Increases in tax, electricity tariff and fuel price

Undoubtedly, these are challenging times for the people and government of Nigeria.

Framing the recent fiscal issues as a challenge of increase in fuel price, electricity tariff and taxes may not be exactly appropriate. This is not the real challenge facing the masses and the productive forces of Nigeria. The real challenge lies in the management of the big picture: the overall management of the economy, its macroeconomic fundamentals, corruption and waste in the system. Trying to answer the question whether it is right for government to announce these increases may not be the right question; the question may be about the timing and sequencing of the increases and how the new resources in the resultant increases will be managed.

Governments all over the world are offering palliatives to citizens in light of challenges arising from the coronavirus pandemic. There have been job losses and company closures and unemployment has increased geometrically in the land. Are the increases the right way for government to respond? Let us analyse the issues seriatim.

Nigeria’s tax to GDP at 6.5% remains one of the lowest in the world, especially in sub-Saharan Africa where tax to GDP averages 17.2%. Increasing VAT from 5% to 7.5% is still below the sub-region’s average. This very low tax revenue base also makes it imperative that enforcement of stamp duty collections becomes more vigorous. However, the central poser in all these is: Are all due sums collected and remitted to the treasury? Are there leakages in the system where public officials collude to withhold due taxes and convert same to private use? The next stage is what the money is used for when it gets to the treasury. Are we getting our investment priorities right or are we paying for the lavish and wasteful lifestyle of a few? Are we collecting these funds and using the same to inflate contracts? Lots of posers for which the answers seem tilted against the Nigerian citizens.

For the price of fuel, it seemed before now that a national consensus had emerged that we should stop subsidy on fuel under the present circumstances. The first is that it is a grand avenue for corruption; under-recovery deducted at source by the Nigeria National Petroleum Corporation which is done without appropriation. This is a subsidy to consumption, to foreign companies that pay tax to foreign governments and create jobs in distant lands. Unfortunately, despite billions in turnaround maintenance, no single refinery has been turned around as the turnaround is only for the pocket of a few occupying the corridors of power. So, until Aliko Dangote’s private refinery comes on stream, we will continue to import fuel. Pray, even if government continues subsidy, will Nigerians accept subsidy paid to a private Nigerian refinery in the future because Dangote’s refinery cannot be compelled to sell at a price that will not reflect its costs and satisfaction of the profit motive. No single refinery has been built or turned around in six years of Buhari’s presidency.

The Nigerian electricity industry has been privatised, especially its generation and distribution components. Evidently, some of the core investors in the privatised companies, especially in the distribution value chain component, do not seem to possess the initial requirements that qualified core investors in accordance with the benchmarks of the Bureau of Public Enterprises. They neither have the technical and managerial capacity nor the financial capacity to turn around the privatised enterprises. Thus, their service delivery has not been commensurate with the expectations of the government and people of Nigeria. The sector is laden with debts, inefficiencies in tariff collection and electricity wasted on the transmission grid. However, the tariff generated by the industry is not enough to cover its costs, hence the need for tariff increase. The play on words on whether the increase is a cost-reflective tariff, or a service-reflective tariff is beyond the remit of this discourse. But there is a chicken and egg scenario; should there be an increase in tariff before service delivery/electricity improves or should we start paying more in anticipation of service improvement? This is the dilemma.

Now, to the big picture, the country has been hopelessly mismanaged and the issues of taxation, electricity tariff and fuel price are reflections of the mismanagement. If the economy has been properly managed and diversified, there would have been more jobs, increased per capita income, more local value added and more taxation and other revenue for all tiers of government. Thus, these increases constitute a big and incredible burden on the masses, enterprises and companies to bear at the same time. They are not well sequenced and timed.

However, we are living witnesses to the fact that in the first six months of the year, the Federal Government earned about N1.81tn and spent N4.45tn. This implies that we spent N2.64tn which we did not earn. We must have borrowed the money. We spent N1.61tn in personnel payments, which is about salaries and pensions. This left us with only N200bn after personnel expenditure. We spent N1.57tn in debt service, implying that we borrowed N1.37tn to add to the N200bn to service our debt. Thus, whatever was spent on capital expenditure was also not our money. Nigeria is broke and virtually insolvent and could have been wound up if it were a business concern. Any further attempt of continuing subsidies means that we are further giving a blank approval to the executive and legislature to borrow more on our behalf at a time we have lost the capacity to repay.

The position of this discourse may appear unpopular and may seem like offering apologies on behalf of those inflicting pain on the masses of Nigerians. Far from it. Nigerians should respond by robustly engaging the government to lighten their yoke through increased transparency and accountability in the management of public finances so that new increased resources could be put to better use in service delivery that could ease the burden of these challenges. We must insist of proper openness and accounting for these resources. For instance, the government needs to open on how much exactly has come in from stamp duties. It is not clear that all due sums are being accounted to the treasury. Delay in reforming the petroleum industry has become grossly insensitive. It is totally unacceptable for the minister of petroleum resources to sit over an industry he has no clues about, and the result is this pain inflicted on the population. Nigerians need to know the data behind the new petroleum price. From the presidency to other high-level public officers, there must be a dramatic cut in the cost of governance. The majority of the high-level political office holders will not feel the pinch of these increases because they live an all-expenses-paid life at the expense of the taxpayer. The disposition to import everything, from big technology to toothpick must be reversed as patronage of local industries must not just be a policy in the books but one that is fully activated.

In the final analysis, elections cannot be disconnected from the quality of governance and fiscal management; if we continue voting in candidates and governments on the basis of sentiments, ethnic and religious considerations, our pains will continue.

Written By Eze Onyekpere