Maximising revenue sources, potential – Punch

Lamentations by senior officials on the revenue crisis facing the country demonstrate the continued failure of the Muhammadu Buhari government to make the right choices and lead the economy to the path of impactful growth.  Ben Akabueze, director-general of the Budget Office of the Federation, highlighted the urgency of increasing revenue, while Babatunde Fowler, chairman of the Federal Inland Revenue Service, deplored widespread tax evasion. Their homilies are admissions of failure by the administration they serve to clean up the revenue system, maximise available resources and muster the political will to compel compliance with tax laws by corporations and individuals.

Buhari and his team have only a short time left to take strong action to reverse dwindling government revenues and restructure the economy. Akabueze was uncharacteristically forthright: Nigeria is facing a “serious revenue problem,” he declared. The enormity is underscored by the percentage of total revenue spent on debt servicing that at 60 per cent in 2017, alarmed the International Monetary Fund enough that it raised it at the last World Bank/IMF Annual Meetings held in October in Bali, Indonesia. At another forum, Fowler had again bemoaned the shortfall in tax collections and the prevailing culture of evasion by high net worth individuals and corporate bodies.

It is a sad commentary on the quality of governance in Nigeria that ranking officials advertise their helplessness in revenue collection and tax enforcement, as well as their obvious failure to diversify revenue sources. The problems both men highlighted are within the mandate and power of the government to solve. Yes, Buhari inherited the problems; unfortunately, he has not dramatically formulated policies to reverse the self-defeating system of a narrow revenue base, ineffective tax administration, poor enforcement and massive fiscal leakages. Add to these the refusal to privatise state-owned loss-making enterprises and to liberalise key sectors of the economy, while pursuing an unsustainable policy of borrowing for infrastructure and recurrent needs.

Successful emerging economies adopt the ‘win-win’ strategy of radical reform of public finances and tax administration, liberalising the economy and attracting Foreign Direct Investment, strict enforcement of tax laws, massive investment in infrastructure by a mix of public and private funding, as well as a genuine assault against corruption and cronyism. These headlined the storied successes of Singapore and Malaysia. This government too should be enforcing and fine-tuning tax laws to maximise tax compliance and opening up the economy for Foreign Direct Investment. A former governor of the Central Bank of Nigeria, Charles Soludo, in 2014, asserted that plugging leakages in the revenue system could bring in up to N30 trillion annually if only government could muster the political will necessary to enforce laws and deploy appropriate technology for revenue collection.

With tax-to-Gross Domestic Product ratio of only six per cent and high debt service-to-revenue ratio, our 20 per cent debt-to-GDP ratio that Nigerian officials feel so comfortable with, is dangerous indeed. The government should fully ensure tax compliance, especially by the wealthy. After launching the Voluntary Assets and Income Declaration Scheme to encourage tax dodgers to come clean and shifting the deadline at least three times, it said only 262 individuals voluntarily paid  a combined N20 billion income taxes in eight months. This pales when placed against the 6,772 billionaire tax dodgers identified to have between N1 billion and N5 billion in their bank accounts but do not pay income taxes. Most high net worth individuals have ignored the threats, incentives, amnesty and cajoling. Yet, the promised clampdown has not materialised. India accompanied its ‘one nation, one tax’ reform programme of 2016/17 to raise more revenues with rigid enforcement.

We must widen the net. Today’s most successful economies run on tax, not commodity sales. The world’s highest tax-to-GDP countries include Denmark 48.2 per cent, Sweden 46.4 per cent, Italy 43.5 per cent and Belgium 43.2 per cent. In the United States, 2,300 criminal tax convictions were handed down by the courts in 2017, with 2,043 individuals jailed, apart from paying fines. The South African Revenue Service can by law impose from five per cent fine to 75 per cent fine on unpaid taxes or undisclosed income, while the courts can impose a five-year jail term for unreported foreign assets. A tax evader in Singapore risks fines up to 300 per cent of unpaid taxes, as well as the assessed sum in addition to three years in jail if convicted. Here, known billionaires are running for public office and declaring ridiculously low sums as income and tax, secure in the knowledge that there will be no censure.

To change the narrative and move towards closing the infrastructure gap, first; block leakages such as the billions in unremitted stamp duties and withholding tax held by banks, as well as funds held by many of the 542 federal ministries, departments and agencies. Also, stop borrowing for railway and airport projects when liberalising and repealing the restrictive Railway Act 1955 and privatising the ports will open the doors to FDI and local investment. Privatise refineries, petroleum pipelines and depots and all commercial assets. Subsidising each litre of petrol imported with N53, while retaining four loss-making refineries is irrational.

There should be a clampdown on tax evaders, especially the wealthy. They should be compelled to pay their dues and fines and jail terms should be liberally applied. New, stiffer legislation should be introduced to compel tax compliance by individuals and corporate organisations and deter evasion.

Everything should be done by the federal, states and local governments to truly diversify revenue sources and instil discipline in public finances. FIRS, the Nigeria Customs Service and state revenue agencies should reform, stamp out corruption and enforce laws without fear or favour.

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