Nigeria’s quest for a tax driven economy – Is safety assured?
The shift to non-oil revenue must be a
properly managed paradigm shift and
not the exchange of one extreme
dependence for another
The need to diversify Nigeria’s economy
(with its consequential implication for
expanding the nation’s foreign exchange
earning base) has been a clear, present
and recurrent theme for many years.
However, it has taken a sustained slump
in crude oil prices to trigger a frantic
and desperate rethink of Nigeria’s
economic and fiscal planning approach.
Diverse reasons can be adduced for the
continuing slump in crude oil prices.
These would include but not limited to
growth in the global supply of crude oil
and the resulting glut due to:
• shale oil production from the US
notably;
• fall in Chinese’s growth projections;
• lifting of economic sanctions against
Iran; and
• the continued flooding of the market by
the Middle Eastern members of
Organisation of Petroleum Exporting
Countries (OPEC) to stifle production
assets under terrorist control
In the end, the buck for poor forward
thinking or planning to mitigate the
country’s exposure to harsh economic
realities must definitely rest somewhere.
Presently, the price of crude oil is down
by about 50% from $115 per barrel (pb)
in June 2014 to $50.54 pb in November
2015. According to the Q2 report issued
by the National Bureau of Statistic (NBS),
there was reduction in oil production by
7.3% (at 2.05 million barrels per day
(mbpd)) in 2015 when compared with
corresponding quarter in 2014
(2.21mbpd). Consequently, oil and gas
sector’s contribution to the country’s
gross domestic product (GDP) dropped by
0.96% to 9.80% (2014:10.76%).
The determination of the present
administration to be transparent on the
state of Nigeria’s treasury is therefore
understandable and probably has
compelled the admission that Nigeria is
broke. Indicative evidence of response
by the Federal Government is the
introduction of some monetary and
structural policy measures such as
recovery of misappropriated funds,
implementation of treasury single
account (TSA) for receiving all monies
accruable to the Federation and control
of foreign currency denominated
transactions in the economy, among
others. These measures are geared
towards ensuring that the Federal
Government becomes more liquid.
The urgency in the shift to non-oil
revenue sources is clear. Revenue from
taxation is a critical component of this
shift and this places the Federal Inland
Revenue Service (FIRS) and the various
State Internal Revenue Services in the
bull’s eye. Nigeria’s challenge is not
necessarily the decline in oil prices but
rather that the high oil prices in the past
had masked Nigeria’s over-dependence
on oil to drive the economy and the
relatively small tax base outside the oil
and gas industry.
In view of the country’s dire situation,
the cooperation of all Nigeria’s citizens,
both corporate and individuals, are
required in the discharge of their civic
responsibility with regard to tax
compliance. This is not a big ask given
that taxes paid by citizens of most of the
developed countries are used by
governments to run their economies, and
this confers on the citizenry a legitimate
stake in public governance. Nigeria
cannot and should not be an exception
in this regard, as this can only be
achieved if citizens pay their taxes and
live up to their civic responsibilities and
expectations.
It is undeniable that Nigeria has
typically posted a low tax to GDP ratio as
well as to the total revenue earned by
the Federation. This is due to low tax
compliance levels by individuals and
corporate taxpayers. This low level of tax
compliance has been attributed to a
plethora of reasons, which include:
• lack of accountability and transparency
in government spending
• low quality of infrastructures in return
for taxes paid
• low civic literacy level
The current emphatic tone of intolerance
to economic and financial crimes, which
leak away or divert tax payers’ money to
personal pockets from the top across all
the tiers of government, may assist to
address the trust deficit that exists
between government and the citizenry
at all levels on the issue of appropriate
use of taxpayer’s funds. Enforcing penal
consequences of economic and financial
crimes at an accelerated pace can only
serve to reinforce confidence in the
system.
Consequently, the following elements
become relevant:
• Effective enforcement of compliance
with tax laws and institution of a virile
tax culture to enforce the laws governing
taxation to the letter
• Evaluation of strategies implemented
thus far by tax authorities at all levels in
order to identify gaps and thereafter
plug all loopholes in processes and
enforcement
• Need for the government to ensure
utmost prudence in the utilization of
revenues from various sources in order
to instill confidence in the system and its
citizenry
The shift to non-oil revenue must be a
properly managed paradigm shift and
not the exchange of one extreme
dependence for another. As a matter of
strategic national interest, it is only
prudent and pragmatic for the
Federation to continue on a path of a
well-diversified economic base which
will ensure that the economy is strong
and stable enough to respond, adapt or
adjust to vagaries and dynamics of
international trade relations triggered
by political and economic forces at play
in the international market.
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