Report: Falling Income Will Make Consumers Worse Off

By Peter Uzoho

The expansion of the tax net as against the dwindling real income in the country will make consumers worse off in 2021, a report by Proshare, has stated.

The report also predicted that a rise in taxes would trigger increased demand for accountability from the government by the highly-taxed citizens, as the opaqueness of fiscal operations would be interrogated.

Proshare stated this in its latest report, tagged: “Leveraging A Crisis: The Nigerian Capital Market in 2020,” saying, Nigeria will witness stringent fiscal and monetary posture in 2021.

The federal government in its aggressive drive for revenue generation to fund the 2021 budget has proposed a lot of increase in taxes as contained in the Finance Act 2020 as amended.

“Rising taxes and falling real incomes will deliver a double whammy on consumers in 2021, leaving them much worse of in the year than they were in 2020”, the report said.

It explained that the, “policy options for the federal authorities are limited as they have maxed out on monetary policy options and are in a bind over the extent to which taxes can be increased in a recessionary or modestly growing economy.”

Proshare, however, estimated that the country’s Gross Domestic Product (GDP) would grow at about 1.3 per cent in 2021, pointing out however, that the predicted growth would be well behind the population growth rate of 2.6 per cent.

According to the report, the implications of mild GDP growth and a speedier population growth rate was a fall in income per person and a decline in individual spending and private consumption.

The fall in international oil prices and a sustained rise in fiscal spending have forced the central fiscal authorities to contemplate a widening of the tax band and the raising of local taxes.

This, according to the report meant that domestic tax revenues will increase but citizen’s oversight over fiscal spending will also be more aggressive.

It cited a recent legal action taken by the Socio-Economic Rights and Accountability Project (SERAP) to compel the federal government to explain how it spent N729 billion on 24.3 million people.

However, the report stated that the, “opaqueness of fiscal operations will increasingly come into question in 2021 as citizens who will have to pay more taxes will insist on knowing how those tax naira are used.

“As the fiscal authorities increase taxes, the monetary authority will be caught in a quandary, to raise interest rates to curb inflation or to allow interest rates fall to stimulate growth?”

However, the report stated that 2021 would be a crucial year for global economy for a variety of reasons including the hopes of shaking off a COVID-19-induced recession that has left global supply chains in tatters and workers in different stages of despair as factories and companies closed and consumer demand fell off.

The third factor that would shape the course of events in 2021, according to the report, would be the COVID-19 pandemic and the spread of its new strains.

The report maintained that in 2021, most oil-producing countries would be hoping for a rise in revenues as the COVID-19 pandemic disappears, predicting a mixed outlook for countries like Nigeria that export crude oil but import refined products the outlook is mixed.

“Even if COVID-19 winds blow past, and global production activities look up, Nigeria may not see much relief from its stronger oil income as a rise in dollar revenues would be accompanied by a rise in the dollar costs of refined oil imports.

“The rise in revenue may, nevertheless, improve the countries debt servicing ability and support higher capital expenditure. The two events would revitalize the economy and bring about stronger GDP growth in 2021,” it explained.

The report also looked at the uncertain fiscal exchange rate in Nigeria, saying Nigeria’s multiple exchange rate will subsist in 2021 with the CBN committed to managing the exchange rate within a band of between N470/$ and N510/$ at the import and export (I&E) window.

It noted that the price of crude oil in the international markets and the management of the coronavirus pandemic would have a say in the shape of the foreign exchange market in the year, as manufacturers decide on how much to commit to new inventories and recalibrate production volumes.