Oil Price Slump: Experts Canvas Tax Option
Nigeria, today, is facing the dire consequences of falling price of crude oil at the international market. One of the observable effects of the free fall in the price of the commodity is the inability of the government to generate the projected revenue needed to execute plans and programmes at all tiers. Many states have not been able to meet up with their obligations and commitments to their workers, some of whom have not earned salaries for upward of Four months.
Unfortunately, Crude oil remains the country’s major revenue source, constituting about 70 per cent of the source of funding of the country’s yearly fiscal policy. It is the only major parameter by which public earning and spending are based. It is the major determinant of revenue distribution amongst the three levels of government.
But the fall in the price of oil has affected the country’s liquidity position, which is said to be at its worst in the last 30 years, because of over dependence on the product. It is becoming apparent that the government may not be able to fund items in its 2016 fiscal plans as the price of crude continues to plummet. There are predictions that the price could fall below the benchmark of $38 per barrel.
But as the effect of over dependency on oil continues to bite harder; experts are now calling on the government to salvage the economy, through diversification. While many said there is need to tap into the country’s rich mineral resources, others are advising government to direct focus to agriculture. Yet other experts urged government to turn to tax sources, saying revenue from tax alone could sustain the economy without oil.
The President of Nigerian Institute of Taxation, Mrs. Somorin Teju said revenue from taxes could sustain the country, even if revenue from the oil sector continues to dwindle.
According to her, it is not the first time the country would go into recession, adding that in 1991, Nigeria had similar experience, which informed the introduction of Value Added Tax (VAT) to replace sales tax.
According to her, with good attention, the government could generate enough revenue to finance capital and recurrent expenses in the budget from tax sources.
“The government has to pay adequate attention to tax. Without tax, I don’t see how government can do what it plans to do in a particular year. People must pay tax; businesses must pay tax, if they are making profit. But the tax must be based on the principle of progression, fairness, equity etc. What we are going through, as a nation is not the first time. It happened in 1991, when government set up a study group to look for alternative revenue sources, from direct to indirect taxes and to shift emphasis from oil. It was then Value Added Tax was introduced to replace sales tax. Since then, VAT has attracted lots of revenue. So revenue from taxation alone will be sufficient for the country, with good attention,” she said.
Defending her position on taxation, she said taxation is based on income and profit. “If there is no income, there will be no tax. But when you are jobless and you have investment income, like rent from landed property, you have to pay tax.”
The tax expert also called for reform and autonomy for states Inland Revenue Services for efficiency and better performance.
Somorin urged Nigerians to be patient with the government in its tax revenue drive, adding that the country is going through temporary recession, which according to her is global in nature.
“The reform in the Federal Inland Revenue Service (FIRS) made it become efficient as competent hands were attracted from other sectors of the nation’s financial institutions. So it became more efficient, when it became autonomous. The states Inland Revenue Services should be given autonomy also for them to be more efficient.”
The NIT President also advocated assistance for small-scale enterprises in order to encourage production in the country
“A lot of people are being encouraged to go into production. Small enterprises should be encouraged to engage more Nigerians outside white-collar jobs. Small-scale industries are dying because there is no form of assistance from the government. They need to be assisted,” she said.
A consultant at the Lagos Business School (LBS), Dr. Adi Bongo said one immediate option left for the government to generate revenue is tax, adding that revenue from that source alone is enough to run the government if well administered.
Tax is certainly an option. However, the opportunity lies in intensifying the tax collection effort. There’s no doubt that the tax base is still narrow and therefore increased effort should yield more than marginal benefits. Research also shows that Nigeria has one of the lowest tax efforts in Africa. But beyond the tax, we need to increasingly hold the government accountable for budget performance. The fungibility of the tax revenue and hence, the budget, that is the rate at which monies get translated into output or outcomes, is terribly poor. These are potential arenas for increased civil society activism,” he said.