In the midst of a theoretically over economic recession, primarily caused by plunging oil prices and a history of incompetence, Nigeria turned to debt and bond instruments to finance a portion of its 2017 budget (and later 2018), a development that has not been able to sustain the extremely ambitious and highly controversial 7 trillion naira budget.
Financing maturities have been sourced through further accumulation of debts and in the long run, could be offset by higher taxes, or in our case, just taxes. Implementing sound tax policies, not just to service ensuing debts but also expand fiscal policy capabilities, ought to have always been a priority. But compliance has been, in cognizance, unduly abandoned.
At the 6% compliance rate recently revealed by the Minister of Finance, Nigeria has remarkably beaten its revenue target annually since the early 2000s, despite a steady GDP output (5.7% average increase over the last ten years). However, Nigeria’s tax income has not tallied accordingly over the years; most notably declining in singular years (see 2009, 2013, 2014). Which poses the question whether we have been adhering to some form of unheralded trickle-down economics with a non-compliance clause?
With the population growing at almost 3% over the past ten years and recently growing at a faster rate than GDP, evidently due to the recession and an increasing unemployment rate (currently over 18%), the country could certainly be susceptible to effects of the Malthusian theory. Resources are not being adequately utilized, there’s a huge gap in income distribution and a relatively low income per capita, and again most importantly, the growing population.
Improving tax compliance is clearly a priority for the current government having introduced the Voluntary Assets and Income Declaration Scheme (VAIDS) to tackle the inadequately low compliance rate over the years. Enactment, however, has always been the problem, as numerous policies from several other sectors have long been propagandized to no avail, and this may prove no different. Nigerians, in turn, need to be wary of what lies ahead; the country has never had a sound tax policy in recent times, meaning that Nigerians have never been effectually taxed. But with an increasing debt-GDP ratio (currently about 24%), debt accumulation has been proliferating. And although Nigerians always require the utmost from its government, they somewhat find the most resourceful ways to avoid paying taxes be it legally or illegally, from individual to corporate levels. From tampering with electricity meters to manoeuvring their ways to corporate tax exemptions, paying duties has never been in the Nigerian DNA.
With the current development, however, it could be inevitable, although I still wouldn’t bet my money on it. Be that as it may, Nigerians still ought to look into the idea of the Ricardian equivalence, an Economic concept that suggests unchanged demand in a debt-financed budget and increased savings to plan for a rather preordained acquiescence in the coming years in order to be able to cope with the strangely overwhelming duty that could be upon them, because as Max Schumacher from Network (1976 film) would put it, “Taxes is suddenly a perceptible thing to us, with definable features.”
A country though that did not blink at a statistical discrepancy allegedly worth billions of dollars, notwithstanding the history of conspicuous corruption and mismanagement, may well be a lost cause towards economic redemption. The only hope being some form of collective incentive arising from the accumulation of taxes and a sound fiscal policy.
Improving fiscal policy could be the only way Nigerians may be compelled to comply and to improve their awareness. A ‘tax-me-I-task-you’ eventuation, implementing sound tax policies and for citizens the incentive to task how their hard work substantiates. Furthermore, this improves the government’s capability to improve social mobility, and income distribution, be it through wages, infrastructure, education, subsidies and the lot.
American research analysts, Danilo Trisi and Isaac Shapiro, published a report on think tank website, Center on Budget and Policy Priorities, detailing how government assistance has significantly had a positive effect on child poverty in America. The report entails how the share of children below the poverty line had stayed constant since 1970 but has fallen steadily after government assistance was included since the early 1990s. Homelessness, according to the report, is another example. It explains how government programs under the George Bush Administration managed to reduce homelessness by about 30%. The Obama administration further extended these programs and added new ones, leading to a continued fall nationwide.
Taxes remain one of the most significant tools in achieving government goals in developed and developing countries.
An excerpt from LSE’s Ethisham Ahmad and Nicholas Stern ‘Taxation for Developing Countries’ report in 1989 gives a quintessential representation of the Nigerian tax system. It states that economists, Hinrichs and Musgrave, using international cross-section comparisons, stress that, “the scarcity of simple ways of collecting revenue, or “tax handles”, characterize early stages of development.” Nigeria falling in that category hitherto results in our lack of development.
The highly successful Nordic model practised by the Scandinavian countries can be illustrated as “a triangle consisting of three interlocking factors,” according to Norwegian Economist Sigrun Aasland. In an interview with American evolutionary Biologist David Sloan Wilson, she explained how the so-called Nordic model first consists of “a strong tax-funded welfare state providing education, healthcare and social safety nets, second, an open market economy with active monetary and fiscal policies to ensure stability, distribution and full employment.
And third, strong collaboration in an organized labour market with coordinated wage formation and company-level collaboration.” The model, she continued, has demonstrated the ability to combine relatively high taxes with high productivity. She further explains how in the past two years, nearly 30,000 people lost their jobs in oil and gas as a consequence of falling oil prices and a delay in investing in productivity growth in the sector, and how this happened without any social crises or unrest. This was a result of workers’ social safety, not job safety as workers are ensured a certain safety net from the state.
Empirical evidence suggests that one of the most effective ways to improve awareness and task a government is by being adequately taxed, which clearly is a give-and-take and is effortlessly sabotaged by those who enjoy the status-quo from both ends of the spectrum through passive dereliction.
Khalid writes from Abuja.