In an all-out offensive to shore up government’s fast depleting oil income, the Senate has passed a new regime of general tax increment. The approval is a sequel to a report by the joint National Assembly Finance Committee, which considered the Medium Term Expenditure Framework and Fiscal Strategy Paper. In a country where the average citizen is overburdened, the vote for an upward review is insensitive.
The proposal not only smirks of poor economics, it is a lazy way out for the government to improve on its income profile. The parliament should stay action on the increment in the interest of businesses that are reeling under the negative impact of sundry taxes by the federal, state and local governments, as well as their unaccountable ministries, departments and agencies.
According to details of the report, which was submitted to the two chambers of the National Assembly by the Ahmed Makarfi-led committee, Nigeria’s tax to Gross Domestic Product has contracted to 3.3 per cent after the rebasing of the economy in 2014. Arguing that the increment is necessary, the committee said the tax-to-GDP ratio among the nations sampled was an average of 13 per cent. As a result, the Value Added Tax rate will climb to a precipitous 10 per cent from the current 5 per cent.
But this argument does not tell the whole story. This is just an excuse for the poor and small-scale business to continue to pay for the peccadilloes of our greedy public office holders. Experts estimate that an increment of VAT by 5 per cent will lead to massive job losses as businesses, already operating under a harsh environment where there is no electricity and security, will scale down operations. Some others will close down completely, with the attendant deflation of the economy.
The Senate should think this proposal through. As the highest ranking lawmaking representatives of the people, what have they done to reduce their own dependence on public revenue, apart from the 25 per cent they reduced recently from their annual allocation? There are several other ways and policies that can increase government revenue without a negative impact on businesses.
But, apparently, the government will do well to first heed its own counsel when it comes to visiting economic hardship on the populace. In 2013, Yerima Ngama, the then Minister of State for Finance, told an international audience in England that Nigeria earned N5 trillion in taxes, putting the rate at 7 per cent to the GDP. “Right now, we’re not thinking of increasing any tax rate,” he said. “We’re thinking of widening the tax net so that more and more people can comply and pay their taxes and if that is done, we’re sure of doubling the tax we are collecting.”
Eloquent words, we surmise. This is even a good figure compared to 2002, when the annual tax income of the government was just N454 billion. But what has changed that has made the government to reverse itself, when it has not even widened the tax net? In actual fact, it is not the dwindling revenue from falling crude oil prices that is atrophying the national economy so much, but the lack of sound management of the economy, corruption and failure to exploit the other available resources.
A recent report in this newspaper detailed how the government is losing billions of dollars following the non-renewal of oil licences. Some of the oil-lifting licences expired seven years ago. And by diligently enforcing extant tax provisions, in which case defaulting companies and individuals fulfil their obligations and those who fail to remit are expressly prosecuted as is done in other economies, public income will soar to an appreciable level.
Instead of more economic burden that the new proposal will engender, the government should increase its capacity to generate income. For now, it is going about this in the wrong way. According to a March 2015 report by the Independent Corrupt Practices and Other Related Offences Commission, 50 out of the 156 companies that registered for business with the Federal Ministry of Works did so with forged tax certificates. The government needs to redouble efforts to plug tax leakages. This way, it will generate more income.
Increasing taxes at this stage across board misses the point and could be counterproductive. Nigeria has identified 34 solid minerals but generated only paltry revenue of N26.9 billion in 2011 from that sector, according to the Nigeria Extractive Industries Transparency Initiative. This is partly because “there are no records of any royalty or similar payments,” being made to the government for those engaging in illegal mining activities. In an economy rebased to $510 billion, this is a mere drop in the ocean.
In comparison, the mining sector contributes $121 billion annually to the Australian economy (or 54 per cent of goods and services). And the painful reality is that Nigeria’s solid mineral content is similar to that of Australia.
But in our own case, too many areas of the economy are being mismanaged. To reverse the trend, the era of running the economy on sentiments should end. The government should enthrone transparency and fiscal discipline in its dealings, cut down drastically on bogus allowances, tax luxury imports and houses, ramp up export initiatives, liberalise key areas of the economy to lure in foreign capital, adopt a scientific approach to budgeting and implementation, and institute far-reaching reforms backed by technology.
Along with the House of Representatives that rejected the proposed increment, civil society groups and the business community should contest the precipitate approval of the Senate for a tax hike.
