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Before new finance law worsens poverty index


The spate of multiple taxation and arbitrary increase in taxes and local levies in the country has come under intense fire by many concerned stakeholders and citizens in recent times. With the passage of the new Finance Bill by the National Assembly and its signing into law by the president, there have been fresh concerns about its effect on the living standards of the ordinary Nigerian.

The disposable income of the average Nigerian worker often used to attend to his various needs of food, housing, transportation and many other provisions for the extended family, among others have come under further pummelling. With tax increases and local levies at the various tiers of government, the average consumer in Nigeria has been reduced to attending to basic needs that merely deprive him or her of good quality of life. Many of them are perpetually tightening their belts and simply “living from hand to mouth” while others not so fortunate, have been locked up in a widening poverty trap which appears not to have abated since the country’s economy went into a recession in 2016. In fact, life has not been pleasant for many Nigerians with the country classified as the poverty capital of the world, having overtaken India, in this regard as we constantly note here. 

Specifically, the recent signing into law of the 2019 Finance Bill by President Muhammadu Buhari on January 13, 2020 has opened another window for further deterioration of the disposable income of the average Nigerian in 2020. Despite a few income palliatives in the bill such as the exemption of small businesses with turnover below N25 million from paying corporate income tax and the further reduction of this tax for businesses with turnover less than N100 million, the major aim of the Finance Bill is to raise revenue for the Federal Government to finance the 2020 federal budget as well as subsequent budgets.

This need for more government revenue has been the cry of the minister of finance for the better part of 2019, with her assertion that the major problem confronting the government is that of its low revenue base. In this regard, the Buhari administration has developed the easy penchant for borrowing since it came into power in 2015, at a greater tempo than virtually all administrations in the country’s history since independence.

The major change in the new Finance Act, known to virtually all stakeholders in the economy is that of the increase in the value added tax, VAT from 5% to 7.5%, an increase of 50%. The projected implications of this quantum leap in the VAT rate, on the consumers’ disposable income have been discussed at different fora with the consensus that the average consumers may have to further tighten their belt in the quest for their survival and that of their families. This is quite worrisome because prior to the new Finance Act, Nigerians and their businesses have been subjected to various taxes at the federal, state and local government levels.  

Many of these taxes include consumption tax, personal income tax, environment impact assessment, parking permits, waste water request, land use charge, radio and TV permit, state waste disposal charges, security levies and hotel licence fees for hotel owners, among others. Others such as capital gains tax, education tax, business premises tax, development levies, withholding tax and others further put undue pressure on the income of individuals and businesses with many of them merely struggling to survive. 

Other demands on the income of the consumer include the deduction by banks and businesses of N50 stamp duty on every Point of Sale (PoS) service from N1,000 and above. Recently, the Central Bank of Nigeria put in place its policy on 3% charge on daily withdrawals and 2% on deposits at deposit money banks. This is aside from the stamp duties charged on deposits made at these deposit money banks, which many of the banks deduct weekly from their customers even when there are no recorded deposits to their accounts over the period.

The businesses in Nigeria have over the years been crying about the incidence of multiple taxation and have called several times for some measure of reprieve in this regard. The unfortunate part of this is that individuals and businesses, despite paying taxes, have been providing for themselves services, which they ought to have received from government. All these affect the income of the consumer in an economy where real disposable income is shrinking despite the recent implementation of the national minimum wage law. This is quite discouraging to the taxpayer.

How then can government assure the ordinary person that its various policies will lead to a reduction in the level of poverty in the country? Will the new Finance Act enhance government revenue without further impoverishing the ordinary Nigerian in the process? This appears doubtful. What is very paramount in this regard in the issue of accountability in the spending of this expected increase in government revenue? Government needs to improve the business environment and enhance the provision of those basic services, which the individual is currently providing for himself. 

Current data from the National Bureau of Statistics is not cheery in relation to the inflation rate, poverty reduction and job creation in the country. Doubtless, Nigeria still remains the poverty capital of the world. Except the anticipated government revenue increase is ultimately targeted at the improvement of the human condition in the country, the implementation of the new Finance Act, may actually end up making life more miserable for the average Nigerian. Government may need to further look into this and provide appropriate social safety nets for the already impoverished Nigerian, lest there will be a modern-day warfare of ‘‘taxation without concomitant returns.’’

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