Universally, taxes are recognized as veritable means of generating revenue from individuals and corporate bodies for growth and developmental purposes. It is more or less like signing a memorandum of understanding in which the identified entities pay what are levied on them while the government that imposes the taxes judiciously utilizes the proceeds for the wellbeing of the payers. It is never meant to be a zero sum game.
In Nigeria, various taxes exist. In fact, at the last count, no less than sixty three of such are in the statute books, ranging from the ones levied by the Federal and State governments to those of the Local governments! However, the popular ones in Nigeria appear to be the company tax, personal income tax, value added tax (VAT), consumption tax, withholding tax, land use charge, excise and import duties.
The aggressive nature of raising revenue via taxation in recent times by all the different levels of government in Nigeria has put to question the whole concept of taxation. Not a few are wont to ask whether the country is redefining and rewriting the whole concept. Yes, citizens and corporate bodies must discharge their basic obligations to the state but within which context and circumstances? Nigeria recently exited a major recession in a quarter of a century and most businesses and individuals are still struggling to find their feet but they are daily being assailed by all manners of taxes and levies or the threat of them.
In a bid, obviously, to fund the 2019 budget and be in good shape to pay the proposed new national minimum wage of thirty thousand naira per worker per month, the Federal Government has just come up with the idea of hiking the value added tax (VAT) from its present rate of 5%. The reason? VAT in Nigeria is the lowest in the world. Really? What of consumption tax? Is it being discounted in the mix and argument?
There is little doubt that the tax system in Nigeria today is bedeviled with a lot of inconsistencies, arbitrariness and lack of cohesion and harmonization. In a typical Federal System of Government which Nigeria professes or is pretending to practice, there is certainly no room for the chaotic situation the country is experiencing in respect of its tax system.
Certain issues need to be interrogated at this point:
- What is the place of consumption tax vis-a-vis value added tax (VAT) in the country’s tax system today?
- Who should be the beneficiary of the VAT collected in any location?
- Should those that ‘abhor’ the products and services on which VAT are collected turn round to partake in the benefits?
Looking deeply at the posers raised, it is clearly evident that the present tax system and structure need some tinkering for equity and efficiency. For example, the argument that VAT in Nigeria is the lowest in the whole wide world obviously falls flat when consumption tax is considered. VAT and consumption tax are two sides of the same coin. There is no denying the fact that having the two taxes in place amounts to double taxation.
Is it fair and equitable that all share from the proceeds of VAT which is akin to sharing a cake when some did not contribute in its baking? If some feel that the products and services on which VAT are levied are not ‘pure’ and offend their sensibilities, why reward them with the revenue accruing thereof?
Taking the argument a notch further, should there be arbitrariness in the manner taxes are fashioned out in the country? Different levels of government in Nigeria have as varying taxes as anyone can count, albeit of the same nature and complexion, and some are contemplating coming out with more or tinker with the existing ways in their domains as I write this piece and all targeted at the same payers. Obviously those in the latter group are waiting to see how far the Federal Government will go with the proposed hike in VAT. Meetings, conferences, workshops, summits and seminars (Nigeria is never in short supply of them!) have been held by stakeholders all aimed at harmonizing and ensuring cohesion in the manner taxes are levied but with practically nothing to show. Organized private sector and workers whose taxes are deducted at source are still groaning.
The Federal Government that should show good example of how taxes should be conceived and implemented for the good of the economy is unfortunately using taxation as a fund raiser of some sort and a knee jerk approach to an otherwise serious matter.
Taxation to all intents and purposes, should be for the twin objectives of promoting growth and development in an economy, not to stifle them. When citizens are suffocated with unconscionable taxes/levies and their continuous hikes, their capacity to spend is obviously curtailed and growth ultimately will be the first casualty.
Whilst calling for circumspection in the way taxes are churned out by all levels of government in Nigeria, especially the state and local governments and before the proposed hike in VAT is given any bite by the federal government, the following should be considered by all the levels of government:
- Have governments across board in Nigeria given a thought to optimizing their revenues through taxation? Have they tried to bring everybody eligible to pay tax into the proverbial tax nets/brackets?
- How accountable are different agencies and institutions saddled with tax collections?
- What mechanisms do governments have in place in ensuring that all taxes collected are remitted? How often have they been modified (that is, if in place already) to enhance more efficiency and accountability?
- Is it out of place for governments to tie specific tax to specific project(s) and project same to the tax payers to enhance accountability?
- Those that are paying taxes, do they pay the correct figures commensurate to their earnings and lifestyles? In other words, how fair and equitable are the current taxes, especially as they relate to personal income taxes? Is it fair for those whose taxes are deducted at source to always hold the short end of the stick?
- Instead of needlessly churning out new taxes and hiking the rates in the existing ones, how many governments across board have carried out introspection and serious audits of wastages currently choking the entire system to free more funds for growth and development? Any serious exercise by any government on reducing the cost of governance?
Emeka Okolo
*Dr. Okolo is a chartered stockbroker and management consultant based in Lagos.
