• Thursday, March 28, 2024
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BusinessDay

The wages of seeing is tax

FG ask Tax appeal tribunal to quickly resolve related issues

If you’ve watched the great movie “The Prestige”, you should recollect this quote:

“Every magic trick consists of 3 parts or acts. The first parties called the pledge where the magician (in our case politician) shows you something ordinary (like poorly paid workers ). The second act is called the turn where the magician takes something ordinary and makes it into something extraordinary (like increasing minimum wage). You’re now looking for a secret (how wages will be funded) but you don’t really want to know. The third act, the hardest part is called “the prestige”

For us here, the wages of seeing the magician, sorry, politician’s trickery and foolery is…yes, you guessed right…tax.

As Winston Churchill famously said:We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

After much suffering and hardship, the Labour Union finally saw the light and made urgent demands for an increase to the minimum wage from $110 to $80 (yes dollarizing it is intentional) and the FG really had no choice but to agree to what some may argue is a rather decent “increase”

The labour union pushed through what some think is a decent increase in the minimum wage and the FG really had no choice but to concede as the timing was strategic; the application, surgical; the outcome, certain. With elections on the horizon, the FG had little choice but to agree to a demand that, in reality, should never have been a negotiation in the first place. If government truly served the cause of the people and If government had an iota of human empathy, the review of wages should have been voluntary across the nation and should have been concluded once the NBS released the alarming inflation rates, obscene un/underemployment figures and extreme poverty numbers.

But remember I said IF….a very bold, gigantic IF!

Instead, FG, once elections were over, produced the ace up their sleeves; “We will increase you minimum wage and you will NOT be VATted more to fund it!” Yes, increase in VAT has been denied but after Feyi Fawehinmi’s column last month, we know the FG has to rob Peter to pay Paul. We can reasonably expect that some government revenue source, which depletes the livelihood of and increases to cost of living of the average citizens, will be increased

While talking about digging a hole to cover a hole, let me point out that as per my personal observation, the classic psychology behind the thinking of many in government is: ““we are doing you all a favour by being here, so don’t expect us to consider your plight”!”

In my opinion, both the NLC and the FG acted selfishly. I call it, “enlightened self interest,” though I struggle to find the enlightenment in either’s actions because they are really not interested in alleviating the plight of those who have entrusted them with the burden of governance.

While Success – the girl who became a social media sensation when she got kicked out of school because of her parent’s inability to pay the fees – is still fresh on our minds, perhaps we can force a rethink and ask our various governments why the UBE Act 2004 where education is legislated as, “free” is not being implemented???

So on this premise of minimum wage increase and free education, let’s run it as numbers:

Since we are robbing Peter to pay Paul, let me introduce you to Peter, a hard worker with three children aged 7-11yrs, a trader wife, mother and an in-law who are all dependents. He earns N55,000 per month which comes to N660,000 per annum and has to pay:

  • rent of N180,000 per annum
  • School fees termly of N25,000 x 3 children =N225,000 per annum
  • School bus monthly of N5,000 x 12 months = N60,000 per annum

This leaves him with N195,000, or N16,250 monthly, from which he has to survive. He sends N5,000 to his mother and gives his wife N8,000 for food. Needless to say, they fight constantly about the feeding allowance! Peter has N3,250 left for transport to work and to take care of any contingencies that may arise. Please do not forget his approximately N5-7,000 per month PAYE which is deducted at source

Peter, before the increase, earned 200% above the N18,000 minimum wage, but in reality exists below the extreme poverty line. Let’s say his salary is increased by the same ratio as the proposed new minimum wage and he starts earning an additional N35,000 to total N90,000 monthly though I strongly suspect that if Peter demands this from his employer, he will rather suddenly join NBS database as “unemployed”!

But let’s, for his sake, imagine he gets the increase and let’s even pretend there’s no increased PAYE burden. It means he can, instead of waking all the way, start taking a bus half way to work at the monthly cost of N8,000. He can give his wife N7,000 extra to cater for the feeding of the kids and other needs in the home and he will now be able to live a little better than prison inmates and instead of starving, buy a daily meal of N300, which comes to N6,000 a month. Peter will now be left with N14,000 for contingencies like healthcare, electricity bills, school books etc

After painting Peter’s reality picture with what the NLC and FG believe is best for him, lets look at an alternate reality in which the government actually takes responsibility and does what they have legislated:

  • Peter on his N55,000 monthly salary should not be paying school fees and should be assured that the education his children receive from government schools meet a minimum standard that gives them a foundation to build on. Peter would save N18,750 a month
  • If the government ensures that social safety-nets exist and work, then the widowed, the elderly and retirees will be taken care of by compulsory health insurance and properly enforced pension schemes. Peter would save N5,000 per month

Let’s even stop here (to avoid the complicated economics around providing affordable food and housing,) just by government doing what the government should, what the government has already legislated, Peter would have an additional N22,750 per month – far more than he would have with the extremely unlikely wage increase.

In all honesty, we all know that Peter will be lucky to get a N5-10,000 wage increase from his private employer but guess what, with a potential VAT increase (or some other indirect tax), Peter will have to pay 3-10% more with a more than likely roll-over exploitation effect that could make that as high as 7.5-20% inflationary impact

So, dear Nigerians, let me end where I started and take us back to Winston Churchill’s quote ……….. “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”

In other words, any plan that leads to the Impoverishment of the people cannot lead to a prosperous nation.

 

Zeal Akaraiwe

 

Zeal Akaraiwe is a financial consultant.