Tax proliferation as an albatross
Bogging Down Nigerians With Mounting Burden of Taxation
It was a former Prime Minister of the United Kingdom, Sir Winston Leonard Spencer-Churchill who posited: “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
And in what looks like a tacit endorsement of Churchill’s position, American entertainer, writer, conservative political commentator, and host of radio talk show- The Rush Limbaugh Show- Rush Hudson Limbaugh III, added: “No nation has ever taxed itself into prosperity.”
In the last six months or thereabouts, the gale of taxation or planned taxation that the Federal Government intends to subject Nigerians to, in the remaining part of this administration’s life suggests that the government, which claims to be broke, appears bent on doing the impossible- taxing Nigerians into prosperity.
Across the world, tax, which is a compulsory payment levied by the government on individuals, or companies to meet the expenditure, which is required for public welfare remains the most important source of public revenue.
According to British economist and politician, who was Chancellor of the Exchequer from 1945 to 1947, Hugh Dalton, “A tax is a compulsory contribution imposed by a public authority, irrespective of the exact amount of service rendered to the taxpayer in return, and not imposed as penalty for any legal offence.”
In order to eliminate any form of arbitrariness in the administration of tax, economist Adam Smith, in his famous book, The Wealth of Nations, wrote about the Canons of Taxation, which he described as the main basic principles, or the rules that must be set in the building of a “Good Tax System.”
In the book, Smith only gave four canons. These original four are now known as the “Original or Main Canons of Taxation.”
With the passage of time, and the resultant expansion of governance, modern economists also expanded Smith’s principles of taxation hence the birth of modern canons of taxation.
Since a good tax system must be one, which is designed on the basis of an appropriate set of principles, it must necessarily strike a balance between the interest of the taxpayer, and that of tax authorities. The first of the four original rules is the Canon of Equity, which aims at providing economic and social justice to the people. This principle stipulates that every person should pay to the government depending upon his ability to pay. In other words, the rich should pay higher taxes to the government, because without the protection of government authorities they could not have earned and enjoyed their income.
In the second, which is Canon of Certainty, Smith posited that the tax which an individual has to pay should be certain, not arbitrary. The tax payer should know in advance how much tax he has to pay, at what time he has to pay the tax, and in what form the tax is to be paid to the government. Put differently, every tax should satisfy the canon of certainty. At the same time, a good tax system also ensures that the government is also certain about the amount that will be collected by way of tax.
The third rule being the Canon of Convenience, talks about the mode and timing of tax payment, which Smith said should be as far as possible, convenient to the taxpayers. This must be so simply because a convenient tax system will encourage people to pay tax and will increase tax revenue.
Canon of Economy, which is the fourth by Smith, states that there should be economy in tax administration. The cost of tax collection should be lower than the amount of tax collected. It may not serve any purpose, if the taxes imposed are widespread but are difficult to administer. Therefore, it would make no sense to impose certain taxes, if they are difficult to administer.
However, it is certain that across the country, state governments are feeling the heat generated by the economic recession, which entered its fourth quarter barely one week ago.
The glaring lack of autonomous existence by the 36 states, in the form of sustainable Internally Generated Revenue (IGR), has already made many of them incapable of paying salaries to their workers, and pension to pensioners. By the last count, at least 28 of the 36 states were in this category. A good number of them are also unable to settle their indebtedness to contractors.
It is in the light of the forgoing, and against the backdrop of the biting economic recession that these states have started to concentrate efforts on how to increase their IGR.
Expectedly, many of them have resorted to the introduction of new forms of taxes and levies to shore up their revenue base.However, while the renewed interest in taxes by state governments may be the needed elixir to bail them out of the doldrums, and further ensure their existence as corporate entities (as the monthly handouts from the central government gradually become insufficient), individual tax-payers are certainly in a quandary when it comes to coping with paying the new taxes from their current wages, which are diminishing in value.
In the last couple of months, Nigerians are becoming apprehensive over the Federal Government’s plans to introduce an avalanche of taxes, even when individuals, business entities are in dire straits, and the country is experiencing one of her most torrid times as a nation.
Experts and stakeholders who are at a loss regarding the morality of introducing fresh taxes at a time of great depression, and dilapidating public infrastructure, are unanimous in cautioning the government that it would not see any sizable increase in IGR in the long term if businesses begin to crumble as a result of fresh taxes.
What is really inundating Nigerians with fears is the fact that if the country follows through with newly planned taxes like the telecommunications services tax, the generality of Nigerians, who are already struggling will be further impoverished.Matters would also be made worse if the proposed data hike temporarily suspended by the National Assembly eventually sees the light of day.
The planned concession of airports across the country, the return of toll gates to federal highways, as well as the government’s plan to raise $2billion through the concession of the existing Lagos-Kano/Port Harcourt-Maiduguri rail line, are all seen in the light of constituting an added burden to the traveling public.
Be that as it may, as Nigerians continue to ruminate on the fate of the looming telecommunication services tax, and the proposed data hike, the Federal Inland Revenue Service (FIRS) hinted of another shocker, when its executive chairman, Tunde Fowler, announced that soon, Nigerians might begin to show evidence of tax payment before obtaining their international passports.
At the 136th meeting of the Joint Tax Board, with the theme: “Increased Inter-Agency Co-operation to Enhance Tax Compliance and Optimise Revenue Collection,” in Abuja, Fowler said, “We did take a position and I believe it would be implemented in the very near future that before you get any services from the immigration department- renewal of passports etc, you’d have to show that you are a taxpayer.
“These things are normal all over the world, and are in an effort to serve Nigerians and Nigeria better. People believe that payment of tax is a burden and I’ll repeat that you only pay tax on income and profits.
“So if you reside in Nigeria and you are benefiting from being a Nigerian resident, it is only fair that you contribute to the system that makes you enjoy that standard of living” Fowler added that the FIRS had set a target to increase the individual taxpayer data base by 10 million by yesterday.
In October, still as part of efforts to shore up revenue for the government and widen the pool of taxpayers in the country, the FIRS in a dramatic policy shift announced the opening of a special window, which waived penalties and interest charges for tax defaulters between 2013 and 2015.
Experts described the development as a win-win situation for both the government, and identified tax defaulters. Heartwarmingly, the agency said the response was commendable, as a fresh vista of hope opened for the cash-trapped government.
Mulling different kinds of taxes at a time that food prices have soared, electricity unstable, infrastructure failing and cost of living over the rooftop, is what experts are urging caution against, so that the government does not end up creating more problems in the society than currently exists, just as people may devise ways of circumventing payment.
In an economy going through difficult times, like ours, where government’s revenue capacity is failing, the tendency to scamper for anything called money to finance its fiscal budget is sky-high.Besides, having lost a substantial part of oil income to international political and socio-economic developments, Nigeria now depends on non-oil revenues- comically described as “tax, tax, tax,” with little export of raw commodities.
Of course, at the turn of events due to the fall in the international price of crude oil, professionals were unanimous in soliciting a non-oil sector development and harnessing of tax opportunities as the leeway.But with the recession, further tax on the already “economically taxed” companies, has not been without backlash. At least, it has direct and indirect relation with profit levels, purchasing power, low consumption, inflation and employment.
The challenge now is that government is looking for funds, with shortfalls already in its revenue target, yet the new policy would discount billions of naira for the defaulters. It would also add more taxes, a development which has been dubbed “tax proliferation” by aggrieved Nigerians.
A lawyer and tax administrator, Chukwuemeka Eze, admitted that in a period of recession like this, governments all over the world resort to unusual measures, mostly those tested elsewhere by way of financial engineering to change the negative fiscal template of the economy.
“Without more funds, there is basically nothing the executive arm of government can do to improve budget performance. I am sure that the Federal Inland Revenue Services (FIRS) has reaped bountifully from this policy,” he said.The President of the Chartered Institute of Taxation of Nigeria, Dr. Olateju Abiola Somorin, at the body’s 12th induction ceremony, said the 45-day tax amnesty on penalties and interest regarding outstanding tax liabilities provided tax defaulters a rare opportunity.
Describing it as a bold move, she noted that the development also showed that the initial position of the FIRS that the amnesty was applicable only to taxpayers who have been audited and issued assessments, has now been revised to cover voluntary disclosures and self- assessments.
“This revised position is more consistent with the content of the FIRS public notice released on the subject matter, and the general intent of a tax amnesty.
“Our institute has forwarded reactions on five specific issues to the National Tax Policy Review Committee, which are geared to effective delivery of a virile tax system,” she said
Another lawyer and tax administrator, Samuel Agbeluyi, is of the view that FIRS’ recent tax amnesty will help it update its database, which is critical to tax administration, besides the immediate revenue boost in terms of monthly VAT returns, while accumulated and disputed revenue would be cleared.
“Yes, I can tell you that what government will be losing in the short run will be insignificant when compared to the long term gain. The development is bound to build some level of confidence in the taxpayers that they can partner FIRS. “The step should encourage law abiding tax payers whose only fear before now was how to pay the accumulated debt. With the relief, it is a new beginning, in a way. The law should be allowed to take care of the defiant,” he stated.
Eze added: “The move will enable taxpayers to turn a new leaf, or start on a clean slate in applicable circumstances. This policy promotes voluntary tax compliance and will enable the FIRS to capture more taxpayers into its database.
“Unknown to many, ample taxpayers have been disputing tax liabilities ascribed to them by FIRS, leading to litigations in extreme cases. With the waiver of penalties and interests, many taxpayers will find no further basis not to fulfill their tax obligations. FIRS on its part will cease spending money chasing ‘bad debts,’ which will be impracticable to recover. This will reduce its cost on tax administration with a positive reverberation on the economy generally.”
Even though stakeholders are of the view that Nigerian airports are the way they are because of poor corporate governance, as they generate enough revenue to sustain themselves, the Federal Government has concluded plans to concession them using the Public Private Partnership (PPP) module. Four international airports located in Lagos, Abuja, Port Harcourt and Kano, are to be affected in the first instance, thereafter the 22 others.
The concession arrangement notwithstanding, the facilities would still remain the property of the Federal Government. However, the cost of services would definitely soar, and this will translate to increased airfares to be borne by the public, among others.The Senate Committee Chairman on Privatisation, Ben Murray-Bruce, endorses government’s plan to hands off the day-to-day running of the airports, describing it as an avenue to fix the infrastructure, make the facilities efficient and profitable.
During a recent visit to the Murtala Muhammed Airport II (MMA2) terminal in Lagos, Murray-Bruce, said with the concession, government would not have to commit funds to the facilities, but would rather redirect them to other critical areas.
He said: “I will lobby my colleagues to give aviation zero allocation henceforth. There is no point giving them money where private investors can do better. When you don’t give them money, then you’ll solve a lot of problems. “The advantage is that the billions we could have spent in aviation can now be spent on education, healthcare and in the North East, where children are hungry due to the catastrophe of the Boko Haram. So, we’ll give up this economy completely to the private sector as it is done in other parts of the world.”
He said while the sector is in dire need of sound managers to make it profitable, government also does not have the resources to transform the airports into world-class facilities befitting of the country.
Murray-Bruce added that Nigeria has a lot to gain from the privatisation of its airports, citing success stories recorded by both British Airport Authority (BAA), and Heathrow airport in the areas of passengers and revenue since they were privatised some years ago.
Apart from the billions of naira that would accrue to the Federal Government, travel agencies operators have also endorsed the initiative, saying it would give travelers real value for money.
In fact, the President of the National Association of Nigerian Travel Agencies (NANTA), Bernard Bankole, insists that the concession would not be a burden to the traveling public, as long as government still maintains its regulatory role.
Bankole said: “For us and our customers, it would be time to really get value for the money paid. The picture is in fact bigger than what to pay for the services. It is about the economy at large. With airports running the way they should run, it is an open door to tourism in the country,” he said.
Aviation expert, Capt. Dele Ore, congratulated the Minister of State for Aviation, Hadi Sirika, for the sustained advocacy and continued engagement of stakeholders on the benefits of the planned concession and the need for them to buy into it.Ore who stated that the concession was long overdue, and the best option available at this time of economic challenge, urged the Federal Government and the concession delivery team to ensure a detailed inventory of the airports and ensure transparency and ensure public best interest in the processes leading up to the exercise proper to avoid controversies that are still trailing past concession exercises.
Toll gates were dismantled by President Olusegun Obasanjo during his tenure because in his opinion, they had “outlived their usefulness.” But the incumbent administration is in favour of a move to return them as a way of shoring up government revenue. The former president had in ordering them dismantled said the N63million, which the 31 toll gates generated daily then, was nothing to write home about, adding that the gates constituted inconvenience to motorists, encouraged corruption and had been known to record serious vehicular accidents while portions of roads near many of them were full of potholes.
In October 2016, the Senate passed a motion for the reintroduction of the toll gates on federal roads in the country. The motion titled, “Need for the Re-establishment of Toll Gates On Our Federal Highways,” was moved by Senator Suleiman Nazif, representing Bauchi-North Senatorial District, during a plenary session.
But Olaseni Abubakar, a transport expert insists that if government eventually reintroduces toll gates to highways in the country, the masses should brace up for a sharp increase in the cost of living as the plan would add to the cost of public and private transportation.
He admitted that the initiative to overhaul railway through PPP would boost government revenue, but that would be at the expense of the masses, whom he said need serious measures to survive the prevailing economic downturn.
“This is the wrong time to introduce this kind of policy. The masses are already burdened with recession and taxes. Government must consider the plight of the masses and the multiplier effect,” Abubakar said.
Should government insist on introducing these policies, Abubakar wants the administration to look at new corridors, particularly where new roads are being introduced and not necessarily the existing road network.He also raised a security alert in the midst of growing insecurity in the country, stressing that adequate security arrangement would be required to safeguard the lives of motorists and toll workers on affected roads.