• Monday, July 15, 2024
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Government’s failure to deliver social contract invalidates argument for raising taxes – Adesina

Akinwumi Adesina

Failure of Nigerian governments to deliver promises and development to the citizens does not justify an argument for increasing taxes, Akinwumi Adesina, President, Africa Development Bank (AfDB) has said.

According to Adesina, the fundamental basis of any society is the social contract between the government and citizens, which is embedded in the payment of taxes, which then form a significant part of government revenue.

However, governments are always eager to collect taxes, but often ignore the real question as to whether there is congruence between tax revenue generation and accountability to citizens in fulfilling expected social contracts.

Adesina was speaking at the 51st Annual Accountants Conference of the Institute of Chartered Accountants of Nigeria (ICAN) holding in Abuja, with the theme ‘Trust in Governance’.

The conference is interrogating the subject of trust as an enabler of effective public governance; a driver for upholding best practice in Corporate Governance; the key to engendering voluntary compliance of citizens to their civic duties and; the solution to poor accountability and transparency in leadership.

During his lecture, Adesina argued that while tax rates are relatively low in Nigeria, it simply is not an excuse to keep increasing taxes.

Read Also: Tax revenue-to-GDP: Do Nigerians pay tax?

He cited the case of Norway whose tax-to-GDP ratio is 39%; Singapore with tax-to-GDP is 13.2%; and Nigeria’s with the lowest of tax-to-GDP of 6.1%, and observed that the comparison makes sense for a tax raise in Nigeria to be at par with Norway or Singapore.

But so many factors would need to be considered by the government before such a crucial decision is taken.

“In Norway, education is free through university. In Singapore, a country that had only 1/3 of Nigeria’s per capita income at its independence in 1965, today has 100% access to electricity and 100% access to water.

“While progress is being made, the challenge, however, is that in many parts of Nigeria, citizens do not have access to basic services that governments should be providing as part of the social contract.

“People sink their own private boreholes to get water. They generate their own electricity oftentimes with diesel. They build roads to their neighbourhoods. They provide security services themselves.

“These are implicit taxes, borne by society due to either inefficient government or government failure. As such, we must distinguish between nominal taxes and implicit taxes — taxes that are borne by the people but are not seen nor recorded,” the AfDB boss noted.

He said such implicit taxes have become so common that nobody even bothers to question it.

“But the fact is governments can simply transfer its responsibility to citizens without being held accountable for its social contract obligations.

“When citizens bear the burden of high implicit taxes, and governments or institutions fail to provide basic services, trust in governance is eroded.

“To build trust with the society, governments must fulfil their part of the social contract, and citizens must also pay their own fair share of taxes. There must be mutual accountability. We must enforce social contracts,” Adesina stressed.

He said, moreover, that the private capital which the government is struggling to attract would continue to elude the country unless the much needed social capital stocks are first attracted.

Conventionally, one would expect that private capital would move to where the rate of return on capital is high. This, however, is not always the case, he noted.

“What is sure, however, is that private capital always would move to places where the social capital stocks are high.

“That is why someone can take funds from a developing country, where due to lack of infrastructure, returns on investment would normally be high, and put their funds in places such as Switzerland, where the returns may be low, but where the social capital stocks are higher.”

The AfDB president pushed the argument that the necessary and sufficient conditions remain that private capital will always flow to where social capital stocks are high.

“Understanding this linkage between private and social capital stocks is fundamental to re-thinking government and the public service – the engine-room of government.

“The better the quality of performance of governments in building social capital stocks, the higher the trust of private sector in the society, and the higher the level of private capital formation.”

Adesina, who also served as Nigeria’s Minister of Agriculture also advised leaders to strive to earn the trust of the citizens, particularly the youths.

“Leaders must mean what they say and say what they mean, as well as deliver on their promises. When the impact of your output is tangibly felt, trust is the end result.”
In her address, Comfort Eyitayo, ICAN 57th President said with business, political and social environments changing rapidly, it had become imperative to rethink governance against the backdrop of the New Normal, which has further exposed leadership failures and raised awareness on the lack of transparency and accountability that characterizes some public and private institutions.
“It is our collective responsibility to entrench the culture of trust in governance,” he said.

“The social contract across economies would be strengthened when leaders in public or private sectors work with citizens to establish a culture of competence, responsiveness and reliability in the polity.

“It is important that leaders in the public sector guard against policy failures and inconsistency; influence of “vested-interests”; self-interest; and run an inclusive government that considers the welfare of every segment of the society.”