- says 30% rate too high
There are hidden economic opportunities in taxation which government should explore by bringing more people into the tax net, the Executive Vice Chairman, Alpha African Advisory, Mustafa Chike-Obi has said.
Speaking with Finance journalists in Lagos, over the weekend, in a Bi-Monthly Forum with theme: Repositioning Nigerian Economy for Sustainable Growth, he said that Nigeria’s tax rate at 30 per cent is one of the highest in the world, and that multiple taxation should be discouraged.
Chike-Obi, who was former Managing Director/CEO Asset Management Corporation of Nigeria, also spoke on intervention funds, and why adequate infrastructure is needed to stimulate the economy instead of relying solely on intervention funds.
He also spoke on the need to lend at lower interest rate at around 12 to 15 per cent per annum and considerations by foreign creditors in lending to emerging markets.
“All these intervention funds don’t work. And let me tell you why they don’t work. If you lend to a farmer at five per cent, you think you are helping him but everything around him is at 26 per cent. So, he gets a little bit of relief on his financing, but he doesn’t get reliefs on his supplies, diesel, food, employees, so at the end of the day, those things he gets at 26 per cent invades his five per cent,” he said.
The event was meant to set economic agenda for the newly inaugurated government and address key economic issues.
Chike-Obi said intervention funds also don’t work because “the default rates are as high as default rates of non-intervention funds. So, they don’t work. They are not very efficient”.
According to him, what the economic managers need to do instead is to provide capital at reasonable interest rates that work for everyone.
He said: “There must be access to capital at a reasonable price. With 26 per cent interest rate, you cannot do a business successfully. So, we must find a way to provide interest rate to everybody at a reasonable rate. We must have an interest rate that will support our economy. And it cannot be much higher to the borrower at 12 to 15 per cent. Every Nigerian should be able to borrow money at between 12 to 15 per cent, so, we must have capital available.
He also spoke on the foreign lenders look out for in lending to developed markets, arguing that borrowing in dollar may not be cheaper in the long-run.
He that even when one borrows borrow dollar at eight per cent for instance, the creditors will be looking at the exchange at the time of repayment, which is unlikely to remain at N360/$. He said the foreign creditors also consider borrowers that have the capacity to generate needed funds for repayment of loans.
“The reason why they are lending money at eight per cent, instead of 16 per cent, is because they know that by the time that money matures, your Naira will not be exchanging at N360/$. This is because the Naira always depreciated by approximately 50 per cent in every five years,” Chike-Obi said.
