There are indications that more of the ordinary Nigerians may drop into the poverty threshold as the Federal Government pursues its agenda to boost the nation’s revenue through taxation of essential commodities and services like sugary beverages, digital services and education. BAMIDELE FAMOOFO writes.
It is no gainsaying that Nigeria, Africa’s largest, is cash strapped as it can hardly finance its budget which comes with a huge deficit annually. For instance, it is estimated that the nation will borrow more than N6.4trillion from both local and external sources to finance the 2022 fiscal budget as existing revenue sources are not generating enough cash to fund government spending.
The initial plan of the government was to completely remove fuel subsidies to be able to save about N3.0trillion annually. That money is expected to be channeled into funding the budget and to service the nation’s huge debt. However, the government appears not to have the political will to execute the plan as ordinary Nigerians and civil society groups and labour unions had vowed to resist the move citing poor economic situation and widespread poverty in the country.
In its analysis of the prevailing economic situation in the country in January, Financial Derivatives Company Limited said failure to push through the plan to remove subsidies by the government is failure to grow the economy.
Bismarck Rewane, Chief Executive Officer of the Company said the government will have to depend on borrowing more money to fund its budget which he said will worsen the debt situation as servicing the loans is a huge challenge due to the inability of the Federal Government to generate enough revenue.
According to FDC, failure to do away with fuel subsidies as planned will increase the fiscal deficit in 2022 to N8.9trillion. “The difference between the 3 Trillion spent on subsidy yearly and the N500 Billion provision made in the 2022 budget leaves a sum of N2.5trillion and when you add that to N6.4 trillion budget deficit for the year, it leaves you with N8.9trillion to borrow to run the budget,” financial think-tanks at FDC disclosed.
Taxation to the rescue
Besides the Company Income Tax and Value Added Tax which are major revenue sources for government aside exports revenues and remittances among a few others, Zainab Ahmed, Minister of Finance, Budget and National Planning, said Nigerians will be expected to pay more taxes beginning from this year to help the government augment its revenue.
“It is expected that an ordinary Nigerian who sips a bottle of non-alcoholic, carbonated, and sweetened beverages in the country will pay an extra N10 per litre of their choice drinks”
The new sugar tax, digital tax and increase in education tax are means that the Federal Government hopes to extract more money from poor Nigerians who struggle daily to make ends meet.
It is expected that an ordinary Nigerian who sips a bottle of non-alcoholic, carbonated, and sweetened beverages in the country will pay an extra N10 per litre of their choice drinks.
The growing population of tech-savvy young Nigerians is not left out as they will indirectly be taxed for using all online services since foreign companies who render the services are expected to pay 6% digital tax while education tax was increased from 2% to 2.5%.
The success that was achieved by increasing VAT from 5% to 7.5% about two years ago must be the driving factor behind the tax spree which the government has embarked upon.
For instance, the Federal Government and sub-nationals (States) enjoyed a boost in revenue sharing by the FAAC to the tune of 3.5% in January due to higher VAT and CIT revenues.
It should be noted that the new tax policies are backed by law as they are included in the Finance Act, which President Muhammadu Buhari signed into law on the last day of 2021.
Ahmed explained that the government introduced the new sugar tax to raise excise duties and revenues for health-related and other critical expenditures in the 2022 budget. Excise duty is an indirect tax levied on manufacturers for the production, licensing and sales of certain goods.
According to the minister, this policy will discourage excessive sugar consumption in beverages. And because it contributes to several health conditions like diabetes and obesity, the government thinks this tax will raise revenues for the health sector.
Reacting to the policy, Segun Ajayi-Kadir, Director General, Manufacturers Association of Nigeria said, “If you think about it, this argument is flawed.
Excessive sugar consumption is not the only known cause of diabetes and obesity; neither is the increased taxes the solution to diabetes. There are two things we need to note here. First, the government wants to prevent Nigerians from having diabetes and obesity by collecting more taxes from beverage companies. And second, the primary aim of the government is to source funds to cushion its budget deficit, as it is projected that this excise duty will bring about N81 Billion to the government’s coffers in three years. Despite these seemingly lofty aims, we must understand that this is a bad idea economically.“
Ajayi-Kadir argued further that the imposition of the tax policy will affect manufacturers, noting that the beverage sub-sector alone will lose about 40% in revenue within the next five years.
Ayuba Wabba, president of the Nigeria Labour Congress, in his letter to the president, added that the policy would translate to a loss of N1.9 trillion to the sector.
“As a result, the government will lose N197 billion in VAT, company income tax, and tertiary education tax to make a possible N81billion between 2022 and 2025.
“Asides from the negative impact on the sector and the loss of revenue to the government, introducing a sugar tax is not morally acceptable because it transfers the cost of a bloated and inefficient government to ordinary consumers. These are millions of Nigerians who derive pleasure from having a chilled bottle of carbonated or sweetened drink to soothe their thirst after a long day at work. These consumers are the ones who will bear the brunt. It will not only increase the cost of their cherished drinks, but it will also take the jobs of some of their friends,” he lamented.
The organised Labour group in the sector, the National Union of Food, Beverages and Tobacco Employees asserts that implementing the new levy could cost about 15,000 direct and indirect job losses for casuals and contract workers. Nigeria’s unemployment rate is already high enough at 33%.
The labour groups noted that the beverage sub-sector is the largest industrial sub-sector in Nigeria, representing 38% of the entire manufacturing output in the country. “In five years, the sector has created about 1.5 million jobs and generated N202 billion in VAT.”
According to Nigeria’s Finance Minister, Nigeria plans to tax digital non-resident companies that sell products to local customers at 6% of turnover.
She said the policy was introduced as part of fiscal reforms to boost revenues and diversify the oil-dependent economy.
“We will implement the published guidelines … to collect VAT on digital supply of services and intangibles to Nigeria,” Muhammad Nami, executive chairman of the Federal Inland Revenue Service (FIRS), said in a statement. Digital services include apps, high frequency trading, electronic data storage and online advertising, the minister has said.
In the same vein, education tax payable by Nigerian companies has been increased from 2% to 2.5% of assessable profits. Companies engaged in educational activities are now subject to corporate income tax regardless of whether such activities are of a public character.
“The implication is that the tax would go up by N260 billion in a year for the government but tuition will go up, and this can come back to those of us who are parents. It may have a long impact on human development as we hope it doesn’t create a bigger problem than the solution we hope to address”
Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader of PriceWatersCoopers (PwC) explained the educational institutions of public character would be liable to pay the company income tax, even though they were exempted formerly.
“Prior to this amendment, educational institutions of public character were not liable to pay CIT. Now, they would be liable. Moving on to tertiary education tax, the rate of the tax has been increased from two per cent to 2.5 per cent,” Oyedele said.
Giving a background to the development, he explained that the education tax was introduced in the early 90’s and it was very effective in enhancing the level of education.
However, he explained that the gains might now be lost. “Education tax was introduced in 1993. The objective was very clear because it dealt with the heart of everything in terms of development, capacity, and performance of roles. As at the time this tax was introduced, a number of Nigerian universities were in the top 1,000 rankings. Fast forward to 2022, they are no longer in the top 1,000.
“Now, we are increasing it from two per cent to 2.5%. I think the challenges we have in the educational sector are more than throwing more money at the problem, especially since we can’t convince Nigerians how we have spent the money over the past 10 years. I hope the Tertiary Education Trust Fund (TETFund) would have a comprehensive report on how much they have been spending in terms of development, research and scientific research,” he stated.
The chartered accountant, however, frowned at the increase in tax as the implications could affect the cost of tuition which could adversely affect the economy. His words: “While I can live with the increase in tax, I don’t understand why we are taxing them (educational institutions) because everything points to the fact that we need more quality education for us to live in this new age.
“The implication is that the tax would go up by N260 billion in a year for the government but tuition will go up, and this can come back to those of us who are parents. It may have a long impact on human development as we hope it doesn’t create a bigger problem than the solution we hope to address,” he noted.
The World Bank said last year that Nigeria needed to boost non-oil taxes to at least 12.75% of gross domestic product to boost growth.
