One global concern for political economists and economists of the classical, Keynesians and neo-Keynesians schools of thought is that they never shy away from the question bordering on tax, particularly, the central question on taxation and economic growth, or the argument of Marxian economists that tax revenues should be evident in economic development, not in growth measures alone.
However, governments across the world always nurse the hope of incurring higher revenue and it doesn’t stop them from targeting and raising around 10% to 40% of GDP in taxes.
The developed nations have mastered this practice so well that the positive result from tax collections is evidently seen in how their governments ploughing it back to essentially finance investments in human capital, infrastructure and the provision of services for their citizens.
Sadly, same can’t be said of majority of nations regarded as developing or emerging economies because of the politics of tax and poverty of understanding how its usage can help reduce economic gaps.
The principles behind tax or the collection of taxes and fees are not just about distributing resources or control of luxury goods, but a key to development priority.
Although, there is the very argument that make tax a paramount element for businesses to enjoy a set of right price incentives for sustainable private sector investment on the short, medium or long term, this may depend on the context of stakeholders and tax regulators’ interest – if it is a cooperative environment with less fight over tax evasion and avoidance.
Arguably, taxes have a key role to play in making economic growth sustainable and equitable, especially in the context of rescuing a nation from financial crisis.
But we cannot rule out the magnitude poor nations are struggling with in the very key facts about taxes. As mentioned earlier, but with emphasis now, collection of taxes and fees is a fundamental way for countries to generate public revenues that make it possible to finance investments in human capital, infrastructure, and the provision of services for citizens and businesses.
The foregoing gives us the opportunity to interrogate a recent Nigerian state’s decision on its tax administration, which in the past days has drawn local and global attentions.
And many experts have continued to express divergent opinions that demonstrate the understanding of the economic and political forces that shape the way tax as a fiscal policy is politicised to create economic gaps in the country.
The Nigerian media aptly captured the news of President Bola Ahmed Tinubu’s signing of four Executive Orders suspending the implementation of some key tax laws, in a statement by his Special Adviser on Special Duties, Communications and Strategy, Dele Alake.
Among the Executive Orders signed by Mr President are the suspension of the 5% excise tax on telecommunication services as well as the excise duties escalation on locally manufactured products.
Others are the suspension of the import tax adjustment levy on certain vehicles and deferring the commencement date of the changes contained in the Finance Act from May 23, 2023, to September 1, 2023. In addition to that is the suspension of the newly introduced 10% Green Tax through Excise Tax on single-used plastics, such as plastic containers and bottles.
The presidency justified reasons behind the orders as carefully thought out to ameliorate the negative impacts of the tax adjustments on businesses and chokehold on households across affected sectors.
By this, the presidency has acknowledged the challenges and for the government not to exacerbate the plights of Nigerians.
For instance, the Tinubu administration said it noticed that some tax policies are being implemented “retroactively with their commencement dates, in some instances, pre-dating the official publication of the relevant legal instruments backing the policies.”
Again, it recognised the noble idea and intentions behind “upward adjustments of some of these taxes, as they were designed to raise revenue and address environmental and health issues.”
At the same time, it raised issues that the tax law “generated significant challenges and elicited serious complaints among key stakeholders as well as in the business community.”
Pertinently, the government discovered these gaps as hindrance to implementation of the tax law. But it’s important to stress here that many of the contents in the suspended tax laws were to reduce the nation’s over dependence on the petrol dollar rentier economy.
That it is not just sufficient as a revenue to finance and meet the basic needs of citizens and national developments, as the world is already moving away from fossil fuels.
The non-oil sectors are key economic diversification routes that the government wants to cash on through tax remittances from services, import and exports. For us, reckoning with this level of taxation is an important tipping point to make the Nigerian state viable and put it on a path of not just growth, but also economic development.
Moreover, the recent achievement of the nation’s 8% GDP to tax from 6% GDP to tax, according to FIRS, is a good development. Cautiously, the Tinubu’s government has set for itself 18% to GDP in tax going forward.
On the other hand, this is the reason tax and its target of increasing revenue collection generate political forces and economic gaps.
Nigerian government’s task in ensuring it administered a proper tax policy dates back to 2012 when a modest effort to entrench a robust and efficient tax system in Nigeria, the National Tax Policy (NTP), was first published in 2012.
Notably, the President Muhammadu Buhari administration between 2016 and 2022, showed serious commitment by reviving the NTP with a target to accommodate an operational tax system and clear implementation and monitoring strategies for stakeholders in the system.
Clearly, this was also demonstrated through legislation to resolve and support all new socio-economic efforts by taxation, with a new tax law such as the Finance Act 2023, notably, for providing the 0.25 per cent levy on commercial companies Profit Before Tax (PBT) to fund the National Agency for Science and Engineering Infrastructure (NASENI), enhancements of Research and Development (R&D), technology and innovation to transform the national economy.
It was also a critical departure for Nigeria to join the rest of the developed nations deploying and using knowledge, research, science and technology innovation to positively turn around their nation economies.
Obviously, the government toed this line, having considered NASENI’s values of adding to the socio-economic transformation of the country with world class designs and fabrication of machines, equipment, including successful research and development and activities of various technology devices to transform the nation’s industrial sector and ensure competitiveness.
Worthy as this could be, the tax laws to be implemented have raised dust in the variation of what to collect, when to collect and multiple taxations.
Having a disjointed tax law for remittances in a macroeconomic headwinds is not just a slap on our face in line with global best practice, but we have succeeded in creating a system that would suffocate businesses and taxpayers that are burdened with rising costs, negative profit margins and capacity underutilisation brought about by our national economic deficits.
And, as the government sincerely said, if it has not put a hold to it through the Executive Orders, the current administration will present an image of policy inconsistency and create an atmosphere of uncertainty for businesses operating in Nigeria, recognising the importance of “more consultations and a holistic approach to the country’s net zero plan in a manner that does not impact the economy negatively.
According to the World Bank Group (WBG), developing countries that are most in need of revenues, including Fragile and Conflict-Affected States (FCS), often face the steepest challenges in collecting taxes, Nigeria inclusive in this categorisation and predicament on tax.
As we conclude, confronting us is what solution options we are left with. Of a truth, the national financing gap to achieving development estimates is about N25 trillion annually.
Much of this financing gap will need to be met through effective tax remittance which requires appropriate fiscal tax policies to create the needed price incentives for businesses and taxpayers.
Another way is to avoid complicated tax systems associated with high levels of tax evasion, tax avoidance and corruption. And we need to adopt modern tax system aimed at optimising tax collections by reducing the burden on taxpayers and businesses.
Along this thought is for Nigerian governments both at federal and sub national levels to ensure tax system is fair and equitable as a means to further bring easier method for the larger informal sectors to pay taxes and proper incentives.
However, a bigger task before President Tinubu, National Assembly and 36 states governors, is how they are going to balance the goals of NPT by not just seeking tax increased revenue mobilisation, rather must focus on reducing collection and compliance costs, fair taxation of the poor, in relative to the rich; formal corporate organisations and informal bodies.
For us, tax system should be devoid of politics and economic gaps as a leeway to alleviate poverty and avert economic challenges
Olamilekan, a political economist writes from Abuja via
08107407870
