Understanding Where We Are – Aligning Tax Policies with Economic Growth 

 Kola Ayeye

While Nigeria’s economy is the biggest in Africa, and its relative profile is even bigger, the average Nigerian is poorer than the average African. This fact is lost on most of us. We thus need to deliberately ingraine this in our consciousness as we proffer policies for economic transformation. Our daily experiences detach most of us almost completely from the average Nigerian’s reality. Our propositions, though well-intentioned, are significantly misaligned. These misaligned policies stunt or slow economic growth. We need to change them not out of mercy or charity, but out of a recognition that it is a compelling imperative for superior economic performance by all players across all economic and business categories.

One of Nigeria’s greatest unrealised potential is increasing household income and spending. This will boost FMCG and other business incomes and profitability, as well as spurring growth in taxes.

The average Nigerian household spends 56% of its income on food. THAT IS THE HIGHEST IN THE WORLD (World Economic Forum). By the time you add rent and transport for the urban worker, very little is left. These families have a strong potential to spur growth in segments with significant forward and backward linkages. If we deliberately increase their disposable income, it immediately translates to increased quality and quantity of food, better patronage for conventional health practitioners from better healthcare spend, improved regularity and timeliness of payment of school fees and rent, increased demand for the local fashion industry in sewing of new clothes etc. These households don’t travel abroad for holidays, neither do they convert savings to dollars as  flight capital. When they increase spending, many companies from the largest corporations to the micro enterprises record increases in volume, value and profit. This occurs with modest increases in FX demand, if at all.

It is thus in our enlightened self-interest to pursue policies to substantially improve household incomes. Subsidy removal and devaluation has already reduced household purchasing power and worsened the already high ratio spent on food. In contrast, FAAC has increased from N786.16bn  in May to N1.09 trillion in November, a growth of almost 40%. This is at a time when disposable household incomes have reduced further resulting in reduced corporate incomes, higher inventories and testy liquidity.

Strengthening tax collection in a way that will further reduce household income is bad Economics AT THIS TIME. We should impose a 3-year moratorium on import duty waivers and other tax waivers, forbidding them for 3 years. Tax Collection Efficiency should focus on higher wealth taxes on luxury goods such as luxury cars, private jets, property taxes in the most affluent neighbourhoods, taxes on business and first class tickets on foreign travels, etc. We can also increase taxes on behaviours we choose to discourage such as betting, smoking and Big Brother Naija. It is also important that Government adopts a living wage as the minimum wage. The government should also engage the biggest Nigerian companies with annual profit in excess of N1 billion or Turnover in excess of N10bn to encourage them to discontinue casualization and significantly improve their minimum wage based on affordability. This should be strictly by moral suasion rather than regulation or legislation. Tax incentives can be legislated to offer a reasonable proportion of increased PAYE income taxes consequent to discontinuation of casualization and adoption of increased minimum wage as incentives.

Widespread consumer taxes such as taxes on electronic payments, general VAT increases, and such like, are alluringly attractive because of ease of collection. But these are most ill-suited for economic growth. Our tax policies should prioritise improving disposable household income, not reducing it further. In addition, it should target encouraging consumption of locally manufactured and assembled goods, such as locally assembled vehicles and consumer durables.

Kola Ayeye

Kola Ayeye is CEO of Growth & Development Limited, a financial services group committed to strengthening and expanding the middle class,  set to launch a single-digit home ownership plan in Q1 2024. Previously he served as Executive Director AMCON and CEO National Bank