Much ado about tax reforms
By Pat Utomi
When I do my quick sweep of WhatsApp group platforms I am looking to see trending issues worth the pause for a read. Recently I found the Tax Reform package going through the National Assembly trending. But I was reluctant to give the postings a good read for reasons of a sense of Deja vu, have I not seen this before, until verbal altercation by two people I know well made me try to find out what they were quarreling about. I then read the package of bills in which were some progressive, and problematic, proposals, from my perspective. The bigger concern, I thought was that we seem to be quarreling about the less important things. There are, in my view more consequential matters for a developmental state disposition from the bill that we seem to be losing in Nigeria as we focus on who gets more of revenues from taxes.
The main issues on equity in collecting and sharing revenues which seem to dominate the exchanges I saw, sort of reminded me that I have grown old with too little accomplished. This is because I entered the public sphere in Nigeria, in the eyes of those who missed my student activism and youth corps journalism days, around the subject of taxation.
I had just returned from Grad school in 1982 and then NTA DG Vincent Maduka had asked them to put me on TV. On that first NTA network interview I lamented the fact that we did not pay taxes and how that resulted in poor governance.
Going back to the Boston Tea Party revolt of no taxation without representation I made the point the appetite to holding government accountable was low because there was no endowment effect’ of ‘oh why are they spending my money like that’. We left government alone and did not demand accountability because they did not demand that we pay taxes and they left us alone because Oil revenues were there for them to play with and we did not bother them because we did not see the money as our money.
The Centre had, in my view, at the time consolidated abuse of federalism the military created, and played games to hand out prebends to stakeholders seeking a share of the national cake, phenomenon Richard Joseph had called out as Bureaucratic Prebendalism, in his writings, beginning with his book Prebendal Politics in Nigeria. This I argued was killing the growth spurred by what Robert Melson and Howard Wolpe had called competitive communalism that drove the manufacturing surge between 1957 and Independence, in the competition between the sub-nationals on who would most bring progress to their people. This phenomenon had outcomes like Kaduna becoming the hub of Nigeria’s Textile industry and Ikeja and Aba trading factories of companies like Pfizer. The outcome was bottom up competitive economic growth in early first republic.
I went on to talk about what to do to revive taxation and issues of horizontal and vertical equity in tax policy.
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Then Vice President Alex Ekwueme was apparently one of those watching TV that night and he made sure he sent people out scouting for me.
Sad that 42 years after we are having this kind of conversation on taxes still hooked on the prebendal obsession with who is getting what in an economy that is not producing. What we are taxing is direct and indirect rent from oil. All this can work up to from experience and continuing evidence is pillage by the powerful and further underdevelopment. In ways the package may negate the fiscal responsibility laws former finance minister Ngozi Okonjo- Iweala pushed unto the law books.
Even more important a question for me, having observed the policy process for four and half decades, is whether tax revenues improve the wellbeing of society.
Good insight comes to this from local governments in the fiscal transfer arrangements.
In the Independence constitution local governments were not part of the fiscal transfers. They were just administrative discretions of the region. The Eastern and Western Regions chose to have more LGAs than the Northern region. There were no revenue consequences of these preferences.
By the time the Obasanjo reforms took place in 1976, LGAs would not only get a share of federally collected revenues but 20.9% of those revenues.
The powerful began to create more LGAs to their areas to get more revenues. We ended up with 774 LGAs with nearly twice as many in the old North compared to the old order when the South, had many more LGAs
For me to whom the bottom line is the welfare of the average person, is there evidence this increased flow of revenues has improved lives. To the contrary the North where I grew up with pride, has become poorer with higher revenue flows. Like the lottery effect where the poor man who won the lottery is often quickly back where he started the revenue flows effect throws up new questions.
This is why the tax reform issues debate sounds like the running water of a distant stream to me.
Revenues in unreformed Nigeria with state capture at the fore and cost of governance in the stratosphere do not have a developmental consequence. They instead deepen corruption and desperation for political power, all adding up to disaffection with the state and more violence, banditry, kidnappings and insurgences.
I think we should begin to focus more on retreating production. How do taxes stimulate production? The supply side needs to be king. And citizen control of politicians and their impunity of conduct need to follow closely. We should also move past this zero sum game in which anything that seems to benefit one group is seen as loss by another.
It reminds me of a comment I made in an interview with Richard Dowden that was published in the Economist in 1996. I suggested that if the Generals and politicians could be given an Island with complete access to Nigeria’s Oil revenues on condition they never have anything to do with the country, Nigeria would be better off. The Economist in its tradition of subtle commentary said of my remarks: fair comment.
I have engaged other issues in this space more recently. In one of those I pointed to the need for care in issues of tax to GDP ratios prescribed by multilaterals. This is because they may not be sensitive to sociocultural realities. The citizen in Nigeria’s extended family system pay a huge social tax to make up for the social safety nets not provided as done by governments elsewhere. We therefore need to compute these things differently especially where tax policy aims to allow for savings that are invested to generate new ventures. I say this bearing in mind that one of the major contributions to this thinking was Arthur Laffer with the Laffer Curve that was an anchor for supply side economics and that Arthur Laffer gave credit for the equation that the thesis was based on a Nigerian PhD student of his back in the 1970s.
We have to have systems that discipline government spending and bring in civil society in a regime of checks, as the legislature has gone rogue and is part of state capture, and where the idea of the developmental state, as Omano Edeghije laments, has been eclipsed before traditional prescriptions of Debt to GDP ratios make sense.
This indeed brings to the fore the point James Robison made on CNN last month when he was announced one of the winners of this year’s Nobel Prize in Economics that Economic Development is an intensely political process. Throwing out debt to GDP ratios and pushing for increasing tax revenue may just be like Washington Consensus and SAP policies which reasonable in theory led, for example to the despoiling of Nigeria’s educational system that was the very anchor of early progress. A political class that understands and cares is imperative for progress.
To conclude, in my experience revenues do not make any Nigerian group better. So anyone can keep the revenues if they promise to leave those who want to toil for a better life alone.