Practice, [2021] 1 (2), p17-32.

[7]Ibid

[8] Adegbite T A & Azeez B A. Exploring Road Tax in Cushioning the Effects of Downplaying Revenue Generation in South Western States, Nigeria. Nigerian Journal of Accounting and Finance, [2021] 13 (2).  <https://www.researchgate.net/publication/358642044> accessed 19 May, 2023.

[9] Ibid

[10] Federal Road Maintenance Agency (FERMA) Act, No. 7, 2002.

[11] Federal Inland Revenue Service (FIRS) Act, 2007.

[12] Majeed B, ‘FIRS mulls road tax law to increase revenue generation’ <https://www.premiumtimesng.com/news/top-news/479986-firs-mulls-road-tax-law-to-increase-revenue-generation.html?tztc=1> accessed 19 May, 2023.

[13] Ibid

[14] Omolola A, ‘Road Taxes: Taxation as a viable Tool in Solving Nigeria’s Infrastructural Deficit’  <https://www.linkedin.com/pulse/road-taxat-omolola-ambrose/> accessed 19 May, 2023.

[15] Adeyemi A & Chinaza A, ‘Evaluation of the road infrastructure Tax Credit Scheme – Three Years After’ <https://www.mondaq.com/nigeria/sales-taxes-vat-gst/1255658/evaluation-of-the-road-infrastructure-tax-credit-scheme–three-years-after> accessed 19 May, 2023.

[16] Wadesango N., Bizah S. & Nyamwanza L. The Impact of Tax Amnesty on Tax Compliance and Tax Evasion Behavior among SMES. Academy of Entrepreneurship Journal, [2020] 26(3), 1-10.

[17] Omondi, B. O. The Effect of Custom and Excise Duties on Economic Growth in Kenya. International Journal of Scientific and Research Publications,[2019] 9(1), 530 -546

[18] Ibid

[19] Samuel, S. E. & Tyokoso, G. Taxation and Revenue Generation: An Empirical Investigation of Selected States in Nigeria. Journal of Poverty, Investment and Development, [2014] 4(10), 12- 2

[20] Neway, G., Kenenisa, L.D., & Woldemicael, S. Determinants of Tax Revenue in Ethiopia. Journal of Economics, [2018] 6(1), 58-64.

[21] Ibid

[22] Emmanuel S. N. The Impact of Tax Administration on Revenue Generation in Gombe State, Nigeria. Scholedge International Journal of Management and Development, [2018] 5(8), 86- 95.

[23] Ibid

[24] Ibid

[25] Ganyam A.L., Ivungu J.A. & Anongo E. T. Effect of Tax Administration on Revenue Generation in Nigeria: Evidence from Benue State Tax Administration. International Journal of Economics, Commerce and Management,[2019] 7(7), 394- 414.