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Proposed tax increase in 2022: Matters arising

By Editorial Board
04 January 2022   |   2:58 am
The perennial clamour by Zainab Ahmed, the Minister of Finance, Budget and National Planning for more revenue to run the national economy is continually under the display.

Mrs. Zainab Ahmed, Honourable Minister of Finance, Budget and National Planning

The perennial clamour by Zainab Ahmed, the Minister of Finance, Budget and National Planning for more revenue to run the national economy is continually under the display.

The minister has been a known proponent of the vexatious narrative that Nigeria’s problem is simply that of lack of sufficient revenue. This position has just found another expression, apart from the government’s unwarranted and frivolous borrowings, in the proposed increase in taxes in 2022. However, given the hard facts on the growing and unsustainable public debt portfolio as well as the growing public outcry on the frivolous borrowings, the authorities appear to be shifting gear slightly in the direction of increased taxation in search of this elusive revenue.

Indeed, the provisions of the 2021 Finance Bill clearly indicate that government is serious about widening the tax base. However, Nigeria’s problem, as has been expressed by many experts, is not necessarily a lack of sufficient revenue but the lack of adequate focus on the expenditure side of fiscal management. The country needs to cut down on its cost of governance and this newspaper has made this point severally.

As the government plan for increased taxation seemingly indicates, the likely increases in taxes could come from stamp duties, companies’ income tax, capital gains tax, excise duties on tobacco, alcohol, carbonated drinks and luxury items as well as a 7.5 per cent charge of value-added tax (VAT) on Facebook adverts.

The inclusion of Facebook advertisements in the revenue drive is an attempt to commence the taxing of the digital economy. This appears to be a direct offshoot of the country’s recent controversial fight with Twitter. This may add some value to the enhancement of revenue for financing the annual budgets.

Though the minister refused to give details or the specifics of the proposed tax increases, many have wondered whether the country’s leaders are wary of the level of impoverishment in the country particularly among fixed income earners.

The argument that Nigeria is among the countries on the continent with the lowest tax to GDP ratios should be put in proper context. Though the tax to GDP ratio for Nigeria which presently stands at about 8 per cent is much lower than the average of about 15 per cent in many African countries, the fact should be stated that tax evasion and avoidance are the key reasons why Nigeria is recording such a low ratio. It is not necessarily the rate of taxation itself.

Focus should be placed on tax reviews that are tailored towards bringing more people into the tax net and not necessarily suffocating to death those already paying taxes.

For example, many rich Nigerians, particularly members of the political class are not paying their fair share of taxes. So also are operators in the largely undocumented informal sector. These are the areas government should focus their attention on. Inappropriate tax rate increases would be injurious to small businesses in particular as well as salary earners who by virtue of their employment are already paying reasonable amounts of taxes.

In actual fact, no effort has been made in the past few years, under the Buhari administration, to enhance the income base of the average Nigerian, particularly for fixed income earners. Real incomes have been falling with rising inflation and even disposable incomes are now being further threatened with this plan to increase taxes. Moreover, the business environment has not been very favourable, coupled with the depreciating value of the local currency vis-a-vis the foreign currencies as well as the unabated state of insecurity in the country.

The resort to more taxation raises a number of pertinent issues. Are incomes across the country rising for tax revenue generation to be substantial to run government operations? First, increasing tax rates at this period of increasing impoverishment of the Nigerian populace may lead to great public discontent.

Nigerians are currently adjusting to the high rate of inflation particularly food inflation and so many Nigerians are struggling to eke out a living for themselves and their households. Probably government is ready to contend with some public unrest akin to the Aba Women riot of 1929 led by Margaret Ekpo which resisted vehemently tax increases by the then colonial government in the Eastern Region of the country.

Tax increases in many countries are usually carried out with a lot of caution and the Buhari administration should not aim to bite more than it can chew. If the plan is to increase the tax base, by bringing more people into the tax net, then the government needs to do some more work prior to the implementation of this new increased tax regime for 2022.

How much work is the government doing to make the informal sector become formal to some significant extent? Unless this is achieved, getting more of the sole proprietorships and enterprises that litter the country’s economic landscape to pay taxes may be quite herculean.

Finally, the key area that the government has been shying away from confronting headlong is the need to cut the cost of governance. The Buhari administration is still living large despite the fiscal challenges the economy is facing. There should be a drastic reduction in the cost of running the government bureaucracy. That should be a first step in addressing the country’s fiscal challenges.

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