This tax reform matter!

I have to admit that I have difficulty keying into this tax reform debate.

In ways it reminds me that I have grown old with too little accomplished. This is because I entered the public sphere in Nigeria around the subject of taxation.

I had just returned from grad school in 1982, and NTA DG Vincent Maduka asked them to put me on TV. On that first NTA network interview, I lamented the fact that we did not pay taxes and how that resulted in poor governance. We left the government alone and did not demand accountability because they did not demand that we pay taxes, and they left us alone because oil revenues were there for them to play with, and we did not bother them.

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The Centre had consolidated abuse of federalism; the military created and played games to hand out prebends to stakeholders seeking a share of the national cake, a phenomenon my friend Richard Joseph had called out as bureaucratic prebendalism in his writings, beginning with his book Prebendal Politics in Nigeria. This, I argued, was killing the growth spurred by what Robert Melson and Howard Wolfe had called competitive communalism that drove the manufacturing surge between 1957 and independence in the competition between the subnationals on who would most bring progress to their people. This phenomenon had outcomes like Kaduna becoming the hub of Nigeria’s textile industry and Ikeja and Aba trading factories of companies like Pfizer.

I went on to talk about what to do to revive taxation and issues of horizontal and vertical equity in tax policy.

Then Vice President Alex Ekwueme was apparently one of those watching TV that night, and he made sure he sent people out scouting for me.

Sad that 42 years later we are having this kind of conversation on taxes, still hooked on the prebendal obsession with who is getting what in an economy that is not producing. What we are taxing is direct and indirect rent from oil.

An even more important question for me, having observed the policy process for four and a half decades, is whether tax revenues improve the well-being of society.

Good insight comes to this from local governments in the fiscal transfer arrangements.

In the Independence constitution, local governments were not part of the fiscal transfers. They were just administrative discretions of the region. The Eastern and Western Regions chose to have more LGAs than the Northern region. There were no revenue consequences of these preferences.

 “We left the government alone and did not demand accountability because they did not demand that we pay taxes, and they left us alone because oil revenues were there for them to play with, and we did not bother them.”

By the time the Obasanjo reforms took place in 1976, LGAs would not only get a share of federally collected revenues but also 20.9 percent of those revenues.

The powerful began to get LGAs to their areas to get more revenues. We ended up with 774 LGAs, with nearly twice as many in the old North compared to the old order, with the South having many more.

For me, the bottom line is the welfare of the average person. Is there evidence this increased flow of revenues has improved lives? On the contrary, that part of our dear country has become poorer with higher revenue flows. Like the lottery effect, where the poor man who won the lottery is often quickly back where he started, the revenue flows effect throws up new questions.

This is why the tax reform issues debate sounds like the running water of a distant stream.

Revenues in unreformed Nigeria with state capture at the fore and the cost of governance in the stratosphere do not have a developmental consequence. They instead deepen corruption and desperation for political power, all adding up to disaffection with the state and more violence, banditry, kidnappings, and insurgences.

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I think we should begin to focus more on retreating production. We should also move past this zero-sum game in which anything that seems to benefit one group is seen as a loss by another.

It reminds me of a comment I made in an interview with Richard Dowden that was published in the Economist in 1996. I suggested that if the generals and politicians could be given an island with complete access to Nigeria’s oil revenues on the condition they never had anything to do with the country, Nigeria would be better off.

In my experience, revenues do not make a Nigerian group better off. So anyone can keep the revenues if they promise to leave those who want to toil for a better life alone.

Pat Utomi