Kaye Whiteman
The contribution of tax-revenue as part of the overall federal collectible revenue (and GDP) has not met the ex pectations of government. Government has equally expressed this disappointment and has accordingly vowed to expand the non-oil (tax) revenue. Early bold attempts were made at the twilight of the previous administration (1999 – 2007) when the value-added tax rate was increased by 100%.
This was fiercely resisted through a four-day nationwide strike action which consequently forced this government at its dawn to reverse to status quo. Again the Federal Inland Revenue has woken up with same suggestion.
This time the Service recommends a 15% VAT. The reasons given aside the usual ‘shoring up of low non-oil revenue’ argument is to ensure that Nigeria’s tax policy is consistent with other countries in the region whose VAT rate is far higher than the current 5% in the light of regional economic integration. The Service has also recommended a downward review of corporate and personal income taxes as a demonstration of government’s appreciation of the economic conditions of Nigerians.
First, it is important to point out that Nigeria need not be the one to penalize its citizens and businesses in order to achieve the desired policy consistency for regional integration. If our policy makers are truly concerned about the hardship of the average Nigerian and their enterprises, they should rather canvass that the other integrating countries should reduce their own VAT rates to be consistent with ours.
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Must it be only in VAT rates that integrating countries need to be consistent? Shouldn’t we make the state of our electric power supply, roads and other infrastructure be consistent with those of these other countries? By reducing the corporate and personal income taxes, some level of compensation have been worked out such that the relief achieved in one side will be more than compensated by the corresponding increase in the burden imposed by the VAT.
The important thing to note here is that the destructive mechanism of VAT is quite different from that of corporate and personal income taxes. VAT’s harmful impacts occur within the points between the start of entrepreneurial value creation and profit/loss realization. Thus, While VAT has the potentials of preventing many Nigerian enterprises which are already operating on the survival fringe as a result of the already present huge burdens of an inclement operating environment, from realizing any profit at all and consequently dying over time, profit taxes are charged only on going concerns or simply when profits have been realized.
One mistake is to assume that the incidence of this tax is necessarily borne by the consumer. Let us examine how it works. The immediate implication of VAT imposition is the increase in the price of the good or service to the consumer. For instance a commodity which ordinarily is worth N10.00 with a 15% VAT automatically goes for N11.50. This will naturally result in reduction on the volume of demand for the commodity. Given the intense level of competition within Nigerian markets, majority of Nigerian firms which already belong to the class of less efficient businesses because of the harsh business conditions will try to bear some of these price increases rather than pass it on to the consumers so as to minimize the extent of demand loss to competition. This in a sense becomes a non-transferrable business cost. The reason for this cost internalization being that fringe operators who try to pass on the full increase in the prices may just suffer severe customer movement to possible alternatives.
What Nigerian businesses require is tremendous tax relief on all taxable areas. My thinking is that the FIRS should pursue to the very end the path of reform which is based on the principle that reduced tax rates will considerably reverse the prevailing culture of evasion and avoidance. Tax evasion and other forms of subtle resistance are demonstrations of severe lack of confidence in the state machinery who coerces its citizens into this involuntary transfer of their wealth to series of governments who have had nothing to show for the ones previously transferred. To this extent the proposed reduction in corporate and personal income tax rates is very commendable as it shows government’s appreciation of the excessive burden imposed on Nigerians. The Service should not counter the expected positive benefits by increasing the VAT; and worse still by thrice the current rate.
Reduction in tax rates across board with an improved collection system coupled with the heightening of its media campaign should enable increased willingness to pay which will consequently enhance collectible revenue. As it is now, only those who have been paying or are willing to pay will continue to be penalized as the level of evasion is high. The FIRS should also look internally within its own tax-collection structure as most of the evasion is encouraged and perpetrated by its own officials.
Nigerians are already paying lots of taxes and should not be much more burdened. They have suffered the impoverishments of government’s wrong economic policies which itself is a form of tax as it satisfies the classical definition of tax as resources are coercively (albeit unknowingly to the citizens) transferred to the government particularly in such circumstances where deficits are constantly budgeted for and money supply excessively expanded. There are also the infrastructure supplementation taxes where Nigerians are forced to provide their own infrastructure regardless of the fact that they had earlier paid for these services through their taxes.
There is also the resource misuse tax when the officials of government deliberately misuse commonly owned resources and walk away with impunity. We equally have all sorts of taxes albeit unstatutory but legitimized by various governments such as the local and state governments.
