Salami: Nigeria Must Expand its Fiscal Space to Boost Revenue Generation

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The Co-Chairman/Resident Commissioner, Nigerian Economic Summit Group, Fiscal Policy Roundtable, Dr. Doyin Salami, said the committee has a mandate to recommend policies that would lead to effective revenue collection as well as its efficient utilisation for development to boost inclusive growth. Jonathan Eze and James Emejo provide the excerpts:

What is the essence of the Fiscal Policy Roundtable of the NESG which you currently co-chair?
Well, the idea is a very simple one. If Nigeria is going to grow; her fiscal space has to be expanded. Any which way you look at it and as you heard from our conversations, we are collecting seven and a half per cent of our total GDP in revenue and it already tells you we are potentially collecting one-third of what we could collect outside if we match the African average. Imagine if we’d more revenues, then the opportunity for development through effective and efficient government spending on areas of national priority that boosts the economy, improves significantly.

So, that’s what we are about; trying to see how we expand that fiscal space to be able to achieve what we’ve been saying. We’re also clear that this is what we want to achieve and the “how” must also be there. The issues and the challenges must also be addressed so that by the time ideas, proposals are being put to the government, these ideas and proposals that have benefited from research, have benefited from reflection and also benefited from intelligent conversations. It’s not just us, it’s the NESG working in collaboration with the development partners, with the civil society organisations towards trying to get an expansion of Nigeria’s fiscal space.

What are the gaps so far identified in Nigeria’s tax system?
When you say Nigeria’s tax system, at the heart of it for me it’s about how are we raising revenues because tax is one way and at the heart of it is a very simple notion; revenues earned from non-oil taxation are ridiculously low: you’re looking at seven and a half per cent total non-oil and the moment you recognise that the non-oil economy is ninety per cent of the economy and yet it contributes three per cent of revenues and immediately, it’s a striking contrast which must mean the point about over-dependence on oil is already clear from just those two figures.

Ninety per cent of the economy producing three per cent of non- oil revenues, that’s a problem and the key question is-what’s the problem? – Is it that there are some sectors that are not just adding input to taxation? Is it that we are not collecting the taxes? So, it’s those questions that we are established to try and find answers to. Fiscal policy is both expenditure and revenue. A lot of the conversations have been around revenues simply because the whole argument is that we don’t have money to spend. If we have more money to spend, then we could do more for the people. For me, we cannot continue to ask people to pay if they don’t feel they’re getting value or anything for their money. Our mandate is not an exclusively revenue driven mandate, it’s in part revenue, in part expenditure which is why the tilting is fiscal policy which deals with expenditure and revenues.

You expressed concern about the country’s debt level and revenues not being sustainable. Why is this important?
Well, it’s not a matter of whether it has gotten to an alarming level. When you get to a situation where at current levels, almost fifty per cent of government revenues will be needed to service her debts. A lot had been said that debt to GDP ratio is still very low, however, what’s more relevant is the debt service to government revenue ratio and what we’re looking at in that area, depending on how you measure it, is a minimum of about 45 per cent to 46 per cent and in some measures, it’s as high as 56 per cent- which is why the IMF Resident Representative was very clear that even though it appears to have gone down between 2016 and 2017, but the reason why it’s gone down is simply that oil prices have given us higher levels of revenue.

It’s not as if our indebtedness has gone down. Indeed, if you look at the Medium Term Expenditure Framework, the government strategy in order to reduce interest rate or keep interest rates from rising is to try and borrow more from the international capital market than the domestic market. So, the challenge is a very real one that if you’re going to bring your debt ratio to revenue ratio down, there are only two ways: either your debt service goes down or your revenues go up. But again, I must emphasise that the expenditure side is as important as the revenue side.

What are the structural reforms you think government can immediately implement to raise revenues in order to fulfil its part of the social contract to the people?

I think the issue around trust is a very important issue that we cannot gloss over. The first thing is that even though we speak of trust between people and government but don’t forget that people in this context includes corporates. So, the corporate as a person- as well as the individual person in this context. One thing that we must make abundantly clear typically is that those at the top of the income pile in other countries who pay the most taxes, from the figures that were reeled out earlier, it’s somewhere between three per cent of the population that paid anything between 50 and 75 percent of the tax revenues that government gain in other jurisdictions- and so to the extent that you can persuade them that the government use of their resources is efficient and effective. Then to that extent, you are able to incentivise them to be model citizens by paying.

Now, when you say what are the structural things that can be done, well, to begin with, we need to underhand- if we say 90 per cent of the economy is producing three per cent of government revenues, then the first thing that you need to do is to understand what it is about the other sectors that makes it difficult for them to be tax producing. Something that was raised in the course of that conversation is the need to begin to take a look at various kinds of opportunities. Yes, a lot had been said about the reform of VAT- that Nigeria has one of the lowest VAT rates in the world and that we may need to do something about that. But be careful because on the one hand, how effectively have we been implementing that VAT arrangements as we currently have it?
How do you see revenue growth amid the fact that the real sector is currently under performing with inherent constraints?

Well, I’m not sure that the real sector is not working. The economy is now beginning to grow albeit a bit slower than we’d imagined but that’s not to say that the revenue potential is not there. Look, I must make that point as forcefully in my capacity as I can- number one, on the average, African countries collect 22.5 percent of GDP in revenues, Nigeria is 7.5 per cent which means it’s one-third. So, for example, instead of us collecting 300, we’re collecting 100. I think Libya is one of the countries that is recorded as doing about 40 per cent of GDP in government revenues. So, the first challenge is not about whether the real sector is growing, the real sector is growing slowly but even within the level of activity that is in there, the level at which the revenues are yielding to government is far lower than in pretty much other countries.

I have a friend who was telling me that Afghanistan which is war-affected has a better revenue yield than Nigeria. And if that’s the case, you must see that there are things we need to do. One of the biggest challenges is we will also need to face is- remember a made a point about the top one per cent being responsible for the majority of taxes. The question is how much of that top one percent or top ten percent are actually paying taxes? And how many are paying correct taxes.

Without data, it’ll be very difficult to deal with this and in a system where patronage is a way of life. So, an important question is, are the top of our own income pyramid paying? If they’re not, what do we do about that? You know, the big man syndrome; tax collectors who should go after the big men, it’s the big men who get their exemptions because they’ve the connections to call whoever can keep the tax people off their backs. So, these are some of the changes that we really have to make. In my own view, over a period of time, Nigerian tax administrators are going to have to build some very specific capacity around data. There must be some triangulation of data.

For me, it important that must be understood. You can’t just have people running around to say they’re chasing IGR- how? It’s got to be more scientific. You know we often talk about headless chicken and the thing about that is very simple…you’re running around: a lot of activity, a lot of energy but you’re not getting away from where you are so that for me means therefore that technology has to come into play- and if technology is going to come into play, at least we’ll start to stand a better chance. But for me, at the heart of it is the triangulation of data and by the time these data base starts talking to themselves, then we stand a better chance in terms of pursuing individuals, in terms of pursuing corporates.

You talked about meting out some punishment for any infraction of the Fiscal Responsibility Act (FRA). What will this achieve in revenue administration?
My presentation was very clear. What I was discussing was fiscal governance and one of the elements of fiscal governance is the rules that government, the budgetary process, and budgetary activities- and don’t forget, budget is not just what you read- the budget is on the expenditure side, it’s on the revenue side- the Fiscal Responsibility Act but the Procurement Act are all elements of budgetary and fiscal arrangements- and so, the question I was asking is that are we sure that the provisions of the law are adhered to. Okay, somebody raised a comment that either the National Assembly and maybe even the presidency had not remitted the PAYE which they’d deducted from their staff for a very long time. So they key question then becomes- when you’re asking what structural things needed to be done- that thing about accountability is very important because the auditors cannot be releasing reports and you do nothing with them: it means there’s no consequence and once there’s no consequence, what’s going to be the basis for change.

People are already worried over the issue of multiple taxation and yet there are further calls to explore more tax avenues. How do you resolve this?
Don’t forget we listened to the presentation from Kaduna State and one of the things that’s very instructive about the Kaduna experience is the fact that they now have a single tax authority that picks up taxes across all tiers and if you want to know which taxes you’re liable for, you call them. So they’ve taken the process of streamlining. These are the kinds of initiatives that would prove to be useful because if you remembered the video clip that was played, people complained about the difficulty of actually finding out how much they are actually supposed to pay, to whom they’re supposed to paid, when they’re supposed to pay: so, all of that process kind of thing would be resolved. However, Kaduna might just be pointing a way to a direction where there might be a solution.

Do you think the ongoing reforms in the country’s tax system are sufficient to improve revenue collection for government?
Don’t forget that reform is evolutionary: it’s always ongoing. The environment in which we work is dynamic and so to that extent, the reform will continue to happen. The only way you know whether they’re adequate or not- it’s when we wait say a year or two from now and that the increase in revenue but the effectiveness and efficiency of spending are rising, then you can say this is adequate or inadequate.

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