New Telegraph

Evaluating AFDB’s subtle caution on more taxes

The fact that taxation is gaining traction as government’s surest and most sustainable revenue source is directly lending credence to the fact that transparency and prudent utilisation of proceeds is taking the center stage, ABDULWAHAB ISA writes

 

Nothing is being left to chance by the Federal Government in its renew approach to making non-oil sector a key driver of revenue earnings going forward in 2022 and beyond.

 

Given the devastating effects of COVID- 19 (2020 till 2021), an episode that leaves economies of developed and emerging nations gasping for air, nations are devising means of rallying round alternative resources in their various domains.

 

A new set of income streams difficult to be subdued by the pandemic is receiving important attention. Nigeria’s main revenue source, crude oil, caved in to the pangs of COVID-19 in 2020 when the pandemic struck.

 

Price of crude oil went on a free fall at the global market at the onset of the pandemic in 2020, leaving Nigeria’s government in a fix on steps to rescue the country.

 

The dire situation was rescued by taxes from non-oil sector, administered by Federal Inland Revenue Service (FIRS). Good performance by non-oil taxes at the peak of the pandemic in 2020 and 2021 is thus a springboard, an impetus for government to deepen and harness tax administration.

 

The Federal Inland Revenue Service (FIRS), the face of tax administration in the country, has embarked on initiatives aimed at bringing more tax eligible – corporate and individuals – into the tax net for enhanced tax revenue accruals into the nation’s purse.

 

The federal tax agency is being repositioned to be the main driver of the nation’s economy, post-pandemic.

 

Tax as economic mainstay Effects of COVID-19 on the economy gave a leap to taxation.

 

With unavoidable loophole created by COVID-19, taxation has been adopted as the mainstay of economies world over, providing the required revenue to fund governance. Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Muhammad Nami, at a recent forum in Abuja, alluded to the increasing and expanded role of taxation post-COVID-19 era.

 

“Today, taxation has become the mainstay of every economy around the globe. COVID-19 has greatly affected the earnings of most economies, especially those whose revenue sources were fetched from activities such as recreational tourism, medical tourism, minerals exploration and commodity exportation, among others.

 

“These activities were performed minimally and, in some cases, even experienced total cessation due to physical restrictions imposed by many nations during the COVID-19 lockdown.

 

Economies across the world have had no other choice but to look inward to taxation as the most viable alternative to provide the required revenue to fund government.” Prior to COVID-19 outbreak, yearly revenue target of FIRS was in the region of between N3 and N4 trillion.

With the shutdown in routine and regular revenue sources available to government at the behest of COVID-19, revenue target for FIRS has been increased. In 2021 fiscal year, the tax agency was given tax revenue collection target of N5.9 trillion.

 

It netted N5 trillion as of October and is poised to cap the balance. FIRS efficiency in tax collection is rooted in the invention of application. The development of TaxPro Max, an FIRS invented digital tax administration solution, gives the agency unique platform to leverage on. TaxPro-Max

 

platform allows for seamless electronic registration of taxpayers, electronic filing of returns and payment of taxes. Expanding frontiers of diversification Conversation around making non-oil sector a hub of Nigeria economy is being broadened beyond Federal Government’s scope to include the other two tires of government – the states and local governments. Economists and experts are of the view that states and local governments need to shift the current posturing of waiting for ‘freebies’ from center on monthly basis.

 

Each of 36 states and the 774 local governments in Nigeria is endowed with one form of non- oil commodity to harness.

 

At a recent forum in Abuja, first national symposium on taxation and challenges of external shocks: lessons and policy options for Nigeria, organised by FIRS in collaboration with Usmanu Danfodiyo University,

 

Sokoto (UDUS), experts dwelled on ways to galvanise non-oil sector resources for overall development of the nation.

 

Guest speaker at the occasion, a former FIRS Chairman, Mrs. Omoigui- Okauru Ifueko, harped on diversification of revenue. She lamented that for a country with population size of over 200 million people, six per cent tax revenue to GDP, is very low figure, adding that drastic step must be taken to address the issue.

 

“We have to diversify our revenue base. For states, you can’t depend on FAAC allocation. For FIRS, you can’t depend on multinationals’ revenue. We need to constantly look at ways to diversify our revenue portfolio. At six per cent tax revenue to GDP, it’s very low.

 

We have to address the issue,” she said. She tasked FIRS to identify shocks that are impeding revenue growth and tackle them. Shocks in relation to revenue, Ifueko said, could be unpredictable or expected. She said they could be external like the case of COVID-19, global financial meltdown and global cut down in crude oil prices, which had, at one time or the other, crippled nations’ revenue sources.

 

The internal shocks, Ifueko said, were self-inflicted. These, according to her, included high level of insecurity, unemployment and other self-inflicted factors that affect revenue generation of the country.

 

However, she added that whether external or internal shocks should be expected while strategies are put in place to contain them. Government, has, however, assured of its unwavering stance of making taxation the backbone of economic diversification policy.

 

Minister of State for Finance, Budget and National Planning, Prince Clem Ikanade Agba, declared government’s stand. The minister noted that taxation, world over, remains surest and most sustainable source of government revenue and a potent tool for economic growth.

 

“It is based on this premise that the Federal Government has continued to review our tax policy to bring it in line with current realities. The Fiscal initiatives in the annual Finance Act, prioritise non-oil sectors such as primary agriculture production, shipping and air transport, as well as financial and insurance services.

 

“The Act also has tax breaks for MSMEs and enshrines fiscal discipline in Government Owned Enterprises (GOE) by limiting their costto- revenue ratio to a maximum of 50 per cent. Due to the uncertainty and unpredictability of oil prices in the international market, government has continually placed a premium on the growth of the non-oil sector in the diversification of revenue sources.

 

“I am glad to note that the FIRS non-oil tax collections for 2020 and the collections so far for 2021 are higher than the tax from oil. This can be attributed to the various reform programmes and digitisation projects being undertaken by the Service to improve its operations.

 

More is needed considering that we need to harness all sources in closing the budget deficit and reducing government borrowing,” he said. AfDB’s caution Notwithstanding Nigeria’s current low tax rate to GDP of about six per cent, African Development Bank (AfDB) advised government against heaping more taxes on citizens.

 

AFDB President, Dr. Akinwumi Adesina, while speaking at the recent annual lecture of the Institute of Chartered Accountants of Nigeria (ICAN) in Abuja, was of opinion that Nigeria’s low tax to GDP does not call for frequent increase in taxes by government.

 

The International Monetary Fund (IMF) and World Bank suggested to Nigeria government to increase its valueadded tax (VAT) rate to at least 10 per cent by 2022 and 15 per cent by 2025 from 7.5 per cent now to boost revenues after its recovering from a recession.

AFDB president said while tax to Gross Domestic ratio in Nigeria is relatively low, it is not an excuse to keep raising the tax rates. He noted that the inefficient system in Nigeria has imposed an implicit tax on the Nigerians, noting that, people are made to provide basic essential facilities that should have been made available by government.

“While tax rates are relatively low in Nigeria, it simply is not an excuse to keep increasing taxes. Take the case of Norway for example. Its tax-to-GDP ratio is 39 per cent. Singapore’s tax-to- GDP ratio is 13.2 per cent. And Nigeria’s tax-to-GDP is 6.1 per cent. It is easy to make the comparison and say Nigeria needs to raise its taxes to similar levels as in Norway or Singapore.

 

“But also consider the following: In Norway, education is free through university. In Singapore, a country that had only 1/3 of Nigeria’s per capita income at its independence in 1965, today has 100 per cent access to electricity and 100 per cent access to water.

“While progress is being made, the challenge, however, is that in many parts of Nigeria, citizens do not have access to basic services that governments should be providing as part of the social contract. “People sink their own private boreholes to get water. They generate their own electricity oftentimes with diesel. They build roads to their neighborhoods. They provide security services themselves.

 

“These are implicit taxes borne by society due to either inefficient government or government failure.

 

As such, we must distinguish between nominal taxes and implicit taxes — taxes that are borne by the people, but are neither seen nor recorded. “It has become so common that we do not even bother to question it. But the fact is governments can simply transfer its responsibility to citizens without being held accountable for its social contract obligations,” he said.

 

He noted that when citizens bear the burden of high implicit taxes and governments or institutions fail to provide basic services, trust in governance is eroded. “To build trust with the society, governments must fulfill their part of the social contract, and citizens must also pay their own fair share of taxes.

 

There must be mutual accountability. We must enforce social contracts. “Participatory governance demands open and transparent governance. Governments should be opened up; citizens have a right to know how public finances are being used. “This is why I believe that we must develop a ‘People’s Index of Governance’ with citizen accountability forums,” he submitted.

Last line

Tax collection comes with a burden of trust. The obligation is on government to judiciously and prudently utilise tax proceeds for purposes they are meant for.

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