The federal government of Nigeria recently announced plans to increase Value Added Tax (VAT) in 2020 by 0.5 percentage points from its current rate of 5 percent. Among the reasons given for the proposed increase include raising revenue to meet the obligations of the government and increasing the income generated from non-oil sources. As the VAT rate in Nigeria is one of the lowest in the world, one might be moved to think that the proposal is completely innocuous and for the good of the populace. A deeper analysis though suggests that this might actually be a hike in double taxation.
Fiscal policies remain one of the major tools of governments worldwide to bring about economic growth and development for their citizenry. The other tool is monetary policy which is majorly under the purview of the Central Bank. The main instruments of fiscal policies are taxes and expenditure used to spur economic growth through a strategic combination. An increase in taxes results in increased income for the government which implies that there will be more money available to spend on projects which are critical and essential to improve the living standards of the people.
If taxes are such important tools in the hands of government, why then is the proposed VAT increase in Nigeria generating such uproar among the populace? The simple answer to this question is that a large number of Nigerians earn a very low income and therefore have a very limited purchasing power. In fact, the World poverty clock estimates the number of people living in poverty in Nigeria at about 94.4 million which represents about 47.7 percent of the estimated Nigerian population. This means that any increase whatsoever in the cost of living -as the proposed VAT increase will do – will be a burden on the people. However, the more logical but less obvious reason is that the increase in VAT in Nigeria will essentially lead to a hike in double taxation.
In simple terms, double taxation refers to taxing the same income twice. As noted earlier, a nexus is required between the income (taxes) and government expenditure. Considering that governments use taxes to raise income to meet expenditure needs, it is essential to examine what the government at various levels in Nigeria is required to expend revenue generated via taxes on. Provisions of basic social amenities still remain at the core of the government’s duty to improve the living conditions of its citizen. Unfortunately, this is largely not the case in Nigeria at the moment.
Security in Nigeria has become personal and the cost is borne by all and sundry. The threat to lives and properties remains high and exorbitant fees are being paid for street security and/or deployment of security solutions to homes and office premises. It is becoming increasingly risky for many to travel on road even over short distances due to the high rate of kidnapping necessitating the need to hire security personnel on such travels or find an alternative and more expensive way to travel.
In a publication by Quartz Africa in May 2019, it was stated that “Nigeria has one of the world’s highest rates of kidnap-for-ransom cases” alongside countries like Venezuela, Mexico, Yemen, Syria, the Philippines, Iraq, Afghanistan and Somalia. As long as the threat to lives and properties remain, Nigerians will have no choice but to keep expending a substantial part of their already taxed income on security.
The health sector also remains an avenue for the government to reassure the citizens of its commitment to their general welfare. Public hospitals in the country are in a deplorable state. Nigerians exhibit more confidence in foreign health care and raise huge funds to undergo treatment abroad. Many claim that the availability of the facility in Nigeria is still not sufficient to guarantee quality healthcare considering the quality of medical education in the nation. Health education in Nigeria is poorly funded whilst workers are also poorly treated.
Many Nigerian health professionals are seeking greener pastures outside the country and are excelling in their field while Nigeria still remains underdeveloped. The incessant strike by medical practitioners poorly catered for leave many families with no choice but to seek medical attention from private hospitals or even abroad where they can afford it. Sadly, the budget allocation to the health sector as a proportion of the total marginally rose by 7.43 percent to N365.77 billion in 2019 from N340.46 billion in 2018, and this is grossly inadequate to bring about the required change in the sector.
Developing human capital via education is a critical venture for the government to expend funds into. Public schools have become moribund and the privately-owned ones charge premium fees and parents and guardians are left with no choice but to pay. There is also the case of incessant strike in Nigerian universities which unnecessarily prolongs students’ stay in school and most of it can be attributed to the failure of the government to fulfil funding promises to the Universities.
The United Nations Educational Scientific and Cultural Organization (UNESCO) recommend a budgetary allocation to education of 15 to 20 percent of the total budget of developing countries but in Nigeria, the budgetary allocation has consistently fallen short of this with about 7.05 percent allocated to education in 2019. Attending private schools should be purely optional and should never be conditioned on the fact that the public schools cannot provide comparable quality education as is majorly the case now.
The foregoing emphasizes that citizens having to pay for what the government has taxed their income for is simply double taxation. Working class citizens continuously pay the government to do what they still expend their personal resources on. Since the people who bear the direct burden of taxation in Nigeria today are the same people who provide the infrastructures that the government is supposed to provide, it is clear that they are already unconsciously under the burden of double taxation.
Any increase in tax, be it VAT as is being proposed now or any other one is surely not just an increase in taxes but in double taxation. Until there is a guarantee and manifest action by the government to provide amenities for which citizens have been taxed for, any increase in tax rate remains a double jeopardy.
PHILIP OGUNTOYE
