The proposed tax increase in 2022
Against the doomsday scenario trailing unrestrained borrowing by the Federal Government, plans to de-emphasise debt acquisition next year is lofty on its face value; it will become commendable if the government can walk its talk.
So far, the outlook in that regard is bleak as both the executive and its collaborators, the national lawmakers continue to deepen their hands in loans as a normal, using as excuses the need to develop infrastructure but with little consideration for its future repercussions. And to make matters worse, the same government is thinking of raising taxes from the same citizens who are practically struggling to stay afloat of dwindling income and high inflation, among other negative economic indices.
The President of the Senate, Ahmad Lawan while speaking to reporters at Aso Villa recently, after meeting with President Muhammadu Buhari, unveiled plans by the government to raise more taxes in 2022, in preference to more borrowing to finance the federal budget. This has raised a number of questions by many on the emerging strategic government posture in the management of the Nigerian economy. By this latest strategy, taxes may go up next year and the spate of public borrowing reduced. According to the plan, this will also lead to the blockage of leakages in government operations as well as the increased supervision of revenue-generating agencies. The Senate President said the legislature and the executive are on the same page on this new direction.
While this position may appear desirable at face value, a number of loopholes appear imminent in the plan. It appears not to give sufficient hope for a positive turnaround of the country’s economic circumstances. Over the past six years of the Muhammadu Buhari administration, what the public has been beguiled with are lots of government pronouncements that end up as mere empty statements. Though it is desirable to reduce public borrowing, the Buhari administration has, nonetheless, not relented one bit in its frenzy to continue with the unbridled spate of borrowing. The legislature has been so disappointing in checking the excesses of the executive and has thus been seen by many as a mere rubber-stamp of the executive. Virtually every proposal from the executive for new borrowings is approved by the legislature without much scrutiny. This is notwithstanding the high ratio of debt service payments to revenue currently in the region of 90 per cent; and that this makes it difficult for the government to run its bureaucracy successfully with the remaining 10 per cent.
The sudden 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? Either the tax rate will be increased or more persons will be brought under the tax net or both. Any of the options has its own challenges. First, increasing tax rates at this period of increasing impoverishment of the Nigerian populace may lead to worsening of living conditions of the average Nigerian, and consequent 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. From where will they get the extra income to give to the government in the form of higher taxes? Government should remember the unpleasant fallout of too many belt-tightening measures, such as that experienced in the SAP riots during the late 1980s; as well as the public unrest manifested in 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. For example, the ongoing debates over who collects Value Added Tax (VAT) between the federal or state governments are still in the public domain are yet to be resolved, awaiting a resolution by the Supreme Court. Issues that border on taxation are usually contentious all over the world. Second, 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 and until some concrete structure is achieved in this respect, getting more of the sole proprietorships and enterprises that litter the country’s economic landscape to pay taxes will 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 akin to the low profile posture of the government in the late 1970s when government revenue from the oil sector fell drastically. The Buhari administration is still living large despite the fiscal challenges the economy is facing. Legislators, officials in the executive and even in the judiciary have seldom cut their cost of operations in tandem with the signs of the times.
Reducing the cost of running the government and cutting down on the bloated official size should be a first step in addressing the country’s fiscal challenges. Increasing taxes at this time may not be the best policy option when inflation is not seriously abating coupled with the deteriorating exchange rate and the perennial increases in the tariffs for public utilities. Government policy should be geared to enhancing the welfare of the people and not to be making them unnecessarily poorer, as this oncoming policy option suggests.