Bandits tax and supply side inflation

The Federal Inland Revenue Service (FIRS) might learn a few lessons from the bandits in Niger state. Their tax system is legendary in identifying and capturing everyone in its net. About 400 households in Shiroro local government area of Niger state are in the bandits’ tax net.

The bandits control access to the farms. In exchange for access to the farms, the bandits impose N20, 000 tax on each household. Fulani herdsmen in the communities are the bandits tax collectors.

The Fulani herdsmen know households in the communities that pay the levy. Those who paid can freely access their farms while tax evaders risk being abducted if they venture into their farms.

In all, the bandits collected N8 million from the farmers. The Fulani herdsmen who are the tax agents of the bandits are very honest men. Unlike FIRS tax collectors, they remit everything to the bandits in exchange for their cut in the booty. The Bandits themselves are honest with the loyal tax payers.

Unlike the federal, state and local governments that collect tax but fail to protect the tax payers, the bandits promptly secure the farm routes for loyal tax payers.

The efficiency of the bandits’ tax system is a challenge to government tax collectors.

The lessons from the above analogy is not about the bandits efficient tax assessment and collection system. It is about insecurity as a major cause of Nigeria’s supply side inflation which is pushing millions of Nigerians into starvation and malnutrition as they can no longer afford the skyrocketing prices of food items.

Food inflation stands menacingly at 23 per cent. Those who celebrate the 0.05 per cent climb down in headline inflation in April may be acting rather preposterously.

The brutal efficiency of Niger state bandits’ tax system would almost certainly push up the price of food items from the taxed farms by at least 20 per cent.

The bandits of Niger state have set a dangerous precedent. Their colleagues in Kaduna, Zamfara, and Katsina states who were kidnapping school children for ransom might shift their revenue base to farmers. They might impose their own tax and reap handsome rewards.

If the lessons from the smart bandits of Niger state goes round, food inflation might spiral to 35 per cent before the year runs out. Farmers would be passing the additional cost of the bandits’ levy to consumers. Millions more would starve as a result of the supply side inflation.

Nigeria’s spiraling inflation is not from the demand side. No one has demand side inflation with 33.3 per cent unemployment rate as the economy lumbers out of recession. Recession is a tale-tell sign of lethargic demand in an economy.

The spiraling inflation is therefore not the consequence of too much money chasing very few goods. It is the consequence of the cost of production spiraling out of control.

More than 60 per cent of Nigerians lack the disposable income to back up their demand for goods and services to the extent that would push up prices to the levels they are at the moment.

A cruel and scandalous income distribution system has colluded with unparalleled level of corruption to price them out of the market even as the economy is awash with cash to the extent that the Central Bank of Nigeria (CBN) does not know how to curb excess liquidity.

The cost of production, not excess demand, is pricing millions out of the market. Two weeks ago, someone in Lagos ordered his contractor to buy cement for the work on his site. The contractor told him cement was N3, 400 per bag. He handed the contractor money for 20 bags and expected the goods in a few hours’ time.

The contractor was actually too busy to effect the purchase instantly. When he finished his transactions later in the day and headed for the cement shop, the price of cement had climbed to N3, 800. That is N8, 000 above what he quoted for the 20 bags in the morning.

A few days after the encounter between the contractor and his client, the price of cement climbed to N4, 100. The price hike is in leaps and bounds. That is not something engendered by higher demand. Cement is everywhere in Nigeria. Dangote still exports it. All the retail shops are overflowing with cement except that the price is unacceptably high.

Cement manufacturers are actually passing the extra cost of imported gypsum imposed on them by a depreciating naira, to consumers. Even the gas that is processed in Nigeria is now priced in dollars. That makes the production cost of cement atrociously high.

Besides, like the farmers in Niger and neighbouring states, cement manufacturers are paying very high price for Nigeria’s obdurate security crisis. That too, they are passing on to consumers.

Nigeria’s 122 million people eking out a living below poverty line have no effective demand for cement that would push up the price by 15 per cent in one week.

The price hike, like that of food items is generated from the supply side. While manufacturers inch up prices occasionally by passing additional production costs to consumers, retailers are the major cause of the spiraling cost of cement.

Their profit margin is higher than that of manufacturers and distributors. They make anything from N800 from a bag of cement.

Corruption and the scandalous income distribution system take the lion share of the blame for Nigeria’s supply side inflation. Nigeria is a rich country of poor people. The country’s enormous wealth is in the hands of an infinitesimal but powerful minority while the inconsequential majority wallow in abject poverty.

That is what makes Nigeria the world headquarters of poverty.

That is the consequence of unimpeded corruption and a scandalous income distribution system that traps money at the top.

Nigeria is awash with cash. But a disproportionate chunk of the excess liquidity is in the hands of an infinitesimal minority. The oppressive elite use the funds stolen from public till to harass the naira in the foreign exchange market as their excess demand for dollars put the naira persistently under pressure that forces a disorderly retreat and exert upward pressure on the cost of imported raw materials and finished goods.

The excess liquidity in the system is not useful to the inconsequential majority who could use it to make effective demands that would grow the economy and create jobs. That is why Nigeria has inflation and recession, two strange bed fellows, operating side-by-side.

UNI Agric Markurdi
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