‘Illegal’ Taxes: Our Road to Redemption?
On the night of December 16, 1773, in Boston, present-day United States, groups of masked men, from a crowd of more than five thousand, boarded three British ships and dumped cargoes of tea into the waters. The value of the wasted products is nearly $1 million in today’s money. This event would later be known as the Boston Tea Party.
Prior to this time, the British had enacted a series of taxes intended to favour the British Crown’s rule over its colonies in America. These revenue generation tactics provided funds for the monarchy to defend its territories and continue to keep it under its stronghold, but Americans were tired of taxation without representation. So while the taxes which caused the destruction of tea that day technically made tea cheaper, the people revolted because over time they were not carried along in the governance of their regions yet the British kept wanting to collect more and more taxes.
In the end, British’s reaction to the destruction of the cargoes of tea would eventually lead to the Revolutionary War from which thirteen colonies in North America would declare independence in July 1776 as the United States of America.
This story came to mind when a friend asked me what could jump-start the lethargic Nigerian from his slumber in the light of our political realities.
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NIGERIA, IN A WORLD OF HER OWN…
To be honest, Nigerians have taken their ‘suffering and smiling’ stance to legendary levels.
In April this year, a non-violent resistant movement in Algeria forced Abdelaziz Bouteflika to resign as President. This was largely owing to the high unemployment of youths in the country. Youth unemployment in Algeria is a little below 30%. For Nigeria, it’s 55%. 9 million youths are unemployed in Algeria, while it’s at least 50 million in Nigeria.
In May 2019, a Sowore-styled personality Boniface Mwangi, the leader of the Red Vests Movement in Kenya, was arrested but promptly released same day over suspicion of inciting people against the government over ongoing cases of corruption. Pressures of youth employment rate of 18.5% in the country led to mass protests led by the opposition. Due to these pressures, Kenya’s Kenyatta was forced to create a national dialogue process designed to generate ideas for institutional reforms. In Nigeria, Omoyele Sowore has been in detention for more 120 days for disrupting peace in the nation despite being twice granted bail. This morning, after a judge had ordered the activist released again, the State Security Service went to the court brandishing firearms. The judge and court staffers fled the courtroom in the chaos that ensued. DSS then forcefully rearrested Sowore.
In Chile, protests have been ongoing since mid-October 2019 over income inequality and injustice in the country. The protests have been considered the worst civil unrest since Augusto Pinochet’s era in 1981. The government has started to make concessions, chief among which is a new constitution. In Nigeria, income inequality is said to be one of the most serious in the World. Oxfam and Development Finance International puts Nigeria last in a list of 152 countries ranked by their “commitment to reducing inequality”. In terms of justice, the President has been shown to have a poor judicial record; ignoring Nigerian judges on at least 40 occasions. His Attorney General has said the rule of law is what the authorities determine it to be.
However, in the midst of this, my mind says we may be approaching a point where there is light at the end of the tunnel.
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CAUSE OF OPTIMISM…
Two news items caught my attention this week…
The first news is that of an appointee of the federal government seeking for the National Assembly to seize funds in dormant accounts in all Nigerian banks. Seeing that dormancy may be activated in 12 months upon inactivity in an account, it is potentially a good source of revenue especially when you consider that there are at least 47 million dormant accounts in Nigeria today. As you may know, a lot of factors could be responsible for dormant bank accounts including death of account holder, BVN issues and ownership of multiple bank accounts by customers.
The second news is that the federal government has sent a bill to the National Assembly which directs that individuals would be required to produce their Tax identification Numbers (TINs) before they can operate new or existing bank accounts in Nigeria. Once signed into law, the law will take effect from 2nd January 2020, according to the Finance Minister.
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WHY ARE THEY INTERESTING?
The reason I consider these pieces of news interesting is that conditions are making the government look inwards in terms of revenue generation.
This government is broke. It has a 2020 budget proposal of N10.59 trillion, but the total revenue it plans to get from oil exports is N2.64 trillion. Of course, the oil projection is overly optimistic. So you understand there is no way it will be able to fund this ‘historic’ budget.
For the past couple of years, it’s been raking up debt on an unprecedented level. From a debt profile of N12.6 trillion in 2015, this administration now has it at N25 trillion in 2019 second quarter, an increase of 104%. And it keeps seeking for more funds to borrow. It’s looking up to the World Bank for $2.5 billion. It has written to NASS to approve $30 billion foreign loan. Eurobonds and loans from institutions such as the African Development Bank are already penciled down for 2020.
But more than the borrowings and fears on how they are spent, the major worry is on the debt payment. For instance, if the $30bn loan is approved, Nigeria will use 80% of the revenue it generates to service the debt. It’s obviously not sustainable, so much so that Moody’s Rating has alerted international investors to the situation in the country by changing its outlook on Nigeria’s B2 rating from stable to negative. Moody highlighted Nigeria’s poor public finance management.
Obviously, we cannot keep on borrowing endlessly. The readily available revenue channel a lot of governments turn to when they are at their wits’ end is taxes.
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A RAY OF HOPE?
And this is where it gets particularly interesting. I believe that Nigeria’s tax problem is not horizontal, but vertical. By this I mean that the introduction of more taxes is not the response to poor tax collection rates, but the enforcement of the current tax laws. As it stands, Nigeria has one of the world’s lowest ratios of tax to GDP at 6% according to OECD and 3.4% according to the World Bank. In contrast to Nigeria, tax to GDP ratio is 29% in South Africa, 18% in Ghana, and 15% in Egypt, says the OECD.
The reason many Nigerians are reluctant to pay taxes is because of concerns that the funds taken may be looted instead of being spent on public services.
But if the government decides to take the taxes by force, then it changes the game. Nigerians may be forced to demand for accountability if they have skin in the game; if their funds are DIRECTLY taken. The country’s dependence on oil revenue has created an opaque system of governance. The rulers don’t care about providing accountability because they don’t take funds directly from the people, and the people don’t really care how the funds are spent because in their minds, the funds being misappropriated are not theirs.
However, if tax remittance is enforced, it changes the dynamics. Already VAT is being increased from 5% to 7.5%. Personal Income Tax will be enforced if everyone is forced to provide their TIN. Taking funds from dormant accounts is being discussed (a form of tax).
History teach us that the proletariat hardly accept taxation without accountability and representation. The taxation regime was a significant source of grievances during the French revolution. In the opening paragraphs, I already explained how taxes caused America’s declaration of independence. The Jewish War in 1st century AD came about because of taxes imposed on the Jews by the Romans. The same Jews refused to pay taxes in AD 70 because they would not allow their funds be used to maintain pagan temples.
In African societies, the Igbo Women’s War in 1929 began as a dispute over taxes. The Agbekoya Parapo Revolt in 1968 was a successful agitation for a reduction in taxes in Western Nigeria. In 1911, farmers successfully resisted the imposition of a labourer tax in Rhodesia, today’s Zimbabwe.
In recent times, Macron’s government was forced to put a new fuel tax on hold in 2018 after weeks of large protests in France. This year, Pakistanis have been protesting a hike in sales tax. In October 2019, Lebanon’s Prime Minister resigned after weeks of protests whose spark was the decision to tax Whatsapp calls.
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CASTLES IN THE AIR?
Could taxes bring the needed accountability to our public service? I really think so. My favourite economist, Thomas Sowell, likes to say that some countries/people have 9 out of the 10 ingredients required for success but remain poor for lack of that final ingredient. He says the ignition for success comes when the country/individual recognizes that missing ingredient.
Nigeria has everything to succeed except the political leadership to make the country work. And it’s not because Nigerians lack leadership skills. All over the world, Nigeria show their tremendous leadership skills in all spheres of life. What’s missing is what will drive accountability for those in power; put the heat on them to deal with the festering and lingering problems.
If the people know that their personal funds are at stake, they may be woken from their slumber. It is the man who pays the pre-paid electricity bills who is forced to remember to switch off the lights after use.
With the steps being taken by the federal government, I would only implore discerning minds to heed the words of Napoleon Bonaparte,
“Never interrupt your enemy when he is making a mistake.”