21 Jan 2009 |
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The Value of the Naira and Tax Reform 2 In the last article on the value of the naira, I tried to link the pressure on the local currency on the non-reformation of Nigeria’s tax system. The naira being the working capital of government is one reason why the petrodollar, earned through the sale of our oil, has to be converted to the local currency, in the first place. As government spends the naira for the salaries of its workforce and awards of contracts, wealth is invariably transferred to the citizens. Traditionally, the depleting government coffers as it spends the naira ought to be replenished through taxation. In our case, that traditional route was diverted on 28 July 1986, when the focus shifted to the foreign exchange market to replenish government treasury. It was a brilliant idea at the time, with the hope that it was not ill-conceived. We were all called upon to bid for the scarce foreign currency. But, if we factor for years of rising oil prices, the Nigerian economy had hardly grown since that time. If it were so why do we shy from reopening the topic? What should bother a sane mind more than the imperfection of the present system, to me, is the reluctance of Nigerians to even talk about it. Former President Ibrahim Babangida realised the enormity of charting a new means to fund government treasury: he got the whole country involved in a national debate, even if that debate was orchestrated. What came out of that debate was for the market forces to determine the value of the naira. In so doing, that regime settled for an alternative to the traditional taxation to make government buoyant, and government buoyant it did. Twenty three years on, the effectiveness of this unorthodox method has remained suspect. However, that regime was bold enough to come up with the present mechanism. Many of us still do not know what hit us, but a little understanding of the genesis might help. In 1980, the United States of America halved its import of Nigerian oil for some unexplained reasons. Consequently, our oil-receipt dipped to an unprecedented level and the country has since struggled to recover from that episode. With a faulty tax system, the situation was hardly handled prudently by the government of the day and that prompted the late Chief Awolowo to warn of an impending doom. The ink had hardly dried on Awo’s foreboding letter to Shagari, when the government announced that it was becoming almost insolvent. Workers were owed backlog of salaries; contractors could not be paid as Nigerian governments struggled to meet both their local and international financial obligations. These conditions lasted until IBB took over. IBB’s ingenuity moved towards taxing Nigerians by devaluing the currency. It was unconventional but it worked like magic, not minding its adverse effect on the growth of the economy. Thus the disbursement of the scarce hard currency became deregulated. In a market economy, it seemed brilliant but the resultant regime of capital flights soon exposed the hollowness of the scheme. The naira soon started chasing less and less wealth as Nigeria’s wealth was carted off. At a point the president himself wondered why the Nigerian economy had not collapsed. Nigeria is blessed - for as long as oil continues to flow, the imperfection of the system never showed. One intelligent question that was repeatedly asked was what else IBB’s government could have done. He could, at least, have had a watchful eye on his baby project. But then, if he did, would the people around him have been able to partake of the grand looting of the government treasury on his watch? This is not an indictment on anybody but of everybody. We all watched the economic landscape of Nigeria change from factory’s high installed capacity utilization to factory’s shutdowns. Unemployment rose and without an organized welfare system, the beast in all of us surfaced. Each time I tried to reason what could have gone wrong with the economy of a land full of milk and honey, I always come to a conclusion among others - our inability to device an effective way to fund our governments. As innocuous as it seems, our inability to reform our tax system has become the albatross that is weighing all of us and our economy down. In all other developed economies, it’s the tax issue that is the talking point. In Nigeria, it’s the exchange rate. I am not an economist, but something is definitely not right. It is not funny, but all we hear from our government is how to reform other sectors, yet it is government that needs to be reformed – most importantly the means to fund its treasury. We still unconsciously refer to taxpayers’ money. What taxpayers? We must be referring to bureau de change money not taxpayers’ money. What then is the answer to discourage government from its desperate sale of our hard currency to the highest bidder? Until this is done, further wealth creation will continue to be a dream. Samuel Akinyele Caulcrick Chief Flying Instructor Nigerian College of Aviation Technology, Zaria.
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