Raising taxes whilst incomes are pressured: The dilemma of Nigerian government

It is crystal clear that Nigeria is facing hard times. In 2022, the government’s finances may get worse. Like any business or household would do, the government is seeking different means to shore up its revenue base to mitigate the looming fiscal finance conundrum. From new proposals to introduce capital gains tax of five per […]

It is crystal clear that Nigeria is facing hard times. In 2022, the government’s finances may get worse. Like any business or household would do, the government is seeking different means to shore up its revenue base to mitigate the looming fiscal finance conundrum. From new proposals to introduce capital gains tax of five per cent on the value of shares of Nigerian companies traded across different Exchanges, to new taxes on gaming activities, including lottery and gambling, the government is seeking to deepen its revenue base.

Justifiably, so. The non-oil tax-to-GDP ratio is estimated at barely seven per cent, one of the lowest in Africa and perhaps the world. So, it makes sense to look for ways to deepen the tax penetration and enhance the revenue generation capacity of the government. The snag, however, is that the Nigerian tax authority focuses mainly on the easy route and the vulnerable, sometimes killing a fragile sector or business while overlooking certain sectors and individuals for whatever reasons they have.

What happens to luxury tax? What happens to property tax? What happens to agriculture, transportation, and trade, sectors with huge potential tax opportunities? In fact, reforming the transportation sector of some states can transform the fortune of some near-moribund states, which depend mainly on allocation from the Federation Account.

The question, however, is why is the government trying to impose more taxes on the average Nigerian at a time when incomes are pressured and people are barely surviving? More so, why is the government not taxing the rich progressively, if it must raise taxes, especially as the tax burden seems higher on the poor in the country, while the rich tend to pay lower, for those who actually pay tax?

While I won’t try to do the job of the tax authorities, there are a few obvious tax opportunities in property, that can be a veritable source of revenue to the government. For instance, in some countries, empty houses attract higher taxes, and the fact that the landlord puts a security guard there or keeps some less-valuable items there does not change the status of the property. When a landlord knows that he would pay more on empty property, there is an incentive to rent it out, an incentive that helps to bridge housing gaps and increase the rate of commercial activities in the real estate, rather than keeping idle assets, as we currently have.

There are more than enough ways to raise tax in a productive manner than just taking the easy route that sometimes destroys the fundamentals of a sector or some businesses. The Nigerian capital market is so fragile that imposing an additional tax burden will just undermine the economics of that segment of the financial services sector. Rather than kill the capital market, the government should be thinking of incentives to stimulate liquidity to the sector, especially as excessive government borrowings have crowded out private-sector investments, including equity and debt investments in the private sector.

Away from the revenue issue. Why is the government not talking about rationalising its bogus cost structure? Nigeria’s cost of governance is extravagant, to say the least, a phenomenon that is fuelling rent-seeking activities and killing or undermining productivity. Why would anyone seek to pursue a productive venture when it is easier to make multiples of potential income from politics through “clean and dirty” means. We keep creating more and more parastatals and one wonders why we need this bogus public service, which with the exemption of a few, does nothing more than cause frictions in the business environment because some of the staff are idle but want to use the instrument of their office to enrich themselves.

The number of MDAs keeps rising year-in, year-out and the National Assembly keeps creating new agencies. A case in point is the public hearing on the proposed establishment of the Integrated Data Management Commission, which is being tipped as a database of Nigerian corporate information. How is this different from what CAC represents? Isn’t this going to be another distraction for the Nigerian businesses, who would be required to make filings to such a Commission when it gets established, without prejudice to the current multiple filings of Nigerian businesses with CAC, Financial Reporting Council, Securities and Exchange Commission, amongst others? This Commission would again become another bogus MDA that would require funding from the government. It’s easy to recruit into the public service, but it is not easy to relieve them of their service for emotional and political reasons. So why create a future problem?

What is the essence of the constituency project allowance for the legislators, when the executives have responsibility for such? Isn’t it just a case of “stomach infrastructure” and political giveaways to our “Honourables and Senators”, who most times consider the allowance as their personal benefits, and actually spend such anyway they deem fit? After all, there are no audits.

Beyond the opaque nature of capital expenditure implementation and unending discoveries of ghost workers in public service, why can’t the Nigerian government cut its bills? Who borrows to fund recurrent expenditure? When a man loses his income, he is advised to cut his expenses. When a business cannot grow its revenue to meet up with expenses, it takes the painful decision to cut costs, including lay-offs at the extreme case when need be.

Why should it be different for the Nigerian government? Why can’t the government cut its bills? When President Buhari took over in 2015, the masses trusted his simplicity and prudence, especially as he made promises of cutting the waste in government. However, rather than the waste being cut, the extravagancy seems to be multiplying. Sadly, too, poor and innocent Nigerians are being taxed to pay for the luxurious lifestyle of the government. The least that any government can do is to cut its recurrent bills to reflect the realities of income. Every country borrows, but they do to fund capital expenditures relevant for developing infrastructure needed to improve productivity and ultimately standards of living of the people, not to fund expensive recurrent expenditure of the public service.

Summarily, the Nigerian government should cut its coat according to the materials available…Obviously, the politicians have become too fat for the materials available and they can no longer cut the coat according to their size. If they do, there may be nothing left for the rest of us!