Retrogressive Politics of Value Added Tax in Nigeria, By Salihu Moh. Lukman



The controversy around whether Value Added Tax (VAT) should be centrally collected by the federal government or decentralised so that state governments are the ones to collect, beyond anything, is a test about the type of democracy Nigerians want. Is it going to prioritise the development of the nation’s productive capacity? Or will it simply be about consuming the resources that are currently available? Once the priority is about consuming currently available resources, commitment of political leaders to mobilise investment to develop the nation’s productive sectors will be weak. This is not to dismiss issues of access to existing resources by those who produce them. However, access may not necessarily translate into commitment to utilise the resources in ways that strengthened commitment of political leaders to invest in the development of Nigeria’s productive sector. The important challenge therefore is to ensure that access to resources also come with increased commitment by political leaders towards developing Nigeria’s productive sector.

With this background, it is important that Nigerians are also reminded that since 1999, public debate about increased access to resources by state governments, otherwise known as resource control, was limited to revenue from petroleum. Largely, promoted by the oil producing states, mainly the South-South geopolitical zone of the country, the debate was about allowing those states to control all the revenue from oil and perhaps pay a percentage as royalty to federal government. The royalty will be expected to support both the federal government and other non-oil producing states in the country. In all the debates around resource control, tax revenue was never recognised as a significant factor worthy of consideration. Partly, on account of both combination of weak institutional capacity and corruption in the public sector, the belief was that the most important source of government revenue for Nigeria is petroleum.

That Nigerians are debating whether it is states or federal government that should collect VAT signify some progress, which has to do with the fact that there is an increase in what is being generated from VAT. For instance, in 2015, the total amount collected was N759.43 billion. Between 2016 to 2020, there was consistently increase in the amount collected respectively to N777.51 billion, N972.35 billion, N1.11 trillion, N1.17 trillion and N1.531 trillion. Everything considered, under the APC led federal government of President Muhammadu Buhari, VAT collection increased from N759.43 billion in 2015 to N1.531 trillion in 2020, an increase of more than hundred percent.

Nigerians can conveniently dismiss the role of APC led federal government in making it possible for the remarkable improvement in VAT collection in the country such that today, it has become an attractive variable in the struggle for resource control by state governments. The reality however is that credit must go to the APC led federal government of President Buhari. Whether it would have been possible if PDP is still in control of the federal government can only be wishful thoughts. If that were to be the case, why wasn’t it the case at any point between 1999 and 2015? No matter what anyone want to say, the reality is that the significant increase in VAT in the country between 2015 and 2020 confirmed improved efficiency and reduced corruption in the process of collection and management of Nigeria’s public finances.

Interestingly, in terms of the politics of the debate, improved efficiency and management of Nigeria’s public finances are not the focus of the debate. In some ways, even those who are supposed to recognise this fact and promote the achievements of the APC and its federal government, instead have become so defensive, may be because the public noise in the country is all about demonstrating how the APC led federal government of President Buhari is the driver of inequality, injustice and unfair practices against state governments. Sponsored by Governor Nyesom Wike of Rivers States, the argument is that monies belonging to state governments are collected by the federal government and shared to states. According to Governor Wike, State money is taken by ‘Abuja people’, based on which he expressed ‘surprise at the level of injustice in the country’, arguing that ‘Rivers State generated about N15 billion as VAT in June 2021 but received only N4.7 billion, Lagos State generated over N46 billion as VAT in June, but got just over N9 billion, whereas Kano State generated N2.8 billion and also got N2.8 billion as allocation.’

Governor Wike can audaciously and shamelessly talk about VAT today because, its value has significantly increased which made it attractive for a rich state like Rivers to be interested in controlling it. If Governor Wike has any morality, he should look back and acknowledge how small Rivers must have received as its VAT share before 2015. Being a leading member of PDP, what was responsible for the low VAT records in the country between 1999 and 2015? And since, according to him and almost every leader of PDP, Nigerians are looking up to the PDP to rescue the nation from ‘bad governance’ in the hands of APC, does PDP’s brand of good governance come with low capacity to manage the nation’s public finances?

As members of APC, it is important that Governor Wike is reminded that the current increased record of VAT collection in the country is made possible only because the PDP is no longer in power. If PDP were to be in power the fact of inefficiency and corruption in the process of collection and management of VAT would have continued and the amount collected would have remained relatively low. It is not by accident that VAT collection in the country significantly increased under APC led federal government. This is because one of the specific commitment of APC since 2015 as outlined in the section of the party’s manifesto Funding a New Nigeria was that ‘APC government will set about the urgent task of getting Nigeria’s public finances in order, by tackling the massive waste, duplication and corruption in the system, diversifying the economy and expanding our tax base to increase non-oil revenues, and reprioritising public spending away from bureaucracy towards investment in infrastructure and improved frontline services.’

Both in terms of ‘getting Nigeria’s public finances in order’ and ‘investment in infrastructure’, APC led Federal Government is implementing provisions of the APC manifesto to the letter. Nigerian’s especially PDP leaders can conveniently dismiss all the work being done to develop Nigeria’s dilapidated and abandoned infrastructure, but the question of ‘expanding our tax base to increase non-oil revenue’ cannot be disputed. One strong evidence of that is the debate about states collecting VAT. It is very easy to play very cheap politics with these issues, partially because also, as a party, APC is not taking ownership of its achievements. Instead, its achievements are now being interpreted to justify some rebellious politics against the APC led federal government.

Somehow, the VAT debate in Nigeria reminisce the warning by Amartya Sen in the book, The Argumentative Indian: Writings on Indian History, Culture and Identity, when he cautioned that ‘One of the penalties of the increased focus on religious and communal identities, which has recently gone hand in hand with the deliberate fostering of sectarian politics …, is a weakening of the pursuit of egalitarian commitments, which requires a more integrated focus on the interests and freedoms of deprived groups taken together (related to economic, social and gender-based stratifications). While political organisations that unite all the lower castes can – and often do – help the underdogs in general, that end is not served by the divisive politics of rivalry between different lower-caste groups …, or by religious sectarianism …. The newly erected communal boundary lines are not only divisive in themselves, they also add to the social and political difficulties in removing the old barriers of hardened inequality.”

So far, the VAT debate is more about perceived injustice on account of Nigeria’s divisive politics of ethnicity. Substantive issues of desirability or otherwise of VAT, including all the administrative challenges bordering on implications of methods of collection and why it is a crucially determining factor for any democracy is ignored. Part of the challenge of debating policy issues in Nigeria is that public noise, largely influenced by subjective anger of citizens become the guiding consideration. The subjective anger of citizens is mainly about the blind politics of dismissing whatever is associated with Federal Government as biasedly in favour of a section of the country, however it is defined. With or without justification, many Nigerians who dominate the media space accuse the Federal Government of injustice. In several respects, ethnicised campaigns is further entrenching divisive politics, thereby increasing social and political inequality. As things are, Nigerian politics is blind to ‘egalitarian commitments’ of promoting national integration.

With respect to the specific issue of VAT, if the federal government can record increase of more than hundred percent between 2015 and 2020, is the current figure representative of the total expected collection from VAT? Simple reading of all the federal government revenue projections as contained in every year’s budget estimate will indicate a wide gap in expectation. Although there is remarkable increase in collection, it should be recognised that a lot more can be done to generate more revenue from VAT. Can transferring collection to state governments achieve that? May be and maybe not. But beyond the question of what is collected and what states get, what is even the economic implications VAT?

Generally, debate around tax is about how governments can use it to influence economic development. As fiscal policy tool, it is basically about controlling amount of money individuals should have for consumption. Will government tax policy seek to support low-income groups, i.e., ensure that the higher income groups pay more tax? Or will government tax policy disfavour the lower income group. The first test of whether any government can make any claim to being progressive will be reflected in the orientation of its tax policy. A progressive government will generally be associated with progressive tax policy, which means it will seek to tax the rich more. A conservative government will tax the rich less. Beyond who is taxed more, taxing the poor less is proven economically to be a strong incentive to increase demands for goods and services. If government want to ensure increased production of goods and services in the country, increasing the amount of money available to low-income groups is an attraction. Therefore, in addition to progressive tax policy being in favour of low-income group, given that low-income group are in the majority, any government that want to be popular with citizens would lean towards progressive tax policy.

Given that VAT is basically a sales tax, which is regressive because both the rich and the poor pay the same rates, and to that extent therefore makes it disadvantageous in terms of using it as a fiscal policy instrument to stimulate demand, ideally the politics of debating it should distinguish conservative and progressive politicians. Somehow, the public noise in Nigeria has pulled our dear Lagos State government into teaming up with Rivers in the legal battle to ensure that states win the right of collecting VAT and not federal government. Something must have just gone wrong for Lagos State to disregard its longstanding historical commitment to progressive governance and embrace what in the long run will be a disadvantage to majority of Lagosians.

Mr. Simon Kolawole, publisher of the Cable online newspaper has excellently demonstrated why in the long run VAT collection by states governments may be disadvantageous to both Rivers and Lagos States. According to Mr. Kolawole, in ‘2020, Nigeria earned N1.531tr from VAT. While local VAT was N763bn, foreign VAT — collected by FG — was N768bn. Therefore, rather than take just 15% (N230bn) from the N1.531trn, FG may now pocket the entire N768bn from foreign VAT since it does not go into federation account and may not be subject to the regular sharing formula. That would deprive the states, Rivers and Lagos inclusive, of about half of the total VAT revenue. This is HUGE. The FCT may also win as it generated N202bn in VAT last year but got only N34.6bn as its share.’

The desire to access more resource is perhaps the main driving factor in the battle to get state governments to collect VAT in the country. Wouldn’t it be possible to work with federal government and manage all the challenges, including ensuring that businesses are not necessarily encumbered by having to deal with multiple points of collection? There is no need to go into the details about how decentralised collection can impact on prices of products and services. Also, no need to go into the potential conflicts that would emerge between branch offices of companies and state governments in the country. All these are issues that would be instigated because VAT collected at the point of sales by a branch of company is expected to be remitted to the host state government where the head office is located. If state governments want to control what is generated in their states therefore, the administrative framework of how it is remitted to government and which government will be a major issue.

Nigerian democracy and politics must functionally rise above sentiment. Instead of debating how to consume the little resources so far available, Nigerian political leaders should be debating how to increase available resources. Even within the limit of the debate about increased available resources, the question of what governments need to do, policy measures required, including issues of tax, its administration and orientation in terms of whether it should favour the low or high-income groups should not be issues that would be blindly considered. In the same way Rivers and Lagos imagined that they would have more revenue if they were allowed to collect VAT and therefore control everything, they collected without sharing with the federal government and other states, states like Osun, Ekiti, Bayelsa, Ebonyi, Abia, would lose. On the other hand, Oyo, Ogun, Kano, Kaduna and Enugu, may be the surprise actual gainers.

Overall, APC leaders, must take advantage of the current VAT debate to take ownership of its achievements, which the fact of improved VAT collections in the country represent. In doing, APC leaders must go beyond the narrow debate about access to what is currently available. If at all APC leaders and members are to make any claim to progressive political credentials, generating large scale financial resources at both federal and state levels, which should be deployed to expand the productive base of the nation’s economy, should be the aspiration. There is no reason why any state in the country, including Zamfara, Yobe, Osun, Ekiti, Abia, Ebonye, should not aspire to generate at least N10 – 15 billion monthly as Internally Generated Revenue. To be caught in the backward debate about whether they should have the little they currently receive from the federation account is retrogressive. As a nation, our politics and democracy must be refocused towards nurturing the productive potentials of every state.

Commitment to develop capacity to mobilise large scale financial resources to develop productive potentials of all Nigerian states should be the minimum requirement for all APC leaders. Already, since the time of Asiwaju Bola Ahmed Tinubu, as Governor of Lagos State between 1999 and 2007, Lagos State has emerged to be the leader in mobilising large scale financial resources in the country, which is why it is the only state with about one trillion Naira annual budget. Justifiably, Lagos was able to undertake large scale public investment commensurate with its resource base. It’s not by accident therefore, it is the leader in the country with a model transport infrastructure. If the Lagos vision is limited to sharing available resources, it wouldn’t have been the leader it is.

The VAT debate in the country also poses a significant challenge to political parties in terms of developing capacity to coordinate policy debate within the structures of parties as well as ensuring that policies of governments produced by the party reflects any emerging consensus. Somehow, the current VAT debate in the country is completely removed from the structures of the main political parties – PDP and APC. If the debate is to take place within the structures of PDP, for instance, even the sectarian outburst of Governor Wike will be moderated. On the other hand, if the debate is to take place in any of the organs of APC, the question of the role of APC federal government in achieving improved collections will be well emphasised. In addition, the potential to mobilise more revenue from VAT and the expected role of state governments cannot be avoided.

The need to develop Nigerian democracy so that political parties in the country can initiate pro-people and pro-poor public policies, and not cheap sentiments that can be disadvantageous to citizens, especially the poor, is an urgent imperative. Important as the debate around increased access to resources by state governments, so long as political leaders are not commitment to initiatives that can develop the productive capacity of the country, amount of revenue generated will remain low. The other issue is that all APC leaders must be appealed to jealously guard the achievements of APC and all its governments. Why should APC leaders allow a situation whereby any PDP leader, including Governor Wike, can make claims of any injustice on a matter that demonstrated in practical terms the failure of PDP? If VAT is important source of revenue for government, why did PDP failed to record any significant collection throughout their sixteen years as a ruling party?

Every opportunity to remind Nigerians about the failure of PDP should be amplified. Similarly, all evidence of success of APC and its governments should be affirmed. APC leaders must take ownership of all the achievements of APC governments at all levels. On no account should APC leaders allow opportunistic rebellious politics of PDP and its leaders to distract them from the task of providing the needed progressive leadership to develop the nation’s productive potentials. As a nation, the question of fighting poverty and reduced inequality both among citizens and across all the 36 states of the country should be the egalitarian commitment of all progressive political leaders in the country. If Nigerians are to be united, it must be based on equitable productive resource endowment across every part of the country!

Salihu Moh. Lukman
Progressive Governors Forum
Abuja

This position does not represent the view of any APC Governor or the Progressive Governors Forum