African Development Bank said that low tax-to-Gross Domestic Product in Nigeria was not an excuse for the government to keep increasing taxes.
The AfDB President, Akinwumi Adesina, made this known at a lecture delivered during the annual conference of the Institute of Chartered Accountants of Nigeria held in Abuja on Tuesday.
The conference, which is the single largest gathering of chartered accountants in Nigeria, had as its theme, ‘Trust in Governance.’
The Federal Government had, in a bid to boost tax revenue, raised the value added tax (VAT) from five per cent to 7.5 per cent in the first quarter of 2020.
The International Monetary Fund (IMF) recently said Nigeria would need to increase its VAT rate to at least 10 per cent by 2022 and 15 per cent by 2025 to boost revenues.
Adesina, however, said while the tax-to-GDP ratio in Nigeria was relatively low, it was not an excuse to keep raising the tax rates.
He said while other countries with high tax rates had functional free education and free health care system, among others, such could not be said of Nigeria.
The AfDB boss explained that in Nigeria, the inefficient system had imposed an implicit tax on the Nigerians as the people were made to provide basic essential facilities that should have been made available by government.
“While tax rates are relatively low in Nigeria, it simply is not an excuse to keep increasing taxes. Take the case of Norway for example. Its tax-to-GDP ratio is 39 per cent.
Singapore’s tax-to-GDP ratio is 13.2 per cent. And Nigeria’s tax-to-GDP is 6.1 per cent. 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. In Singapore, a country that had only 1/3 of Nigeria’s per capita income at its independence in 1965, today has 100 per cent access to electricity and 100 per cent 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 own 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.”
He noted that when citizens bore the burden of high implicit taxes and governments or institutions failed to provide basic services, trust in governance would be eroded.
“To build trust with the society, governments must fulfil their part of the social contract, and citizens must also pay their own fair share of taxes. There must be mutual accountability. We must enforce social contracts.
“Participatory governance demands open and transparent governance. Governments should be opened up, citizens have 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,” he added.
He called for a lifestyle audit for leaders, adding that when citizens saw their leaders living transparently, being sensitive, not lavish in lifestyle but delivering good governance, they would trust governments.
“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” he said.