The Federal Government has taken a step which can only be expected to lead to confusion in the banking sector and adversely affect the economy in the short and medium term. The National Assembly (NASS) has passed a Finance Bill which amends sections 33, 49 and 58 of the Personal Income Tax Act.
There is no denying that the role of taxation in promoting economic growth in Nigeria has never been optimally felt owing to a defective tax policy framework, poor tax administration processes, inappropriate methodology, multiplicity of taxes, tax evasion, tax avoidance and structural problems with the economy which make the “underground economy” thrive. As a result many economists have described the management of the nation’s economy as “amateur”. They fault the fact that government refuses to downsize but rather prefers to borrow money and tax poverty stricken citizens to sustain its bloated inefficiency. It should come as no surprise that the National Assembly (NASS) continuously approves the government’s external borrowing plan regardless of the consequences because it assists in financing their excesses.
The tragedy of all this massive without commensurate results is that it is simply mortgaging the future of the nation and handicapping future generations. Nigerian citizens yet to be born will bear the brunt of ongoing official incompetence and avarice. It’s fallacious to claim that the nation needs to borrow to finance infrastructural development because such development doesn’t yield financial returns nor does it provide a direct means of repaying the debt. It’s also difficult to have faith that this time round borrowed funds will be correctly applied especially when no mechanism has been put in place to ensure that the funds are applied to the projects they were meant for. In Nigeria most government economic policies seem to backfire and have the opposite effect.
For example the commitment to a “cashless society” has been undermined by the introduction of a N50 charge on Point of Sales (POS) transactions which has caused the majority of consumers making small purchases to abandon POS and revert to cash transactions. It’s the same with the “closure” of southern borders which has not only adversely affected the economy by contributing to rising inflation as confirmed by Zainab Ahmed the Minister of Finance, but also caused about 1,000 shops owned by Nigerians in Ghana to be shut down in retaliation. Human Rights Lawyer Femi Falana described the border closure as an illegal, immoral and economically senseless action which cannot be defended under the ECOWAS Protocol on Free Movement of Persons and Goods. According to him, it doesn’t stand to reason that government is willing to put millions of Nigerians into further economic stress just because of the actions of a few highly placed smugglers.
The amendments to the Personal Income Tax Act require that as from 2nd Jan 2020 every Nigerian operating a Bank account must submit a Tax Identification Number (TIN). Experts claim that many low income group individuals will cease operating their bank accounts and return to the era of “community treasurers”. It’s increasingly difficult to understand the Federal Government’s economic policy in light of all the warnings of dire consequences of its actions. The World Bank 2019 Nigeria Economic Update Report warned that the nation may soon plunge into recession and extreme poverty if the Federal government fails to revive economic growth and create jobs.
According to the report Nigeria’s population growth rate at 2.6% is higher than the rate of economic growth and it’s predicted that if things do not change now then ten years from now the number of people living in abject poverty would have increased by 30 million. There is no denying that taxation may be an important fiscal policy instrument to promote economic growth if it’s done properly. Different countries have different philosophies about taxation, different methods of collection and different uses for the revenue. It’s important to note that in oil-producing countries such as the United Arab Emirates (UAE) who utilize their funds judiciously citizens do not pay personal income tax. Taxes are supposed to be used to provide public services, but in Nigeria the situation is different and the money is mainly used to fund the excesses of government officials.
The World Bank has advised that in order for the Nigerian economy to recover it requires less emphasis on personal taxation and more concentration on investing in human capital. Furthermore they also insist that it should be made far easier for citizens to start and operate businesses. Meanwhile what is happening under the present administration is exactly the opposite. The Federal and State Government’s unrelenting pursuit of tax despite there being no evidence of its beneficial application makes little sense considering that experts have proved that steady state growth isn’t affected by tax policy, and that tax policy has no impact upon long term economic growth rates. To buttress this fact they point to the rapid economic growth of Singapore which was attributed to their low rates of corporate and personal income tax. Nigerians are renowned for treating important matters of government policy with indifference, levity, complacency and docility.
This is especially true with respect to misplaced expenditure priorities and ineffective economic policies. In a nation where over 75% of the population lives below the international poverty line government urgently needs to reconsider its policies, open up the land borders, encourage trade, stop trying to micromanage exchange rates, and stop trying to tax poverty. There is no denying that the nation’s dire economic situation and pervasive poverty calls for haste in providing solutions, but it also calls for better considered solutions and less speed.