Still On Fiscal Policy: No Taxation Without Representation
OUTSIDE THE BOX
By Alex Otti; alex.otti@thisdaylive.com
As we round up our discussion of fiscal policy, we want to point out some areas to watch if we truly want the economy to function efficiently on the basis of the taxpayer’s money. We had argued that it is important that the economy is run on taxes collected from citizens, like most other modern economies. Our position is hinged on three major arguments. One, when citizens pay taxes, their right to question the use of their money becomes axiomatic.
The second point is that government becomes more interested in the prosperity and welfare of the people because it is only a prosperous population that can pay taxes. The fear of some commentators that the call for enhanced and more efficient tax administration is detrimental to the wellbeing of the poor, does not arise. There is a level in the society to which some members of the population would belong and their income would be tax-exempt. Government would do everything within its powers to ensure that the people that belong to this group are few and gets fewer. This is out of self-interest since the government would want to continue expanding the tax net. The government would also be in a position to use this policy instrument to regulate the economy. Thus, if government wants to increase consumption and savings, it would tweak tax rates in such a way that more money would be left in the hands of the population. On the other hand, if it wants to restrict expenditure, the government would adjust the tax rate upwards accordingly. The same thing applies to imports of goods and services. Government could restrict imports by imposing punitive taxes or tariffs on such imports and vice versa. Thirdly, government would be more focussed on its core functions of enforcing the rule of law and providing the enabling environment for business and people to progress rather than the distraction of competing with its people in doing business and making profits to run its daily affairs.
The whole idea of this second intervention is to warn that there are laid down principles about taxation which date back to the 18th century that are true up to this day. We may have all heard or read about the Boston Tea Party. The story of the Boston Tea Party deals with the American Revolution that culminated into independence in 1776. The protest by the sons of liberty in Boston, against the Tea Act of May 10, 1773 was such that they boarded the ships and wreaked havoc on chests of tea moored at the Boston habour. On that fateful night of December 16, 1773, 342 chests of tea shipped by the East Indian Company were emptied into the sea by the protesters. This elicited a very harsh reaction from the British colonial government. The colonists resisted the tax act because they believed that it was inconsistent with their rights as Englishmen to “No taxation without representation”. This principle provides that they could only be taxed by their own elected representatives and not by a British parliament where they had no voice nor representation.
The principle of “no taxation without representation” was enshrined in the Bill of Rights of 1689 which established that taxes could not be levied without parliament and parliament was deemed to exist if and only if it represented the people that voted it into power. A chain of other events, repressive laws and more resistance led to the American Revolutionary War which began in Boston in 1775. The rest like they say is history. According to Alfred F. Young, in his famous book, The Shoemaker and the Tea Party: Memory and the American Revolution, “the issue was never the tax, but how the tax law was passed without American input; after all, United States Congress taxed tea from 1789 to 1872”.
Learning from history is one of the greatest attributes of human civilisation. It is on this basis that we contend that, in enforcing efficient tax administration in the country, government must pay attention to representation. For representation to make sense, we must explain it not only in terms of appropriate laws being passed by the elected representatives of the people from the most rudimentary to the highest levels, but also the need for such representatives to be in touch with the people. They must understand the realities on ground in the local community and make such laws that would not only leave majority of tax payers happy to voluntarily comply, but also make people feel and believe that the taxes are justified and commensurate with the benefits they derive therefrom. This takes me to the other issue of perception. If tax payers believe that their tax is not deployed to uses that are beneficial, the immediate reaction is to resist the tax, avoid it or in extreme cases, evade it.
So, on no account should tax administration result in what can be described as “robbing Peter to pay Paul”. Instances like in Nigeria where taxes are collected from one part of the country and spent in another, should be avoided. Taxes that do not have any relationship with local industry and businesses should not be contemplated. Local and state governments should be made to understand that taxation can be likened to ‘sowing and reaping’. In the natural order of things, you can only harvest where you have planted. The issue of using taxpayer’s money to provide amenities for the taxpayers would therefore be misplaced. It is out of the amenities that government has provided that citizens would pay taxes for using such facilities.
Look at it this way, if you do not build roads, how would it sound that you erected toll gates to collect tolls from people to enable you build the roads. In like manner, if you do not provide electricity, would it make sense to collect electricity tariffs? It is in providing roads, rails and sea ports for access that the government empowers farmers and manufactures who would then be able to evacuate their products from areas of production to areas of need and in so doing facilitate trade. It is only when government has done that that it can justify sharing from the wealth that it has created for its populace. The same goes for electricity, water, security, healthcare, education, and housing.
These days, a lot of governments mislead themselves into believing that they are doing the populace a favour by providing amenities for them. This is understandable given the “hand out” mentality of governance in Nigeria where governors and commissioners of finance rush to Abuja every month to share money. I am miffed that people have not paused to ask deep questions about the culture of sharing money in the name of federal allocation. We don’t seem to worry about the fact that before the advent of oil, governance, in fact, qualitative governance existed. How did those governments fund the massive investments in infrastructure in those days? What happens if oil were to dry up or if we depleted our oil reserve? How do countries, some of them our neighbours, who don’t have oil fund their investments in infrastructure and pay salaries?
A lot of our cities today are groaning under serious infrastructure decay and deficit, most of which are man-made. As we join hands to deny ourselves the much needed infrastructure for growth, we forget that we are shooting ourselves in the foot. As our infrastructure decays, so goes our internally generated revenue. I don’t think some of our leaders connect to this. Not a few of our cities have lost their position and what they were noted for out of very poor leadership that have failed to realise that investment and industrial development follow the most attractive environment. Aba in Abia State, for instance, used to be a sprawling industrial and trading outpost in the south eastern part of Nigeria, creating jobs for thousands of people and generating handsome revenue for government. However, successive governments in the state completely abandoned the city and left it in ruins. Today, virtually all the manufacturing concerns have either shut down or relocated their businesses elsewhere to benefit from better infrastructure and security which in turn lowers their cost of doing business. The overall effect is that the state is left with very paltry revenue generating capacity. The same is true of Ibadan which was reputed to be the largest city in West Africa, if not Africa. The town is in a state of decay, leaving it bereft of the hitherto large number of manufacturing and industrial giants and the huge trading activities of the past. These are not isolated cases as many other cities are in the same situation. Having failed in creating enabling environments for businesses to grow, some of the governments turn round to unleash thugs and miscreants on the few surviving businesses and people to collect all sorts of levies and taxes using all sorts of unorthodox means to whip their preys to submission.
In some cases, multiple taxation is introduced to shore up revenue. In others, leadership outsources revenue collection to people of questionable character as political patronage. Some of them hurriedly get registered as tax consultants and administrators without any requisite knowledge of the job. Governments do not realise that such actions, rather than help the situation portray the state as being very unfriendly to business and end up driving investment away. The only state that has stood out from the pack is Lagos. Some people will be quick to opine that Lagos is an exception as it was the capital of the country and has some historical advantages. While such people may not be completely wrong, I will also point them to the two cities I mentioned above that had significant historical advantages that their leadership blew and continue to blow. The truth is that Lagos was very lucky with leadership that was focussed from day one. Like him or hate him, Senator Bola Ahmed Tinubu had vision and laid a very strong foundation as the governor of the state between 1999 and 2007. He was succeeded by another visionary leader, Babatunde Fashola who took leadership to an exceptionally high level and massively rolled out infrastructure to support his dreams of Lagos.
In less than two years, Akinwunmi Ambode has paid little or no attention to recession as he continues to improve on the records of his predecessors. Lagos continues to challenge the rest of the country. After all, the only resources Lagos has are land and human capital which are in abundance elsewhere. Beyond resources, it has created enabling environment for people to do business and live. In the US, California is the largest state with a population of close to 40 million people. It is the sixth largest economy in the world, were it to be a country with many of the largest firms in the world located there. These include Chevron and Apple. California is so large that some of the top business men have threatened to fund a secession after Donald Trump was announced winner of the US elections a few days ago. California, like a few other states in the US are so successful that they do not need the centre to survive. What did they do differently? Leadership created enabling environment to attract businesses and investment from where the state collects its own share of the prosperity of businesses and the populace. Those of us that cannot create should at least be able to copy.
