Muhammadu Buhari recently argued that Nigeria has revenue challenges, and not debt crisis.
There is a lot of economic and logical sense in the president’s argument. Nigeria’s debt of N35 trillion is a scant 30 per cent of its gross domestic product (GDP). The United States of America (USA), the world’s largest economy, carries a debt burden amounting to 105 per cent of its GDP. Nigeria’s debt pales into insignificance when measured in GDP ratio.
However, just as the president argued, Nigeria has revenue challenges which America does not have. Revenue challenges make the difference between a high and low risk borrower. A nation’s credit rating is primarily determined by its revenue base.
When that parameter is used, Nigeria is in very serious debt crisis. While the U.S. government borrows at about 1.5 per cent because of its enormous revenue base, Nigeria borrows in the international money market at a minimum of seven per cent because its low revenue base makes it a high risk borrower. In the domestic money market some of the federal government debt instruments carry interest rates hovering around 18 per cent.
International creditors factor in the high likelihood of debt default due to irregular revenue inflow and slam high interest rate on Nigeria’s debts. That explains why scores of well-informed economy watchers complain that Nigeria’s debt is no longer sustainable.
The verdict of unsustainable debt stared menacingly in the face of the federal government in June 2021 when Nigeria sailed perilously close to bankruptcy due to crushing debt burden.
In the month of June, government spent 98 per cent of its miserable revenue servicing its considerably low debt profile.
Nigeria has seemingly insurmountable revenue challenges. That is why everyone except the rulers of the land, is convinced that Nigeria’s debt is no longer sustainable.
The revenue challenges the president mentioned in the passing during his speech to a joint session of the National Assembly is cataclysmic given Nigeria’s gross ineptitude in tax and import duties collection. Nation’s all over the world live on tax revenue, and they collect it with maximum force because no one is willing to pay tax.
Nigeria is a very clumsy tax collector. The 12 impoverished countries in the Economic Community of West African States (ECOWAS), muster tax to GDP ratio of 17 per cent. Nigeria’s tax to GDP ratio is a miserable 6.5 per cent.
The low tax revenue emanates from corruption and lack-luster attitude of tax collectors.
Sometime in July, the Federal Inland Revenue Service (FIRS) lamented that MultiChoice Nigeria (MCN), the South African pay television outfit that enjoys inauspicious monopoly in Nigerian market, was mired in tax fraud of N1.8 trillion. The company with annual revenue of $3.6 billion has not paid some taxes since it entered Nigeria in 1996. Ironically, MCN makes 34 per cent of its revenue from Nigerian subscribers.
Mohammed Nami, FIRS executive chairman lamented, to no one in particular, that MCN was doing in Nigeria what it cannot do in South Africa. That is the gospel truth. South African tax collectors are worlds apart from their counterparts in Nigeria.
They go after tax payers and demand the tax liabilities. Nigerian tax collectors stay at home and expect tax payers to haul their tax liabilities in giant Ghana-must-go sacks to their door steps. No tax payer does that even in countries where everyone sees what government does with tax revenue.
The controversy over MCN’s fraudulent tax liabilities has subsided and no one knows what steps the FIRS is taking to make the tax evader pay its liabilities. The sum of N1.8 trillion is something close to 25 per cent of Nigeria’s estimated revenue for the 2022 Appropriation Bill.
If a company that makes close to $1 billion annually from Nigeria carries such tax liability without batting an eye lid, the logical conclusion is that the tax collectors might have inauspiciously granted the tax evader a measure of unwritten tax waivers that benefits both the payer and collector.
The federal government should verify the humongous tax fraud.
Three years ago, FIRS discovered 6,500 accounts with a minimum balance of N2 billion each. The owners of the bank accounts have evaded tax for years without anyone in FIRS lifting a finger in protest.
The cumulative deposits in the tax evaders accounts is in the range of N30 trillion. Ten per cent of that as tax would give the federal government some cool N3 trillion. That is just about what the FIRS collects in a year as tax revenue.
Nigeria can raise its tax to GDP ratio to 15 per cent within two years if the FIRS goes after every taxable individual and institutions with the right tax liability assessment.
The trend in the FIRS is that the tax collectors collect more into their pockets and drop pittance in government coffers. They intimidate giant firms with crazy tax liabilities and demand bribe in exchange for liabilities reduction.
A company with N500 million tax liability would be asked to pay N250 million to government and bribe the tax collectors with N50 million. Dare devil evaders like MCN might bribe the collectors and pay nothing to government.
The situation with import duty revenue is even worse. Nigeria can earn N5 trillion annually from Import duties. Ironically what enters government coffers is less than 25 per cent of what is collected.
Nigeria’s non-oil export revenue is equally crippled by corruption, ineptitude and irrelevant bureaucratic bottlenecks.
An array of senseless levies makes the cost of air freighting of food items the most expensive in Africa.
For instance, the logistic cost of exporting 1kg of pineapple to London by air stands menacingly at 1.75 pound sterling. The processing fees for export of mango and banana to Europe is N1, 160 per kilogram.
Nigeria charges $35,000 in fees and taxes for 100 tons of air-freighted export cargo. Ghana collects a paltry $4,000 for similar goods.
Nigeria has consequently become something of a pariah nation in global export business. Kenya, a small economy ranking 71 in global GDP list where Nigeria is number-27, exports 600,000 tons of goods daily. Nigeria toils to export just 20,000 tons in a week.
Nigeria has a catastrophic import to export imbalance of 87-13. In 2019, Nigeria imported 131 million tons of goods and exported a paltry 16 million tons.
With Nigeria dropping several notches below in Transparency International (TI) corruption perception index, it is obvious that the revenue challenges inflicted on it by corruption would simply translate into insurmountable debt crisis.
