PLANS to raise taxes and the instant revulsion of the organized private sector are testimony to the federal government’s desperation to cope with revenue shortfalls and the alienation of critical economic planning stakeholders. As Finance, Budget and National Planning Minister Zainab Ahmed has said the government is considering new taxes, tariffs and levies, PAHO has rightly sounded the alarm bells about the negative effects likely additional burdens on businesses, citizens and the economy. Getting the country out of the divide requires incentives to boost production, exports and food security, not tax increases.
Tackling the interrelated issues of sharply falling income and poor tax collection, the President, Major General Muhammadu (retired) and his team are mistaken in their instinctive instinct to impose additional tax burdens. They make this worse by failing to forge close collaboration with PAHO and experts, amid the economic downturn, and to develop a master plan for sustainable reflation. Thus, lacking a significant contribution from critical stakeholders, its plans have systematically failed to produce meaningful results; reverse poverty, stimulate job creation, diversify the economy or achieve the desired V-shaped recovery. Urgently, a new approach to economic engineering is needed to save the economy.
The federal government is on the ropes. Income expectations have fallen sharply. Despite the recent rise in crude oil prices, its mainstay, average daily production is down to 1.25 million barrels per day from previous peaks of 1.8 mbpd-2.1 mbpd. Its share of N845 billion oil revenues from January to September this year was 25 percent lower than projected. Debt servicing drained 90 percent of income, resulting in even more frenetic borrowing to meet current and capital spending. Budget deficits have skyrocketed. Cumulatively, the regime recorded a deficit of 20.64 trillion naira from 2016 to 2020, reported The punch, citing official data. Going from 5.6 trillion (real) naira in 2020 to 6.45 billion naira in 2021, KPMG, a global consulting firm, predicts that it will reach 6.26 billion naira in 2022.
Although he claims “tangible results” from his “ongoing tax reforms over the past six years,” such as improved revenue collection ranging from 120% to 153%, Ahmed says the regime is considering the “possibility introduce new taxes, tariffs and levies. , as the economy recovers. It is bad judgment.
As PAHO has pointed out, new burdens via taxes, levies and rates imposed by federal, state and local governments would worsen the unemployment rate currently at 33.3%, the third in the world, would trigger the shutdown. companies and derail the recovery. It could also worsen misery as 89 million people already live in poverty. PAHO President Taiwo Adeniyi specifically warned against the planned 1.0 percent corporate profit tax incorporated into the Tertiary Hospital Development Fund bill. As companies are already forced by various laws to contribute to various public funds, this is relevant.
Contributing just 11-12% of GDP and struggling to recover from the COVID-19 pandemic, the Manufacturers Association of Nigeria fears that new burdens will further crush the manufacturing sector. A joint National Bureau of Statistics / UNDP survey found that 20% of staff in formal and informal businesses were laid off in 2020. The NBS predicts that only a third of businesses will experience uninterrupted operations in 2022.
Buhari would have to change his strategy to avoid aggravating the economic mess. Already, the prices of energy – electricity, gas, petroleum products – have risen sharply, causing a general rise in consumer prices. Ending gasoline subsidies as planned would result in pump prices of N 340 per liter or more, a sign of a more difficult operating environment and greater hardship for the population.
To get out of the contraction, boost production, job creation and exports, you offer tax incentives, you don’t increase them, experts say. For Nigeria, especially where businesses and citizens derive very little revenue from taxation, the “implicit taxes” such as self-provision of electricity, water, roads and security identified by Akinwunmi Adesina, President of the African Development Bank, dictate more creative ways to solve the problem of low tax revenues. The increase in business taxes now, according to the National Manufacturers Association of the United States, “would kill the whole recovery process.”
The World Bank noted in May that following unprecedented demand and supply shocks resulting from the pandemic, many governments around the world had provided tax breaks 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 introduced tax incentives in mid-2020 to protect jobs and businesses; Tax breaks and lower fees played a role in China’s V-shaped recovery from COVID-19. India, Peru, Malaysia and Turkey also saw rebounds in important sectors thanks to tax incentives.
Buhari should learn from others. Raising the low tax rate relative to GDP by 6.1 percent is essential, as is improving revenue, but it should be done in a scientific way. The recent increase in the VAT rate from 5.0 to 7.5 percent was inappropriate. It has already spiked cooking gas prices by over 300%, forcing many people to revert to using charcoal, which is heavy on the environment.
The regime should tackle existing but under-collected taxes from individuals and businesses. Tax agencies should reform and widely deploy technological tools while reducing the personal interface in their operations to eliminate corruption. Estimates of lost income due to uncollected taxes, unpaid funds from government agencies and other leaks range from N14 trillion to N30 trillion per year. Go aggressively.
All three levels of government should cut costs, drastically reduce the number and size of ministries, departments and agencies, and stop the irrational creation of new ones. Leading by example, Buhari and the state governors should reduce their luxury life at state expense and apply it to all political candidates.
At the federal and state levels, creative economic stimulus plans should be developed and implemented in partnership with the private sector, with an emphasis on SMEs, start-ups, agriculture, mining, mining, manufacturing, ICT, public-private partnerships and skills acquisition.
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