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SAIBU: Strong Institutions, Taxation Are Essential Substitutes To Oil Wealth

17 May 2015   |   2:45 am
What are the other sources of income that government can urgently tap into in order to shore up its earnings? IN the short run, government cannot stretch the revenue base, but can increase the intensity of revenue collection.
Femi Saibu

Femi Saibu

Femi Saibu is an Associate Professor of Public Finance at the University of Lagos. In this interview with ONYEWUCHI IKECHUKWU, he says government at all levels needs to put in place strong institutional framework, place more emphasis in any attempt to diversify the economy.

What are the other sources of income that government can urgently tap into in order to shore up its earnings? IN the short run, government cannot stretch the revenue base, but can increase the intensity of revenue collection.

Government can plug those lapses that make it difficult to collect and raise revenue; these can be strengthened. For example, if government can handle the crisis in the oil sector very well, the revenue will increase. Over N400 million is lost every day from oil.

If they reduce oil theft, even at $40 per barrel, Nigeria can still get higher revenue. There is also the Customs and some other agencies.

If government can make them more efficient and mandate that they remit revenue directly to government account, we will be better off. Also, subsidy is another issue. If you look at the report and what has been written about it, you will discover that truly, the corporation mismanaged the subsidy fund and they are taking more than they are supposed to take.

It is obvious that what they are taking is not being used for something legitimate. If we can block those leakages in the economy, the total money that will be available for legitimate activities will increase.

I think we have to strengthen institutions in the short run; it will yield higher revenue for government, as attempts to create new ones will be resisted.

Government cannot introduce higher taxes now; even the reliefs they are trying to introduce are being interpreted to be political gimmicks.

They can only collect more from existing instrument and cannot create new ones. It is said that the agriculture sector has performed well, if so, shouldn’t that be a boost for the economy? Frankly I think the issue with the agricultural sector is political. The achievements in the sector are more on paper, and if there is any effect at all, I am not sure it will be in the short run.

Agricultural sector is not like manufacturing or service sectors where one can push today and see the distance. Also, I have not seen farmers that use the phones we bought for N10 million. I have not seen any campaign where they have shown the phones with the farmers.

If they did give it to farmers, then we should see them using the phone. I have also not seen the fertilizers. They said they have liberalized the system to curb corruption, but I think we should measure input with output, not by what is written.

To me, if they claim that the agricultural output has increased and import of food has reduced, we should ask about the illegal imports, have they reduced? The bulk of rice we consume in Nigeria doesn’t come from Tin Can Island; it comes from Ilara, through illegal routes.

It is definitely supported by the number of seizures we see customs do every time. I think what is happening is, it means maybe our border control is growing weak such that the amount of things coming in illegally is increasing. I have not seen any major rice that has an inscription that it was made in my village or any other major area.

If they say that importation is reducing, we should ask in which market could we find the locally made rice? Even tomato is imported.

If revelation from the sector were true, we should see the evidence. It is very difficult to agree that a region that produces the bulk of the food we consume in Nigeria is in crisis and you say that the agricultural productivity is increasing. I think there is something missing in the argument.

The effort they are putting cannot be measured in the short run and not by the statistics they are using. How best can government go about diversifying the economy? Unless government resolves institutional failure, there is no policy that can generate additional income.

I believe it is not a crime to explore one’s natural resources, because I have seen countries that started the way Nigeria did. I don’t think it is right to drop your best and then go to develop your weakness. The best source of revenue for government at the moment is oil.

If we can get it right and develop it, it would give us the leverage to develop other resources as well. Take the case of Qatar, for instance. It is one of the best countries in the world in terms of how to diversify the economy from oil to tourism, property and sports.

They are bringing in technology that even those producing it do not know how to use. They say in hot weather, they want to make the streets cold. They are bringing in the best technology in the world. They did not diversify at an early stage. It was after they had established a structure and revenue coming from oil was accounted for, accumulated and utilities. The excess is now used to develop other sectors.

If A doesn’t work and is abandoned for B; how are we sure that we will get it right with B? I think we have to get it right and then take it one after the other. We are supposed to have surplus budget every year, but because of the structure of the economy, we are still in deficit.

If we want to go into something else without addressing our deficiency in the oil sector, are we sure we are not going to face the same problem?

Every natural resource is an endowment and will cause people to ask for derivation later. The north will ask for derivation for agriculture; the east, for entrepreneurship, because the people from their area are the most enterprising and hence they ought to be compensated for being industrialists.

Running away from oil does not solve our problem. Facing our problem headlong will help us to diversify. “The easiest way out of the problem is to look inward to internally generated revenue, that is tax.

If we can implement our tax policy very well and make everyone comply with rules, we will be better off. Sixty percent of businesses in Lagos do not have sign boards, because they don’t want government to know, they don’t want to pay tax.”

If all limited liability companies are registered and pay the little tax required of them, some states will not need allocation from the Federal Government.

The more we hold on to tax, the more we hold government accountable. People are more conscious about government activities in Lagos, not because they are enlightened, but because government is eating into their pocket. So, they are interested in what government is using their money for.

This puts pressure on government. But in states where the money comes from the Federal Government they can’t talk, and if they do, the state government tells the people, ‘to hell with you, did you give me any money.’ To make government transparent, accountable and efficient, money must come from the people.

The easy way is through tax. It is until we strengthen our tax enforcement system, and limit avoidance and evasion, we can’t diversify.

Even imports and exports are still about tax, only they are indirect. It is only when those institutions are strengthened that we can use the instruments to mobilize revenue.

I don’t think abandoning oil is the solution; we only need to strengthen the system to make the oil serve us better.