Tax collectors are, historically, hate figures. They are damned if they do; damned if they don’t. Remember the story in the bible when Jesus went to the house of Matthew, the tax collector? He was accused of dining with sinners. Tax collectors are loathed by taxpayers. Yet, in the days of the Herods and Caesars, if they did not collect enough taxes, the tax collectors could have their heads cut off and brought to the king on a charger.
Well, President Muhammadu Buhari has not asked for the head of Tunde Fowler, chairman of the Federal Inland Revenue Service (FIRS), on a charger. However, recently, he harangued him for failing to collect enough taxes. In a letter dated 8 August, Buhari’s mercurial chief of staff, Abba Kyari, asked Fowler to explain why there were “significant variances between the budgeted tax collection and the actual collection for the period 2015 to 2018” and why “the actual collections for the period 2015 to 2017 were significantly worse that what was collected between 2012 and 2014”.
The presidency later clarified that the FIRS boss was “not under investigation”. According to a statement by President Buhari’s senior media assistant, Garba Shehu, the chief of staff’s letter to Fowler was “a routine administrative inquiry”. Yet, even if Fowler was not under investigation, the query amounted to a criticism of his performance. It was akin to querying an employee for poor performance!
In his reply, Fowler blamed the variances on the fall in the price of crude oil and the poor state of the economy, which went into recession in 2016. Fowler made a distinction between oil-based and non-oil revenue collections and said that the latter actually grew by 21 percent between 2016 and 2018, while the collapse in world oil prices depressed the former and the overall tax intakes.
But knowing, that Nigeria’s economy has been comatose since 2015, why would President Buhari blame the head of the revenue service for “significant variances” between budgeted and actual tax collections?
A budget is a projection of income and expenditure and if it’s not based on hardnosed and realistic estimates of expected revenues, it would come a cropper. That’s simple logic!
When a country depends solely on oil export for over 70 percent of its revenues, it’s not rocket science – or is it? – that when world oil price drops from about $100 per barrel to under $50, revenue intakes would fall drastically. Equally, as I tweeted, when I read the presidency’s query letter, “only an economically illiterate government would not know that when an economy is in recession or beset by very low growth and when unemployment is so high that most people are not gainfully employed, tax revenue would fall.”
Truth is, the extent of revenue generation from Companies Income Tax and Value Added Tax is dependent on the rates of economic growth and the levels of corporate and personal incomes, while the extent of revenue from Pay-As-You-Earn tax is a function of the levels of employment and pay. If an economy is not growing and companies are not making enough profits and most people are not employed or earning good pay, tax collection will suffer.
But, historically, the state has been agitated by tax revenues. Indeed, one of the requirements of statehood is that, after creating an army, a state must establish a tax system. In 16th century England, the king always faced a fiscal crisis and required additional revenue to survive because the incomes from his estates and the traditional feudal dues were not enough, due to the cost of warfare. As a result, he entered into a bargain – a social contract – with the people, promising to protect them in return for tax revenue. But, to ensure the money was coming in, the king created a tax system, with tax collectors to monitor, meter and collect the revenue.
However, as Paul Collier, a professor in Oxford University said in a seminar, the need for tax revenues also gave the leader an interest in growing the economy, because only a growing and prosperous economy could help generate more tax revenues.
Thus, to become a strong and effective state, after creating an army and a tax system, the next thing leaders and kings did was to stimulate economic growth. Today, that means facilitating productive private sector activities, encouraging greater flows of trade and attracting local and foreign investors so that companies and individuals can enjoy the economic prosperity and commercial successes needed to pay more taxes.
But President Buhari ignores all this, blaming the tax collector instead of his management of the economy. Surely, Buhari, like the medieval kings, wants large tax revenues, but, unlike them, he doesn’t have the incentive to grow the economy; he doesn’t recognise the nexus between tax intakes and economic growth. Indeed, even if the president has an interest in growing the economy, he doesn’t have the right policies and institutions to do so or the willingness to create them.
Think of it. Here is a president whose cabinet includes not a single credible economist and who puts people who have no knowledge of applied economics, or the grasp of economic fundamentals, in charge of key economic ministries, particularly finance and trade. What’s more, here is a president who is adamantly pursuing protectionist import-substitution policies instead of creating a robust market economy system that would engender the private sector development and investor confidence needed to grow the economy.
So, let’s face it, President Buhari was wrong to blame Fowler for any low revenue collection, and Fowler was right to point out that “tax revenue collection is a function of economic activities”!
Of course, it’s true that, with a tax-to-GDP ratio of just 8 percent, the worst in Africa, Nigeria has acute and chronic problems with revenue mobilisation. According to a recent analysis, 67 million of Nigeria’s labour force of 77 million are not registered taxpayers. Less than 6 percent of registered taxpayers are active in the corporate income tax category, and Nigeria raises less than 1 percent of GDP in VAT revenue, according to the IMF. And, according to Fowler, quoted in a newspaper, “over 6,772 billionaires don’t pay tax”!
Yet, all that said, and despite the presidency’s query, Fowler, whose impressive record as head of Lagos State Revenue Service earned him the federal job, has achieved a lot over the past four years.
, Elias Mbam, chairman revenue mobilisation, allocation and fiscal commission said recently, FIRS contributed 59.7 percent of the revenues to the federation account in the three months. Adefisayo Awogbade, registrar and chief executive of the Chartered Institute of Taxation of Nigeria also said “The FIRS has done credibly well and needs to be commended by government and all well-meaning Nigerians”.
So, then, based on expert opinion, Fowler and FIRS are doing their job reasonably well, while it is the federal government that is not doing its own at all by failing to grow the economy. Which is why Buhari’s query to Fowler is utterly wrong and misguided!
OLU FASAN
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