Nigeria’s low tax-to-GDP ratio not justification for increasing taxes, AfDB tells FG

Akinwumi Adesina, president of the African Development Bank (AfDB), says the federal government must exercise restraint in tax increment.

He said that the fact that the country’s tax to gross domestic product (GDP) ratio at 6.1 percent remained relatively low was not an excuse for incessant tax increase.

The AfDB boss said this on Tuesday in Abuja while delivering a lecture at the 51st annual conference of the Institute of Chartered Accountants of Nigeria (ICAN) themed ‘Trust in Governance’.

To increase tax revenue, Nigeria raised its value-added tax (VAT) rate from five percent to 7.5 percent in 2020.

The International Monetary Fund (IMF) had advised Nigeria to increase its VAT rate to at least 10 percent by 2022 and 15 percent by 2025, which it says is the average rate in countries belonging to the Economic Community of West African States (ECOWAS).

But Adesina said that while other countries with high tax rates have functional free education and free health care systems, such cannot be said for Nigeria.

According to him, it will be double jeopardy to overtax citizens who provide basic amenities the government has failed to offer.

“While tax rates are relatively low in Nigeria, it simply is not an excuse to keep increasing taxes,” Adesina said.

“Take the case of Norway for example. Its tax-to-GDP ratio is 39 percent. Singapore’s tax-to-GDP ratio is 13.2 percent. And Nigeria’s tax-to-GDP is 6.1 percent. It is easy to make the comparison and say Nigeria needs to raise its taxes to similar levels as in Norway or Singapore.

“But also consider the following – In Norway, education is free through university. Singapore, a country that had only 1/3 of Nigeria’s per capita income at its independence in 1965, today has 100 percent access to electricity and 100 percent access to water.

“While progress is being made the challenge, however, is that in many parts of Nigeria, citizens do not have access to basic services that governments should be providing as part of the social contract.

“People sink their private boreholes to get water. They generate their own electricity oftentimes with diesel. They build roads to their neighbourhoods. They provide security services themselves.

“These are implicit taxes, borne by society due to either inefficient government or government failure. As such, we must distinguish between nominal taxes and implicit taxes — taxes that are borne by the people but are not seen nor recorded.

“It has become so common that we do not even bother to question it. But the fact is governments can simply transfer its responsibility to citizens without being held accountable for its social contract obligations.”

Adesina pointed out that to build trust with the society, governments must fulfil their part of the social contract, and citizens must also pay their fair share of taxes adding that there must be mutual accountability.

He said governments should be opened up and allow the citizens a right to know how public finances are being used.

“This is why I believe that we must develop a ‘People’s Index of Governance’ with citizen accountability forums,” the AfDB boss said.

“But when people feel that their resources are mismanaged or being used for opulence, widening the gap between the leaders and those they are leading, it builds distrust and despondency, which then permeates the fabric of society.

“Leaders must not only be accountable; they must live simply. Power is not judged by wealth, but by transforming the lives of people. To earn the trust of people, we must create people’s wealth, not simply personal wealth.”