Adam Smith, in “Wealth of Nations” while discussing what he tagged as “Canon of Taxation” outline some principles he described as “Principles of Good Taxation”, these principles include; fairness, certainty, convenience and efficiency. By the principle of fairness, he meant that the condition of taxpayer should be considered before enforcing tax on him, this is in addition to the ability of the tax payer to pay the tax. By that of certainty, the tax payer should be informed on why he needs to pay his tax and how such taxes are levied on him. By the convenience, he refers to how the tax payer finds the process of paying the tax as easy as it is; and the final principle of efficiency describes how the tax payment should’ve no negative effect on distribution of resources in the economy.
In a short story, there was a man who came to someone and asked him, “what should I be giving you everyday?” He replied with “Sand”. As requested, whenever he meets that person, he picked up sand from ground and handed it over to him. One day, that man came to him to collect the sand, but he looked at him abruptly and said, “Why can’t you bend down and fetch it by yourself? Why should I be giving you what you can have if you work hard?”
Recently, there had been an uproar between Federal Inland Revenue Services (FIRS) and Rivers state government, when the state came up with a law regulating the collection of VAT. With the new law, the state government will have absolute power to utilise the VAT generated from that state instead of the usual remittance to the federation account. À state high court ruled that Rivers state should collect VAT but the Appeal Court ruled for a maintenance of the status quo. Although the move to collect VAT by states was spearheaded by Rivers, many southern states like Lagos and Ekiti have joined the fray.
According to FIRS, VAT is “a consumption tax paid when goods are purchased and services rendered“. To this end, all goods produced within or imported into the country are taxable except those specifically exempted by the VAT Act.
The authorities responsible for the deduction of the VAT are indigenious companies with non-resident companies within the country; government ministries, statutory bodies and other agencies of government; and companies operating in the oil and gas sector. These are the statutory bodies saddled with the responsibility of deducting the VAT in Nigeria.From 2016-2020, Nigeria recorded more than N5 trillion from VAT, but surprising, about N3.5 trillion of that amount came from Rivers and Lagos states, respectively. And as usual, the whole amount was shared between the three tiers of government with some amount given to the FIRS for its VAT deduction services!Naturally, human beings are similar to those two people mentioned earlier – one gives sand and the other receives, which at the end one expressed tiredness.
Sentiment aside, it is hard to imagine how a state or region would work diligently, harnessing such a huge amount, and ends up sharing it with those that contributed little or nothing.
Before the discovery of oil, the Northern Nigeria was the major contributor to the GDP. Agriculture was the main source of foreign exchange to the country. But today, despite the contribution of agriculture to the GDP, northern states rely mostly on what is given from the federation account. Today, it is no longer a secret that only a few northern states can stand on their own to pay salaries and fulfill other financial commitments, talk less of financing their annual budgets. It is clear that, majority of them would go broke and insolvent if the federal government decides to withhold their allocation for a single month!
If one analyses the IGR statistical report of the 36 states and the five years VAT table, he’ll weep for the sorry state of northern states. The implications of possible ruling in favour of Rivers and Lagos states by the appellate court against the federal tier, is that not only northern states, but the remaining 34 states would find themselves in deep financial mess.
Then, what should be done by the Northern policy makers to improve their IGR and move away from dependence on monthly federal allocation?
I foresee a bright future for northern states out of this development, if only their policy makers will pursue policies with serious positive impact on the income of its majority (peasant farmers) other than policies that only favour the rich and those in government. For instance, if agriculture will be given a sound attention by policies to boost commercial farming through accessibility to quick/soft agro related loans, hybrid seeds with the ability to stand this ever-changing climatic conditions, mechanised farming, setting up subsidized agro-allied chemical industries in the region, provision of good accessible roads connecting all the remote areas, all-year-round farming and free export zones, its unemployed youths will surely seize that opportunity and venture into agro businesses without waiting for government for jobs.
Other regions in Nigeria cannot feed themselves without the support of northern farmers. Why should we panic when they try to withhold their money? Why can’t the North stand up and bring out those opportunities?
Despite the insecurity in almost all parts of the North, one fact that can never be denied is that the region is blessed with an arable land, enough for cultivating in both dry and rainy season. Therefore, adequate farming inputs and machinery should be provided, either in loans or at a subsidized rate by the northern states government
Senators, Representatives and States Assembly members should focus on things that harmonise them with their governors to formulate policies that will boost their states’ IGR, rather than engage in their usual political war, which deprives millions of citizens of opportunities that could bring development to their livelihood and the region at large.
Most of those states with high IGR, have different means of gathering or sourcing revenue within their states. But in the North, both the tax collectors and tax payer are not up to their responsibility. Therefore, a transparent and professional agency should be established in every state with the sole aim of creating awareness on the importance of paying tax, why they should be taxed and the transparent manner in which their tax is utilised.
Lastly, the principle of fairness, certainty, convenience and efficiency should be put in practice so as to generate more tax in order to boost IGR for those states.
Sagir writes from Bauchi via [email protected], 07019718681
