A tax is a compulsory financial obligation for an individual or a legal entity. It is a charge or some other type of levy, imposed upon a taxpayer by a governmental organisation to fund various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is usually punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. Nobody (individual or legal entity) readily wants to pay. However, taxation has immeasurable benefits. Tax money, more than anything else, lowers the cost of living in any community due to its economies of scale. In economic terms, taxation transfers wealth from households or businesses to the government. These effects can increase and reduce economic growth and economic welfare. Consequently, the tax has become a highly debated topic. But what about the goodness of taxation in societal development and the cost of living?
Nigeria is a textbook example of the consequences of not taken taxation seriously. In Nigeria today, the increasing poverty and underdevelopment are a direct consequence of tax evasion and exclusion (by statute) the majority of adult residents from taxation. For example, the recent rebasing of the minimum wage to N30,000/month could have made it a living wage if a minimum wage earner paid, say N3,000/month as tax. A status that would guarantee that taxpayer a discounted higher standard of living in education for his wards; affordable healthcare, and other public services. The little drop of water (tax) becomes a mighty ocean, and the economies of scale of the pool of tax money lower the cost of living for everybody. For example, well-paved roads mean less money spent to maintain vehicles. In short, excellent public infrastructures reduce the costs of living in every society, which massive government revenue can provide.
There are three categories of people that do not want to institutionalise tax as the bedrock of Nigeria’s economy. They are the poor, who feel and rightly so that the politicians will misappropriate their tax money. There are the very rich, who see paying their fair share of tax as subsidising the living standard of the poor. There are, of course, the politicians who do not mind corporate tax because companies do not vote, but will not promote personal-tax. The personal tax has become the elephant in the room for fear that it would trigger the masses to demand accountability in government. Exempting the majority tantamount to silencing the voice of the majority on how taxpayers money is spent. But the onus is on those exempted from personal taxation. Not paying denies them of enjoying a lower cost of living, which tax money would have made possible due to the economies of scale.
Providence moves. By divine intervention, the rampaging COVID-19 crisis is providing an excellent RESET to the global economy. Nigeria’s economy had always begged for a reset, and this is a unique opportunity. To lift millions of Nigerians from below poverty line, and go in the direction of economic growth, we need to strengthen the revenue base of our governments for the common good. The cost of living is skyrocketing, and only adequate public infrastructures can bring it down. That is where tax comes into the reckoning. We all spend unnecessarily to generate electricity; more frequently to maintain vehicles for lack of well-paved roads. Inadequate portable water supply and expensive education for our wards are commonplace. All these come from what should have been saved to boost the national savings. Countries are rated by the living standard of the majority of their people. It is funny the way the world works. Nigeria, as a nation, is not ranked by how wealthy Dangote is, but how poor materially the rest of us are. It seems the chip, therefore, cannot be larger than the block it is made from.
Three fundamentals need urgent considerations and a reset. Tax, as enumerated above; two, capital flight; three, the dwindling oil revenue. While many Nigerians may seem pessimistic about life with a dwindling oil receipt, let us see optimism. Capital flight is the most enormous disservice to this country. We salivate as we watch nations after nations give economic stimulus to their people to alleviate the suffering during this pandemic. In reality, our government cannot match such. It is sad to note that some of what being shared abroad to their citizens are Nigeria’s assets, taken there through capital flight. Capital flight has denied the Nigerian financial system the tax to the government and an opportunity for our local banks to manage those assets and grow. COVID-19 crisis and the fact that we catch a cold anytime the Saudis sneeze, have exposed the stupidity of maintaining a foreign reserve that solely funds imports.
All of a sudden, we found ourselves for the umpteenth time scrambling because of the falling oil price. If you ask me, I would rather we did not have to sell our oil to fund imports that have destroyed most of our import substitutions. The policy, invariably, has created massive unemployment among our youths and has reduced the seriousness to fix our epileptic power supply. If there is no need to produce what we need locally, what do we need to seriously fix power for? Each imported or smuggled product we buy in our markets has a component of electricity used in their manufacturing. So, the price we pay not only supports workers in foreign countries at the expense of Nigerian youths looking for jobs, it boosts the earnings of foreign power companies. Instead, we could carve out something like $10 billion from our present foreign reserve as bonds to guarantee long-term foreign investors to locate production to Nigeria.
The government attitude to public procurement must change urgently to patronising made in Nigeria. It is criminal to use public expenditure to procure imported goods instead of made in Nigeria on the pretext of poor quality. The Standard Organisation of Nigeria (SON) is there to make sure whatever is produced locally is a global best. You do not need power, our usual excuse, to make goods of the highest quality. What you need is considerable attention to details, even if you have to use firewoods instead of electricity. Of course, we need supervisors in all our economic endeavours, with eyes-for-details, which presently are lacking. It is embarrassing when it is noticeable that the quality of delivery of works in Nigeria depends solely whether the supervisor is foreign or Nigerian.
Samuel Akinyele Caulcrick
MD/CEO Gianni-Sam Nig. Ltd
Lagos