The Upper Crust

VAT and Nigerian governance challenge

 

 

With UCHE NNADOZIE

I am not aware of any country in the world where citizens are
enthusiastic about paying taxes. I am not familiar with anybody who
goes out of his or her way to redeem tax obligations of any kind when
called upon. Nobody wants to part with his or her “hard-earned” money
to a “bottomless pit” of government treasury. It is even worse now as
majority of citizens of countries around the world do not trust
government. It appears as each day passes by, citizens find a thing or
two to dissuade them from appreciating or understanding the concept of
government.
Therefore, I am not surprised by the push back we have witnessed
following announcement that the often repeated intention by the
Nigerian government to increase the Value Added Tax, VAT. Again I
repeat no one wants to pay tax. And these days with all manner of tax
obligations under different headings: from federal authorities to the
states and even local governments, it is understandable why folks who
actually pay tax will reject any attempt for them to pay more. In
Nigeria, our VAT responsibility is put at 5 percent. It is 5 percent
of “luxurious” goods or service.
But, again there are many other taxes. They call VAT consumption tax,
yet there are other consumption taxes. For example, in Lagos there is
a tax heading called “consumption” tax which targets hotels and
restaurants; which means, a person residing in Lagos and uses the
services of a hotel or restaurant pay about 5 percent for VAT and
another one for Lagos State “consumption tax.” And guess what,
majority of monies generated via VAT is redistributed putting the
states at the top. States collect 55 of all VATable revenue. Local
governments collect 30 percent, while the federal government is left
with 15 percent.
People have argued that what government needs to do at this time is
not to put a burden of 2.5 percent upon the 5 percent already charged
for VAT; but to find a way to widen the tax net. Experts believe that
a lot of companies do not remit their VAT collections, where they do,
they don’t remit everything. In fact commentators have said, perhaps
if governments have been able to collect just about half of what they
can actually collect. If this is true, then it means, if government
rakes in N20 billion per month from VAT, it can become N40 billion or
more if the mechanisms for collection is strengthened and if people
become a bit more honest. In the same manner, people have called on
government at all levels to cut back on waste, clean up the civil
service, remove unproductive political appointees and stop buying
useless SUVs for all sorts of politicians and civil servants. We
cannot say we don’t have money where government officials and civil
servants buy SUVs every time. Poor countries don’t use SUVs.
Some truths, at 5 percent Nigeria is lowest or second to lowest of 153
countries of the world, same can be said of Africa where out of 54
countries, Nigerian VAT rate is equally the lowest or second to the
lowest. VAT does not affect everyone,  that’s the truth. It simply
means those who have the means to shop in upscale stalls will have to
add 2.4 percent to their cost. It is not compulsory because Nigerian
trading or commercial system is heavily traditional open markets where
VAT is not collected. Third truth is that Nigeria is a very poor
country. I will return to this shortly. The fourth truth is that our
country is very corrupt with government officials and citizens
competing on who can take corruption to the next level.
Corruption breeds poor tax collection. Poor tax collection makes a
poor country, a poor country creates an insecure environment and
that’s where we are presently. Nigerians don’t want corruption to be
fought headlong because it affects them directly even though they are
not in government or own big corporations. Nigerians benefit from
corrupt elements within the society in a number of ways. First is the
availability of resources to expend in the public space, to buy goods
and live large. When you block loopholes it affects Nigerians directly
and they begin to grumble not realizing on the long run how the
country will turn out. a Nigerian just wants to move on. He doesn’t
want obstacles. He will do anything to get along including dodging tax
and encouraging public finance theft, so long as some of the cash
patronizes him.
We all complain everyday about lack of infrastructure: poor roads,
lack of rail services, maritime services, health, education etc. Lack
of opportunities to create wealth or find jobs, we simply forget that
these beautiful things don’t come about by miracle. We simply look
away when it is demanded of us to make contributions or encourage
public officials who steal our common wealth. Nigeria’s annual budget
(forget the trillions) is about $28 billion. This figure is not just
poor it is ridiculous. Even at that, guess what, we are unable to
raise this figure to run the budget. We still have to borrow and enter
into all manner of arrangements to be able to discharge some of the
functions that countries undertake.
We are very poor and part of the reasons is simply because we are not
a tax paying nation. People have argued that government does not do
anything for them in the first place so why should they pay? So it is
now a question of the chicken and egg which comes first. I also agree
that our governments over the years haven’t quite discharged their
obligations even up to 50 percent. It is a national tragedy that
should be addressed in a way to get everyone on board to stop
sabotaging their own country. First Nigerians must be encouraged to
see the country as theirs. Those who contribute must be celebrated and
government must break it down for everyone to see how taxes help grow
the economy and improve our lives.
A state like Lagos, with over 20 million people has over 700, 000 tax
payers. No, that’s gory. You can’t manage such a state with such
paltry remittance. It’s not possible, even if you add the stolen funds
and subtract waste. South Africa does over $100 billion annual budget.
They are a quarter of our population. We do $28 billion with 200
million people to look after. These countries tax heavily and citizens
mostly pay. The United States 2019 annual budget is $4.4 trillion.
China is $3.3 trillion. All our budgets since 1960 are not up to $1
trillion. Think about this!  I’m not saying that VAT will push our
budget to $100 billion; I’m saying that we must increase our revenue
base so that states can find money to pay salaries. And citizens must
get involved to get every government at every level to be accountable
and innovative. We can’t continue like this. We are too poor.

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