In the last few weeks, the federal and several state governments in Nigeria have announced that they will be imposing new taxes and/or raising the rates of existing taxes in order to make up for the 2009 projected budget shortfalls. Ifueko Omoigui of the Federal Inland Revenue Services was the first to fire the shot on behalf of the federal government, only to be followed by several state governments. Their argument is that Nigerians do not pay enough taxes.
For the average follower of fiscal developments in Nigeria, news of plans to raise taxes did not come as a surprise. It is the latest offensive against helpless and defenseless citizens by the ruling cabal. This is all the more a reasonable conclusion as it is coming on the heels of unprecedented but largely unaccounted for oil revenues. These citizens, who are now expected to bear the tax burden of bailing these governments out of the deficit holes into which they have dug themselves, are yet to be told what happened to the billions of dollars that accrued during the boom of the summer months when world oil price hit $147.00 a barrel.
As an individual involved in the issues surrounding taxes and taxation, I am all for the employment of taxes as a fiscal control and revenue generation tool. However, my fear is that, like all other policies that have been put in place since independence in 1960, the tax burden will be borne by poor Nigerians while the rich continue to loot and live without any responsibility to the society. I do not believe that our tax policy makers or the governments will have the boldness to impose taxes on those deserving of it. The political will or “liver” is just not there. A government that cares for its people and understands its obligations to them cannot separate tax policies from the overall goal of building a just and fair society through the proportionate distribution of tax burdens.
It must first be made clear that a government has no inherent right to impose taxes on citizens or businesses within its jurisdiction. A government’s right to impose taxes is inextricably tied to its obligation to provide amenities to its citizens, including good roads, education, security and opportunities for advancement. A government that is not meeting its obligations to its citizens does not have the right to impose taxes on its citizens and this is the source of the “no taxation without representation” argument. Consequently, citizens who do not enjoy the benefits of taxation or have a say in how they are governed do not have an obligation to pay taxes.
Now, let us examine some of the rationales for taxation, especially progressive taxation that imposes a higher tax burden on the rich. The history of taxation in the United Kingdom, United States and Canada are traceable to the advent of wars, periods when governments urgently needed revenues to meet war time obligations in order to discharge their obligations of safeguarding their citizens and protecting their territorial integrity. A second reason is the need to ensure that those who reap the benefits provided by taxation are made to replenish the public account and this is one justification for imposing a higher tax burden on the rich as against the poor. The rich consume more of public amenities, be it their direct use or consumption of roads, water, electricity, telephone services, Internet or the indirect use of these amenities through their investments or companies. A third reason is the need to redistribute income from the rich to the poor. Although the recent U.S. elections demonstrated vividly that redistribution of wealth is no longer a politically acceptable grounding for progressive taxation, the truth remains that every system of taxation involves one form of income redistribution or the other. In the context of Nigeria, where a very high percentage of the wealth in private hands is the result of treasury looting, this rationale ought to be as important as the others.
Now that we know the source of a government’s right to tax its citizens and some of the policy reasons for taxation, the next question is whether the federal and state governments in Nigeria have a right to tax Nigerians. These governments have failed, woefully, to meet their obligations to their citizens, notwithstanding the fact that they have been collecting one form of tax or the other since independence. Roads have become death traps, insecurity is the order of the day, academic institutions have become the proper place for training uneducated citizens and hospitals that are supposed to save lives cannot even preserve the bodies of those who have died. I will not aggravate you by mentioning electricity. Nigerians have no say in how they are governed, their votes do not count in elections and all they get from public officials are impunity and disrespect. We can see from the above that these governments do not have the right to impose taxes on Nigerians. But this does not end the issue. You can bet these governments are going to go ahead and impose taxes on ordinary Nigerians and before they do so, we may as well tell them who and what to tax – it is not like they will listen but it is important that each person’s position be documented for posterity.
The federal government has indicated that about half (50%) of it’s approximately N2 trillion ($20 billion) plus 2009 federal budget is going to be deficit spending. To avoid this inflationary scenario in an economy that is already battered by rising prices, it needs to raise about N1 trillion ($10 billion) plus in additional taxes. When you look at the Nigeria of today, it should be apparent to a seasoned tax policy practitioner where the federal and state governments should be focusing their revenue generating efforts if only they have the political will to do the right thing. My first suggestion to the federal government will be the imposition of property tax in the federal capital territory – Abuja. There are thousands of houses or mansions in that part of the country valued at hundreds of millions of naira. Anyone who has seen the houses that are selling for over N100 million naira knows there are several thousand houses in Abuja valued at over N100 million and some worth as much as a billion. Imposition of a 1% property tax on these houses will raise billions in revenue for the federal government but I will be surprised if the federal government will have the boldness to impose this tax. I say so because Abuja a city of the elites and those who occupy these houses are the movers and shakers in the country’s policy circles, including tax policy. I have limited the scope of this tax to the federal capital territory due to constitutional law restraints – property tax is the domain of local governments in many advanced countries who use it to fund education. Since Abuja is a federal territory and it contains most of the houses that should be targeted by this tax, the federal government should be able to impose the tax without worrying about constitutional restraints.
The second area that should be considered should be the imposition of a tax on bank withdrawals over a certain amount. When you look at the level of poverty in the country, a monthly bank withdrawal tax that will kick in at a threshold of N50,000.00 will not cause many Nigerians sleepless nights because 95% of them do not make that much money in months. It is the rich who have this much to withdraw from their bank accounts and they should be the ones paying the tax. Granted, this type of tax will have some administrative difficulties due to the presence of many banks in the country, and some customers will spread out their deposits in several banks to avoid this tax. But the truth be told, how many bank accounts would you need to avoid this tax if you are withdrawing hundreds of thousands every month as many of the rich people in the country do? The Nigerian economy is still a predominantly cash economy and the target of this tax will have a very hard time avoiding it. There will no doubt be some avoidance issues with this tax but such will not be enough to eradicate its benefits or remove it from consideration.
Third, the federal government should impose a stiff tax on money transfers going out of the country. Poor people do not engage in money transfers outside the country. Those who engage in this practice are treasury looters and the rich. Recently, it was revealed that almost $14 billion was transferred out of the country in an eight-week period, a practice that has accelerated the battering of the naira. The EFCC indicated that those involved were treasury looters who are transferring money overseas to buy assets that have become very cheap as a result of the global economic meltdown. Notwithstanding the rationale for the transfers, a 10% tax on the $14 billion would have generated $1.4 billion or over N140 billion, enough money to meet the budget of three to four states in the federation. I am aware that transfers related to the purchase of industrial raw materials and equipment will be caught by this tax but it is not a reason for not imposing it. Companies transferring funds to meet business obligations should be entitled to full refunds upon filing their yearly tax returns or accounting for the products made from the raw materials. But in a country where almost no one pays taxes, I doubt very few on them will file tax returns in order to retrieve the money transfer tax. However, if this tax achieves the indirect goal of encouraging individuals and companies to file tax returns, then the better for the tax system. This tax should also cover physical cash that is leaving the country.
Fourth, the federal government should impose a tax on foreign remittances entering the country. Last year alone, Nigerians living overseas reportedly remitted more than $4 billion dollars back home. I am aware that a sizeable portion of these remittances are meant for the upkeep of parents and other family members of those living abroad but who have been abandoned by their government. However, a good percentage of these remittances have nothing to do with the upkeep of family members. They are payments related to one form of business or the other, legal or illegal. A 5% tax on the $4 billion remitted in 2007 would have generated over $200 million or N20 billion for the federal coffers. To cushion the effect of this tax on those who depend on their children and or family members in the Diaspora for support, they should be entitled to a full refund if they file their tax returns at the end of the year and their incomes are below a certain threshold. Those over the threshold should not be entitled to any refund. In terms of ease of administration, Western Union, Moneygram and the other international companies involved in money transfers should be required to collect this tax at the point of transfer. This will not only ease administration, it will prevent the revenue from going into the itchy palms of our tax collectors. Issues of jurisdiction can be taken care of through reciprocal tax agreements with the home governments of these foreign entities. The reach of this tax should include physical cash coming into the country.
Fifth, a very high luxury tax should be imposed on goods consumed by the rich. This will include imported wines, private aircrafts, and certain class of cars among others. Many of those involved in the consumption of these goods are also those involved in treasury looting, it therefore makes sense to impose this tax on them until such a time when the EFCC decides to do the more direct thing of arresting, jailing and retrieving the looted funds. In light of the current government’s attitude towards fighting corruption, taxation of the rich may be the next best solution for now. You can see from the list of taxes I have suggested so far, that I have taken care to make sure that they directly target the rich. It is not an offence to be rich. In fact, being rich is very good but such wealth should not come from treasury looting. Most of the problems bedeviling the country today are the creations of the rich and greedy and they should be made to pay for the consequences.
I can continue to list the areas that are deserving of new taxes or higher taxes but I will not. I will not because the few areas that I have already mentioned for taxation are capable of generating enough revenue to cover the budget shortfall short fall at the federal level. The states can piggyback some of the suggested taxes like property tax. The federal government can even split taxes raised from withdrawal taxes with the states because banks and banking utilize some state resources. The states can come up with additional tax measures that will target mainly the rich who also happen to be the people who have looted the treasuries. – no sympathies. Imposing these taxes will not only generate revenue, they would also have the indirect effect of encouraging tax compliance by ordinary and corporate citizens and entities who would want a refund. After all, a company that is claiming a refund of the money transfer tax it paid on the money spent purchasing raw materials would have to account for the profit made from the products it made from the raw materials.
I will now go back to where I started this article from and that is the government’s right to impose taxes on citizens. The tax regime that I have suggested above assumes the existence of a government that collects taxes and spends it for the benefit of the people. But this is not the scenario in Nigeria. The fact is that these taxes will be collected, a lot of the revenue will end up in private pockets and the portion that makes its way to the federal coffers will partly be stolen by government officials and the balance spent on the bloated salaries of politicians and their collaborators in all sectors of government consequently, I will be against the imposition of these taxes without a change in the contours in our political terrain. With a government that is serious in place, the taxes suggested will go a long way in helping federal and state governments to meet the demands of temporary deficits and once they get out of the deficits, spend the money to improve the lives of ordinary Nigerians who have suffered most from government’s shenanigans.
For readers who feel there is something wrong with my suggestions on the basis that Nigeria is different, I agree with them without any doubt. The suggestions are wrong for an environment like Nigeria because the political, economic imperatives needed for them to achieve the rationales behind them are not in place due to the lack of will on the part of government. I have no sympathy for the rich who will bear the burden of the suggested taxes, but the goals of reducing deficit spending and the often attendant danger of inflation, recovering some of the country’s looted funds and altering social behavior will not be achieved if the revenue generated ends up in the pockets of government officials. For these measures to achieve their desired objectives there must be a firm and factually verifiable commitment to fight corruption and build institutions that can support democratic governance.
By Majekodunmi Adega
Toronto, Canada
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