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Infrastructure funding: Analysts ponder taxation revenue as option

By on December 7, 2015

Plans by the federal government to bridge the huge infrastructure deficit in the country next year has continued to attract interests from analysts and economists as they debate funding options available to the government given the current slump in global oil trade. Revenue from oil accounted for a lion’s share of the country’s revenue base.

Respondents to THISDAY’s enquiry noted that there was need for the government to be creative about sourcing fund for the purpose, adding that proceeds from the nation’s oil cannot be dependent on fund needed for the infrastructure re-engineering drive.

Tax practitioners, amongst them a former President of Chartered Institute of Taxation of Nigeria (CITN), Kunle Quadri, were in unison in their position that taxation is another avenue for government to diversify its revenue base. According to Quadri, government need to execute tax laws to drive tax compliance amongst both corporate  and individuals citizens.

Speaking on a paper with the theme: “Diversifying the Revenue Base within the ECOWAS sub-region: Taxation as a veritable tool” at a conference in Lagos, Qudari reportedly said networking in tax issues will assist Nigeria and other West African countries improve on their revenue. He also said that taxation is a mathematical accounting, but the success of it depends on political will and decision of people in power.”

THISDAY’s findings also showed that most of the respondents agreed that Nigeria is in dire need of both physical, economic and social infrastructure and all of them need to be significantly focused on.  It was gathered that the key priority sectors needing government intervention especially at the federal level are energy, power and transportation. Others are housing, agriculture, education and health. Respondents stated that these are critical sectors, which if given desired concentration, will create multiplier effects in other segments of the economy. Some of them noted that because of the multiplier effects that economic infrastructure would have on the economy, a stronger focus should be on the physical ones like power, roads, rail and housing.

Interestingly, some of those who offered explanations on the issue including Executive Director, Corporate Finance, BGL Securities, Femi Ademola; and Head, Research and Intelligence, Meristem Group, a firm of Stock Brokers, Wealth Management, Trustees and Corporate Finance, Patrick Monye, agreed that taxation is a viable option available to the federal government.

In an online interview with THISDAY, a tax expert explained that “Revenue from taxation is a veritable and major source of fiscal strength for governments all over the world. In advanced economies, tax revenues form a critical component of inflows for governments to pursue sustainable economic planning, growth and development. Nigeria’s tax/GDP ratio post GDP-rebasing stood at 8 per cent in 2013 compared with what obtains in developed economies which is an average of about 40 per cent, except for the United States of America which is about 27 per cent. The previous administration of Goodluck Jonathan had set a target ratio of at least 20 per cent.

“To achieve this seemingly daunting target, believing the current administration has no reason to jettison this ambition especially as it is more desirable now than ever before, a logical strategy to boost this ratio towards achieving and possibly surpassing 20 per cent target is essentially through improvement in the fiscal structure and framework. Copious reports of tax experts (domestic & international) have attested to unfriendly and awfully burdensome  tax regime in Nigeria at sub-national and national levels for taxpayers across board (private & corporate). Nigeria ranks 170 out of 189 economies in an annual study by the World Bank and PwC (Paying Taxes 2014) Report which compares the ease of paying taxes globally.

This clearly violates one of the cardinal principles of a tax system-“ease of paying tax.” It therefore means that government needs to do a lot more system/ process re-engineering to make tax compliance less cumbersome. Similarly, as direct consequence of GDP rebasing, a careful analysis of sectors and their contributions to GDP and by extension, their contribution to tax revenues can be conducted in order to expose plausible tax gaps and subsequently make necessary amends to plug same, ” the analyst stated.

However, in his response, Port Harcourt based Economist, Patrick Monye, argued that for government to be able to generate meaningful revenue from taxation enough to be deployed in infrastructure funding,  “Tax authorities need to increase focus on expansion of the ‘tax base ’with a view to bringing new tax payers (corporates and individuals)  who are currently non-compliant into the tax net in order to boost tax revenues. With the increasing automation and biometric system in transaction flows, electronic payment systems, banking operations amongst others, tax authorities are never better positioned to step up enforcement of tax collection,” he argued..

Also speaking with THISDAY, Ademola agreed that, “Taxation has been accepted as the most sustainable source of revenue for government operation. However, a good tax must be equal, by ability, certain, convenient and economical to collect. These qualities usually make tax revenue for developing countries to be small periodically but aggregate to be very significant over a period of time. While the tax revenue would be a very viable option for the financing of capital expenditure, the required heavy investment on Nigerian infrastructure may make it inadequate.

“In addition, hitherto social infrastructure should be converted to economic infrastructure. Because schools and hospitals have the potential of improving the country’s human capital and hence productivity, they should be seen as economic rather than social infrastructure. This would however mean that people have to pay the right fees for the services. However, the government may subsidise or provide financing for the users of the services like payment of tuition fees and hospital bills through government enabled health insurance. By this, the public would get good services and the service providers would be adequately rewarded. While the promised social welfare transfers (N5,000 per month) to the poor is very desirable, it may not be the priority at the moment,” he argued.
Besides, Ademola maintained that “Nigeria as a country appears to have played down on the importance of taxation for a long time. Not only are corporate and individual taxpayers not keen on paying taxes, it appears that the government is also not keen on collection. Successive Nigerian governments have focused on the sale of resources to finance their operations. Unfortunately, accountability for these monies has been below par with accusations of misappropriation, misapplication and outright embezzlement rive among the citizenry. Because of the of the apparent sleaze in government, the people do not feel obliged to pay taxes which may be stolen while the governments too do not have the moral standings to enforce tax payment.

So it appears as if there is a pact between the people and the government officials that “the officials can steal the money from the sale of resources, but they shouldn’t ask the people for taxes”. The ingenuity seen in some states where they enlighten the public on how their tax monies are being used for infrastructure development proofs that the people would pay their taxes once they are sure that the revenue generated is being used for their benefit,” he concluded.

 

[ThisDay]