Nigeria went agog recently with the stunning announcement made by the chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr Taiwo Oyedele, that come January 2026, prostitution (he used the more popular, diplomatic term “runs girls”) will be taxed.
Clearly, this was meant to catch attention, and it duly did. Tongues were set wagging. There was a flurry of articles in the popular dailies, with most bringing up the seeming inconsistency of taxing an activity that is yet to be decriminalized. Admittedly, it does seem like a recipe for confusion for government on the one hand, to tax prostitutes and on the other, still render them liable to face the wrath of the law for prostitution activities which are still illegal, but I think we need to look past prostitution’s understandably colorful image, and look to the rest of Mr Oyedele’s words for better context but what might not yet be full understanding.
Mr Oyedele explained that the new tax law makes no distinction between legitimate and illegitimate sources of income. He said that anyone earning money for services rendered will be taxed including sex work. So you see, it isn’t about taxing prostitution per se but about enlarging the tax net by taxing ALL sources of income, irrespective of whether the source is legal or otherwise. But, you might understandably say, there is still some sort of moral inconsistency here. Why would the government want to collect taxes on any activity it has deemed illegal? As mind-bending as this seems, there is a precedent. Most nations in the west (e.g. Germany, Netherlands, New Zealand) that tax prostitution have quite rationally, decriminalized it. An article in The Cable humorously stated that Nigeria was officially the only nation where you can go to jail for prostitution in the morning and then get a tax bill for it by evening. That is actually incorrect. Come January 2026, Nigeria will only be the second nation where this can happen. In the US, you are expected to file tax returns on illegal activity that could potentially land you in jail. If you do not, for fear that your criminal activities be discovered, you run the risk of being criminally charged for tax evasion. The filing of tax returns though, does not protect you from being criminally charged for the underlying criminal activity.
You are probably wondering “Why the US would take this seemingly incomprehensible position?” Since it is the U.S’ Internal Revenue Service (IRS) tax code that seems to be the model for Nigeria’s new tax law, it behooves us to try to understand the principles on which the U.S tax code rests, so as to gain some understanding of the thinking of our government on this issue.
Strange as it may sound, the main principle driving this seemingly morally inconsistent tax code is one of fairness. The IRS argues that by not filing tax returns, criminals gain an unfair tax advantage over law abiding citizens, so U.S tax law requires all citizens to pay taxes whether the source of income is legal or not.
You might cynically ask, “Who would comply with that kind of law?”, and you would be right…well almost. Compliance is very low, but it is not zero, and part of the reason is that, while the IRS requires that all sources of income be taxed, it doesn’t require that you specifically state the source of your income when filing your tax returns. Prostitutes and other people deriving income from illegal activity are allowed to write descriptions like “self-employment”, “personal services” or even “miscellaneous” when filling in the source of income field on their tax forms. There are US organizations like the Sex Workers Project that provide guidance on how sex workers can file taxes safely and legally. These resources emphasize the importance of keeping records, reporting income, and understanding deductions — while protecting privacy and legal safety. It is not hard to imagine big time runs girls in Lagos and Abuja hiring tax consultants (FIRS employees might even do it as side hustle) to help them file their taxes properly. One should note as I insinuated earlier, if the illegal activity is big enough to attract the attention of the Federal Bureau of Investigation (FBI) or the Drug Enforcement Agency (DEA) and they require your tax records, the IRS WILL cooperate and hand them over.
There are added reasons why the US maintains this rather complex position. They include:
- It is often easier to send a criminal to jail for tax evasion than it is for the underlying criminal activity. The landmark case here was the sentencing of legendary gangster of depression-era America of the 1930s, Al Capone for tax evasion, when prosecuting him for racketeering was proving enormously difficult (Fun fact: Al Capone had an elder brother who was a legendary police officer who made his name from arresting people for the same crime his brother was king of. Fortunately, they lived in different states so he didn’t have the unpleasant task of having to arrest his brother. Nigerians you see why it is good to have state police?).
- Taxing illegal activity might serve as a deterrent to the same illegal activity. Indeed, in years gone by, there have been reports of prostitutes in the Netherlands complaining that they preferred it when prostitution was illegal because it was cheaper to pay bribes to policemen to look the other way than to pay the taxes on legal prostitution. Quite plausibly, there would have been prostitutes who would have had to drop out of the market as the added taxes made it impossible for them to make ends meet.
Another reason I suspect the US will have, for not wanting to decriminalize prostitution anytime soon but yet seeking to tax it, is because of the very significant amounts of religious feeling that exists in the U.S and so a bill proposing to decriminalize prostitution is unlikely to succeed in Congress, no matter the solid reasons such a bill might have in its favor. Europe is largely irreligious, so in the countries that decriminalized it, it was possible to have a rational discussion about the merits/demerits of legalizing prostitution without running into the wall of religious sentiment. That is probably not possible in contemporary America and I would wager, not possible in Nigeria of today.
You might still cynically say that the vast majority will choose not to self-report and come 2026, FIRS will have nowhere close to the resources/manpower to enforce compliance. True but having a law on the books would mean that the FIRS was now legally in a position to go after people it couldn’t legally go after before, even if they had the resources/manpower.
Finally, you might object by asking, “Is this right/just?” The answer to this question is not as straightforward as it might seem. There isn’t typically a clear-cut answer to what is right/just for a modern society as a whole. Finding the best outcome will often mean carrying out randomized trials and measuring the results. This is what is referred to as evidence-based decision-making, a growing trend globally that Nigeria would be wise to hop aboard.
