National Tax Policy and inheritance taxation
Is it time for a more definitive framework?
Taxing the estate of the deceased does not only augment government's budget, but also help in re-distributing wealth within the economy.
Inheritance, in Latin is known as “Donatio Mortis Causa”, which means a gift in the prospect or view of death. In other advanced climes like Europe, such bequeathed properties (i.e. tangible assets, bonds, money and other possessions) in the hands of the beneficiary, are veritable source of tax revenue to the State.
Taxing the estate of the deceased does not only augment government's budget, but also help in re-distributing wealth within the economy. Taxation is normally a plenipotential instrument in the hands of a skilful administration. It can be used to incentivize or dis-incentivize certain patterns of socioeconomic behaviour in the society or stimulate certain patterns of development in specific sectors of the economy.
The efficacy of taxation is manifest in one instance of dubious accumulation of wealth among others in that though Al Capone could not be prosecuted for any of the (open secret) heinous crimes that he was known to be directly involved, he was ultimately found guilty of tax evasion on his ill-gotten wealth. He was sentenced to ten years in federal prison.
There is a tendency to assume that Nigeria does have some form of inheritance tax when you consider that there is a 10% Estate fee that is charged on the deceased estate whenever the administrators or executors processes the approval/authority to administer or execute the estate. In addition, there are the provisions of the Personal Income Tax Act (as amended) in respect of income arising from settlement, trusts or estate. But are these arrangements or provisions definitive or far-reaching enough?
The model of inheritance tax regime, as is being practiced in developed countries, reflect the following characteristics:
· A flat rate is usually charged on the excess of a threshold amount of estate of the donor or deceased
· Exemption of amount donated to charity from inheritance tax
· Inclusion of any money given to persons for a specific period prior to the death of the donor as part of their estate which is chargeable with the exemption of certain small gifts
· Applicability of inheritance tax only in the country in which the donor is resident (obviously, the residency rule may be different in some countries)
Our reality in Nigeria today is that there are individuals who have spent their life accumulating wealth which is more than they can ever need, with the intention of handing it down to subsequent generations. The negative socio-economic impact of this attitude is descendants who may become complacent and reliant on the bequeathed wealth without impetus to strive and have any meaningful impact to help move the economy, as a whole, forward. A more insidious impact of this mind-set is the unwitting prevalence of a get rich quick attitude in the active working population with its attendant escalation of corrupt practices in the country.
The introduction of a definitive inheritance tax regime can play a big role in mitigating corruption and impact the economy positively. A study has shown that “unearned wealth diminishes character”. Accordingly, rabid accumulation of wealth which is becoming a rampant phenomenon must be arrested by all means available. Adopting and implementing a more definitive and rigorous inheritance tax regime could complement all other existing anticorruption regulatory frameworks and help to strengthen the middle class in Nigeria.
The ongoing reform of the tax system should include a proposal for a more definitive inheritance tax regime. Such a regime would require:
· Reorganization of the General Registry Office to aid the prompt recording of births and deaths of citizens as soon as they occur and reported
· Proper registration of housing deeds and properties
· Monitoring of transfer of estate by government
· Enactment of laws to give appropriate legal backing
· Effective enforcement and collection machinery.
The inheritance tax rules however need to be applied in such a manner that the rules are not harmful to those who accumulated their wealth through sheer hard work and industry. Although an ancient held the view that “it is meaningless and a great misfortune for a person to labour and acquire wealth and then have to leave all they own to another who has not toiled for it”, from a tax perspective, this is an opportunity to add to the public treasury and also address the socio-economic evil called “corruption”!
As the NTP declares, “taxation is not only a means of revenue generation to the government but also can be used to stimulate other sources of revenue and develop other areas of the economy from which government can realise revenue”.