(By Olalekan Odewale)
While appreciating that tough times require tougher measures, one must also understand that the country must also look inward towards generating revenue to meet the capital requirements of the economy. An improved revenue base is pertinent at this stage, as austerity measures will further put the already financially constrained citizenry who are at present facing declining “real wage rate” and possible inflation into further harrowing constraint. The further devaluation of the Nigerian currency “Naira” will stir up price rise and with “money wage rate” remaining constant, labour might be forced to ask for a review of the national minimum wage to cushion the effect of the devaluation”.
NIGERIA is at the moment in its worst economic situation in a long time. It is faced with financial crisis, dwindling oil revenues, and failed budgetary projections. Many of the component states making up Nigeria are crying over reduced funding from the federation account while the Federal Government is anchoring the reduction on falling oil receipts and drop in crude production due largely to pipeline vandalism and crude oil theft.
The Minister of Finance has consistently maintained that the country is not broke, but merely passing through an economic phase. She has further announced austerity measures which would be put in place to cushion the harsh economic reality. Some of these austerity measures include the introduction of luxury taxes, cutting down on budgetary projections, reduction in spending and recently the further devaluation of the Naira by the Central Bank of Nigeria.
Irrespective of these measures, government spending must continue, investment in capital expenditure must go on and recurrent expenditure must be satisfied.
While appreciating that tough times require tougher measures, one must also understand that the country must also look inward towards generating revenue to meet the capital requirements of the economy. An improved revenue base is pertinent at this stage, as austerity measures will further put the already financially constrained citizenry who are at present facing declining “real wage rate” and possible inflation into further harrowing constraint. The further devaluation of the Nigerian currency “Naira” will stir up price rise and with “money wage rate” remaining constant, labour might be forced to ask for a review of the national minimum wage to cushion the effect of the devaluation.
One must note that there are many untapped revenue sources available to Nigeria. Exploring other revenue sources will enhance the country’s ability to generate needed funds in achieving budgetary projections.
Exploring Dividend Income Tax: The boom in the capital market in the recent past created enormous wealth and opportunities in Nigeria. A lot of businesses took advantage of the growing market and enlisted in the equity market. Since then, dividend payments have been on the rise, though it suffered a setback between 2008 and 2010. The equity market has since bounced back, with a few of the earlier listed firms now moribund. A large number still remain and are actively engaged in daily trading.
In 2013, 79 quoted firms declared total dividends of N454.67 billion. One firm alone (Dangote Cement) accounted for 30 per cent of the dividend payout with a payment of over N119 billion paying N7 for every share held in the company. This has given rise to the need to incorporate dividend income tax in the proposed luxury tax. The proposed luxury tax will be incomplete without an addition of dividend income tax. Dividend income is the amount earned on investment made in corporation. This dividend also forms part of the distributable income of the investor.
Arguments in the past have suggested that taxing the dividend received will amount to double taxation since the corporation paying the dividend has already paid corporate tax on profit made for the year. This argument as strong as it seems has its own weakness. Staff of those corporation enjoy salaries for work done, the corporation on its own pays salary based on operating revenue as well pays dividend from the operating revenue. If the employee is subjected to tax payment from salaries earned from the operating revenue, shareholders should also be made to part with income earned from their holdings in the corporation.
The Personal Income Tax Act of Nigeria provides for a flat rate of 10 per cent on all dividend payments. This does not achieve that objective of income redistribution. Tax band should be created on dividend payment so as not to put the rich and the poor on same rate. The creation of tax band on dividend income will help vary the tax rate payable on dividend received. For instance, if an individual earns a total of N2,000.00 as dividend income he should be fitted in a tax band that will attract a lower tax rate, for example, two per cent dividend rate for dividend income N5,000.00 and below.
This should be graduated until the billion Naira levels which should attract nothing less than 50 per cent since the initial investment is also enjoying growth on investment. Many wealthy Nigerians are making the Forbes 100 list by turning the companies into public limited liability company thereby walking away annually with billions as dividend payment.
Agricultural sector reawaking: The over reliance on oil since its discovery has gradually killed the agricultural sector which, before the discovery of oil, was the main revenue generator for Nigeria. The neglect of Agriculture has greatly denied Nigeria the needed revenue in these trying times.
The present administration of President Goodluck Jonathan should be praised for their efforts towards revamping agriculture; special thanks should be given to the Minister of Agriculture, Dr. Akinwumi Adesina and his ministry staff for some of their laudable programmes like the nationwide registration of farmers and the Growth Enhancement Support (GES) scheme. Those programmes are gradually bringing the government closer to the farmers.
While noting that the e-wallet created is supposed to eliminate the middleman, the scheme needs to be reviewed further to better maximize the benefits and eradicate the obstacles. The efforts to eliminate the middleman have their own challenges. As a registered farmer under the GES programme, with preference for livestock farming and residing in Lagos, I find the general offer for fertilizer and maize seedlings unnecessary.
At the various agricultural input collection centers spread around Lagos, middlemen are seen freely soliciting and inducing farmers to give up their PIN required for collection in exchange for cash. This action by the middlemen, defeats the purpose for which the programme is set up for, as this allows economic saboteurs to take advantage of the subsidy provided by the government.
In order to maximize the benefit of GES programme and break the fertilizer cartel, farmers should be categorised based on their farming activities and input provided in accordance with farmer’s needs. The NYSC scheme should also be incorporated in agricultural development programme. Corp members should be encouraged to take up agriculture. Training should be provided for the Corps members and funds be available to the successful ones to set up agricultural ventures, while the Ministry of Agriculture set up monitoring teams to monitor the process of the ventures. If this is adopted, it will reduce youth unemployment and breed young entrepreneurs.
The minister should also do more on cash crop farming. As a matter of urgency, the Agriculture ministry should commence programmes aimed at improving cash crops revenue. Cash crop farming hubs should be identified and adequate incentives provided to boost production. Seedlings, easy access to land and farm mechanism should be provided. Cooperatives should be encouraged to make banking benefits easily accessible. This little investment will help increase Nigeria Agricultural export revenue and bridge the funding gap in budgetary projections.
Solid mineral and other non-oil export development: Nigeria is richly blessed with human and solid mineral resources, all over Nigeria mineral deposits can be found littering the Nigerian landscape. A trip from Kwara towards the interior Northern part of Nigeria will reveal illegal mining sites. One would imagine, a country in dire need of revenue to meet its growing demands yet having untapped solid mineral resources, allowing economic saboteur turn our collective wealth into personal resources and relying heavily on crude oil proceeds.
Over reliance of crude oil, revenue has relegated solid mineral development to the background. The supervising ministry should undertake a comprehensive survey of our non-oil deposit, their quantity, available market potential and market value. Solid mineral development is urgently needed to bridge the revenue gap and provide funds for infrastructure development.
Failing crude oil price and production, output necessitates the need for development of other revenue sources. The present decline in oil price is unlikely to stop in the nearest future, demand for crude oil is declining with demand for shale oil rising.
Austerity measures, though good in the short run might be ineffective in the end, an improved revenue base will achieve better budgetary projection and performance. Reducing recurrent and capital expenditure may amount to slowing down economic growth achieved so far. Nigeria has a long way to go in achieving her projected economic development. Funding the objective of the long-term economic development is essential and should not be compromised for short- term gain that austerity measure will achieve. Rapid development of Nigeria’s income streams should be top on the agenda of our economic management team, as an alternative to oil revenue is the only way out of this economic downturn.
Odewale, trainee accountant, lives in Lagos.
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