PLANS to raise taxes and the instant push-back from the Organised Private Sector telegraph the desperation of the Federal Government to meet revenue shortfalls, and the alienation of critical stakeholders from economic planning. While the Minister of Finance, Budget and National Planning, Zainab Ahmed, said the government was mulling new taxes, tariffs and levies, the OPS rightly sounded the alarm on the likely negative effects of additional burdens on businesses, the citizens, and the economy. Navigating the country out of the ditch requires incentives to stimulate production, exports, and food security, not tax increases.

Tackling the inter-related problems of sharply declining revenues and low tax collection, the President, Major-General Muhammadu (retd.), and his team get it all wrong by their instinctive impulse to impose additional tax burdens. They compound this by failing to forge a close collaboration with the OPS and experts, amid the economic downturn, and to fashion a sustainable reflationary master plan. Thus, lacking in significant input from critical stakeholders, its plans have consistently failed to deliver major impactful outcomes; reverse poverty, stimulate job creation, diversify the economy, or achieve the desired V-shaped recovery. Urgently, a new approach is needed in economic engineering to save the economy.

The Federal Government is on the ropes. Revenue expectations have fallen sharply. Despite recent higher prices of crude oil, its mainstay, average daily production is down to 1.25 million barrels per day from previous peaks of 1.8mbpd-2.1mbpd. Its share of oil proceeds of N845 billion January-September this year was 25 per cent short of projections. Debt servicing has been draining 90 per cent of revenues, prompting even more frenzied borrowing to meet recurrent and capital spending. Budget deficits have spiked. Cumulatively, the regime incurred a deficit of N20.64 trillion from 2016 to 2020, reported The PUNCH, citing official data. Rising from N5.6 trillion (actual) in 2020 to N6.45 trillion in 2021, KPMG, a global consultancy, projects it to reach N6.26 trillion in 2022.

Though claiming “tangible results” from its “ongoing fiscal reforms of the last six years” such as improved revenue collections ranging from 120-153 per cent, Ahmed says the regime is considering the “possibility of the introduction of new taxes, tariffs and levies, as the economy recovers.” This is poor judgement.

As the OPS pointed out, new burdens via taxes, levies and rates by the federal, state, and local governments would worsen the unemployment rate now at 33.3 per cent, the world’s third highest, trigger companies’ closure and derail recovery. It could also deepen misery as 89 million persons are already living in poverty. OPS Chairman, Taiwo Adeniyi, specifically cautioned against the planned tax of 1.0 per cent on companies’ profits embedded in the Tertiary Hospital Development Fund Bill. With businesses already compelled by diverse laws to contribute to various public funds, this is pertinent.

Contributing only 11-12 per cent to GDP and struggling to recover from the COVID-19 pandemic, the Manufacturers’ Association of Nigeria fears that new burdens would further crush the manufacturing sector. A joint survey by the National Bureau of Statistics/UNDP found that 20 per cent of staff in formal and informal businesses was laid off in 2020. The NBS projects that only one-third of businesses will experience uninterrupted operations in 2022.

Buhari should change strategy to avoid worsening the economic mess. Already, energy prices – of electricity, gas, petroleum products – have risen sharply, thereby triggering higher consumer prices across the board. Ending petrol subsidies as planned would result in pump prices of N340 per litre or more, signposts a harsher operating environment and greater hardship for the populace.

To recover from contraction, stimulate production, job creation and exports, you give tax incentives, not raise them, say experts. For Nigeria, especially where businesses and citizens get very little returns from taxation, “implicit taxes” such as self-provision of power, water, roads, and security identified by Akinwunmi Adesina, President of the African Development Bank, dictate more creative ways to solving the low tax revenue problem. Tax increases on businesses at this time, says the United States National Association of Manufacturers, would “tear down the entire recovery process.”

The World Bank in May noted that following the unprecedented demand and supply shocks arising from the pandemic, many governments worldwide had been providing tax relief packages and incentives “to support struggling businesses and encourage private sector growth.” A €1.8 trillion post-COVID-19 stimulus package by the European Union includes tax cuts, holidays and €672.5 billion in loans and grants to support businesses. The Ghana Revenue Authority mid-2020 rolled out tax incentives to protect jobs and businesses; tax relief and reduction in fees played a role in China’s early V-shaped recovery from COVID-19. India, Peru, Malaysia, and Turkey also achieved rebounds in significant sectors aided by tax incentives.

Buhari should learn from others. Increasing the low tax-to-GDP rate of 6.1 per cent is essential, so also is improving revenue, but this should be done scientifically. The recent increase in VAT rate from 5.0 to 7.5 per cent was ill-timed. It has already driven cooking gas prices up by over 300 per cent, forcing many to return to the environmentally fraught use of charcoal.

The regime should go after existing but under-collected taxes from individuals and corporate organisations. The revenue agencies should reform, and extensively deploy technology tools while reducing personal interface in their operations to eliminate corruption. Estimates of revenue losses through uncollected taxes, unremitted funds from public agencies and other leakages, range from N14 trillion to N30 trillion annually. Go after these aggressively.

The three tiers of government should cut costs, radically reduce the numbers and sizes of ministries, departments, and agencies, and stop the irrational establishment of new ones. Leading by example, Buhari and the state governors should slash their luxurious living at public expense and enforce this among all political appointees.

At the federal and state levels, creative economic stimulus plans should be developed and implemented in partnership with the private sector, with emphasis on SMEs, start-ups, agriculture, mining, manufacturing, ICT, Public-Private Partnership, and skills acquisition.

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