January 28, 2023

Government taxes vs. tasks in Nigeria

By Masara Kim

When United Kingdom declared lockdown at the start of the Covid-19 pandemic, its government paid 80% of salary for staff who were kept on by their employer, covering wages of up to £2,500 a month. The “unprecedented” measures were to stop workers being laid off due to the crisis, and it did work.

In Nigeria, government opened donations to facilitate so-called interventions on the crisis. Private firms and businessmen that had yet to recover from the effect of the country’s economic recession in 2016 as well as new harsh economic policies  “voluntarily” donated but under indirect duress.

Government provides operational licenses to businesses and approves any policy that affects them. Failure to respond to such demands at critical times like the covid-19 pandemic when oil revenues nosedived, forcing unprecedented budget cuts in the country, government could tighten its economic policies, making it more painful to do business. It could alternatively withdraw business licenses, rights or privileges from defaulting firms.

Aside from top billionaires prelisted for the donations, government did not directly mention or call any firm or individual to donate. Yet, given the give-and-take nature of Nigerian sociopolitical system, the donors had no choice. Some of those that forcefully donated while having weak capacity to contribute ended up retrenching, and/or increasing prices of goods and services to recover.

Government slashed refined oil prices supposedly to lessen cost of living, but since firms were not operating, and movement was restricted, the subsidies were largely unfelt. In fact, soon as lockdown was lifted, oil prices shut up and banks started charging for “stamp duty” on government’s “behalf”. This is in addition to Value Added Tax increased from 7.5% from 5%, “Merchant Service Charge” – separate ‘Stamp Duties Payment’ on individual transactions on Point of Sale (PoS) transactions and new charges on withdrawal and deposit of funds above N500,000 all introduced between last quarter of 2019 and first quarter of 2020.

This somewhat placed fresh burdens on citizens whose businesses and income sources were frozen or slowed during the lockdown that lasted several weeks in the country. Meanwhile, the funds supposedly gathered for health and social interventions were rarely accounted for, forcing parliament to open investigations against executive officials.

Nigeria does have fewer taxes than the United Kingdom, the founder of the country’s political system. In UK, virtually everything is paid for. Government has for years financed its budgets through income tax – a tax on people’s income. The basic rate of income tax is 20%, paid on income over the income tax threshold of £10,400. National insurance contributions are another type of income tax which are based on a similar principle of taking a certain percentage of income. Consumption tax in the UK, Nigeria’s Value Added Tax equivalence is 17.5%. There are also excise duties paid on alcohol and tobacco, aside from corporation tax paid on company profit and stamp duty paid on buying houses/shares. The six being main income tax sources are among a list of over a dozen taxes charged by UK government. More and more business and employment opportunities have sprang up in the Nigerian lead trading partner with each rising or emerging tax. This has made payment of the taxes easier for citizens and they are always happy to pay, knowing the benefits accruing. Aside from job opportunities, government’s welfare packages, like the Covid-19 salary relief was paid strictly to active tax payers.

In Nigeria, taxes and other obligations paid by citizens have seldom matched visible development or business/job opportunities. In fact, to start a business, one’s worries often start from the various “settlements” one has to make to government officials to secure license and other necessary approvals. This is aside from the struggle for finances, labour and raw materials which are often out of reach.

When the business is set, harsh economic realities affecting family incomes might slow sales, delaying profit for years. This implies running on low or zero-profit if not deficits while enjoying nearly zero-tax holidays as done in other climes. This often frustrates and sometimes crashes businesses before they mature to start hiring large labour. Those that manage to survive have to always contend with obnoxious laws and government policies affecting production, demand and supply.

Meanwhile, government ministries and departments are nearly stagnant, hardly expanding to warrant recruiting the ever increasing number of graduates coming out of the nation’s tertiary institutions yearly. Where the need arises to hire, to replace retired, deceased or relieved workers, the contest is usually between who one has in government, or what one has to offer to those carrying out the recruitment exercises.

With agricultural and mining incomes also depleting due to weak policies and interventions, very few alternatives exist for the country’s over 200million population. Thus, the country was recently rated the poverty capital of the world with over 50% of its population living in extreme poverty. Over 70% of the African economic giant lives in rural and semi-rural communities where access to basic amenities and jobs is low.

Demanding equity and fairness in the distribution of national resources is perhaps a workable option. But at the moment, virtually all rights peculiar with a democratic nation have been seized from citizens by government. From high election malpractices imposing leaders on citizens to frequent crack down on public protests, citizens have limited opportunities to voice out and/or influence public policies. The media which provides the country’s main source of information has equally been attacked too many times that it no longer exercises firm authority in commenting on public affairs. Even the judiciary and legislature which exist to provide checks and balance for executive operations has directly or indirectly been forced into silence.

The ways then, perhaps to remedy the situation, is to dare to force the right practices regardless of government reactions. In 2015, citizens actively took part in the then general elections, and insisted to have their votes count by guarding and facing government forces attempting to intimidate and create chances for sitting officials to win. This can be repeated, whether at the voting period or after, when the need arises for an elected official to be withdrawn.

This will require courage and sacrifice. Many people will not speak out or stand against people they share traits with – religious, political, economic, social, cultural or geographic. People who may have been done one favour or another by a politician might also not want to stand at parallel with them. Nevertheless, the effect of any action or inaction by any political player, electorates included, has always lingered for decades. This means that the manifest bad governance and under-development in the country today is a result of the failure of earlier political players to enforce positive change. By implication, any action or inaction by today’s players could extend the lifespan of the existing corruption and systemic lag, affecting future generations.