Dwindling revenue, smoldering VAT hike debate

Once again Bill Gates, the world’s hitherto richest man who has spent millions of dollars on Nigeria’s failing healthcare delivery system has taken the rulers of Africa’s largest economy to the cleaners.

The American philanthropist said in a report last week that Nigeria’s healthcare delivery system is a colossal failure.

He was so worried that he promised to switch attention of the Bill/Melinda Gates Foundation to Nigeria’s Primary Health Centres (PHCs) now that the country has lumbered out of the menace of polio.

He lamented that some countries poorer than Nigeria had better healthcare delivery systems.

In March 2018, Gates castigated the bizarre sense of priority of Nigeria’s economic planners, stressing that they were building roads and bridges and ignoring health and education.

The co-founder of the Bill/Melinda Gates Foundation listed Nigeria as one of the most dangerous places in the world to give birth and that soon Nigeria would not have the manpower to manage the infrastructure being developed.

He stressed that one in every three children in Nigeria is chronically malnourished.

For more than one year, the stunning message elicited deafening silence from the rulers of Nigeria.

Six months ago the federal government belatedly responded to Nigeria’s gruesome health statistics by declaring a state of emergency in the country’s primary healthcare system. Nothing has happened since that belated declaration.

The PHCs remain as poorly staffed as they were when Bill Gates raised the alarm in March 2018. They still lack the facilities essential for the delivery of critical primary healthcare services that would reduce the work load on the few ill-equipped secondary and tertiary health institutions.

Last week, Gates blamed the deplorable state of Nigeria’s healthcare delivery system on two key factors: Low revenue and wrong application of the limited revenue.

He argued that Nigeria’s annual revenue to gross domestic product (GDP) ratio of six per cent was abysmally low, and that some countries that are poorer than Nigeria muster well over 15 per cent of GDP as annual revenue.

Nigeria runs a one-handed economy with oil income accounting for 80 per cent of its annual revenue. But the problem is more about wrong application of the lean revenue than low income generation. 

The federal civil service is unacceptably over-bloated. The federal government borrows N60 billion monthly to pay the salaries of its idle workers. Experts believe that the federal civil service needs less than 40 per cent of its staff strength to function effectively.

Nigerian lawmakers are one of the best paid in the world even as the country has become the world’s headquarters of poverty. The lawmakers fraudulently allocate to themselves huge allowances that are not captured legally on their remunerations. 

The 109 units of Toyota Land Cruiser sport utility vehicles (SUVs) acquired for senators in 2015 at the cost of N24 million per unit are being replaced this year at the cost of N50 million per unit. A total of N5.5 billion is earmarked for that.

Members of the 8th senate went away with the four-year old vehicles at a token of N1 million per unit.  That is the trend in the three tiers of government. Top officials leaving the service go with their official cars.

Ministers are even more indecently ostentatious in the use of public funds. Each minister has a limousine and a back-up car which is almost always of the same brand of SUV.  In the minister’s convoy are two pilot cars and pick-up vans for security officials. Each minister has a minimum of seven cars in his convoy. The 43 ministers hit the decrepit roads daily with 301 cars purchased, fueled and maintained with the nation’s lean income.   

Nigeria has done very little about beefing up its tottering revenue. Attempts to diversify the economy have seen more propaganda than concrete action in the last 30 years.

The federal government is a very lazy tax collector. With a working population of about 88 million, Nigeria has only 20 million in its porous tax net.

Nigeria’s tax to GDP ratio is appallingly low at 4.5 per cent. The average for 21 African countries is 18.2 per cent. The Federal Inland Revenue Service (FIRS) recently discovered more than 6, 000 billionaires who are outside its tax net.   

Though there are leakages in the system, value added tax (VAT) remains the most efficient form of tax in Nigeria in terms of reliable collection process.

Ironically, at five per cent, Nigeria’s VAT is one of the lowest in the Dark Continent.  VAT in Ghana is 12.5 per cent.  In South Africa stands, VAT is 15 per cent. Outside the continent, Britain, the world’s fifth largest economy maintains a VAT rate of 20 per cent.

The federal government’s attempt to inch up VAT rate from five per cent to 7.2 per cent has met with a stiff resistance from Nigeria Labour Congress (NLC) and Nigeria employers Consultative Association (NECA). NECA is the umbrella body of employers in the nation’s organized private sector.  It believes that VAT increase would negatively affect both employers and employees.

The truth however is that Nigeria needs more tax revenue in the face of unpredictable shocks in the international oil market. Company tax is relatively unreliable. Since VAT has been collected with considerable efficiency, government should stand its ground on the proposed increase. However, it must justify the hike.

The indecent opulence of government officials is a huge disincentive for tax payment. Nigerians do not see what government does with tax revenue. The roads are in deplorable state. Health and education systems are in decay.

Government must plug the leakages and use tax payers’ money to improve the standard of living. That is the only way to convince people to pay more tax.

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