The three Tax Bills that are currently being considered by the National Assembly are receiving a lot of opposition. This is quite correct, but is for the wrong reasons! Almost all the criticism is by governors and their friends in different states. They are only concerned about the amount of money that they will be able to loot, not the development of their states, and certainly not the welfare of their citizens.
The Tax Bills, as we have come to expect from T-pain Tinubu, are another example of the implementation of hard neoliberal policies. These benefit the rich elite, and especially large companies. So Dangote and people like him will be delighted, but the trade union movement and other popular forces should be campaigning against these bills. They will only further increase inflation, and so poverty, inequality and insecurity.
The Tax Bills, if implemented in their current form, will have three main effects. They will make Personal Income Tax far less progressive. They propose a significant reduction in the effective rate of Company Income Tax and, finally, they will lead to a doubling of the rate of Value Added Tax. The overall impact, will be a reduction in the amount of tax paid by the rich elite and an increase in the rate of tax paid by the rest of us.
Personal income tax is to be stopped for those earning N800,000 or less a year. As a result, those on the new minimum wage of N70,000 will effectively not pay any income tax. This is little consolation for the fantastic loss in value of the minimum wage over the years. The benefits for most public and private sector workers will be minimal as the following table shows. The benefits will really be restricted to those whose salary is a million naira a month or more. So again, the rich elite will gain and the income tax system will be even less progressive than it is now. The highest rate of income tax will be only 25% compared with at least 45% in Britain and South Africa, for example.
A civil servant on GL10 will pay gain only five hundred naira a month in reduced income tax. Who will notice that? The rich elite, senators for example, will receive a massive N1.25 million extra every month. That is the total wages that someone on the minimum wage will earn in 18 months.
For most large companies, those with a monthly turnover of above just over N8 million or more, Company Income Tax (CIT) will reduce from 30% to 27.5% for this year and 25% for next year. At independence Nigeria’s, CIT was 45 per cent and this continued until at least 1979. Then was reduced with neoliberal reforms. So with the new changes, the tax paid by larger companies with have been nearly halved in the last 45 years. There is international competition to reduce company taxation rates to try to attract foreign direct investment, but Nigeria is not being successful at this. These changes will mean that large companies pay even less tax. But international firms will not be attracted to Nigeria because of the level of inequality, corruption and resulting insecurity.
The rates for Value Added Tax (VAT) are proposed to be increased from the current rate of 7.5% to 10%, from the beginning of this year, 12.5% next year and 15% by 2030. VAT is a regressive tax as the rich pay a lower percentage of their income on this tax. To make this worse, “land or building including interest in land or building” is exempt from VAT. The Chair of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, recently admitted that the majority of the VAT collected over the years was from low income earners
“Basic food items” also do not suffer from VAT, but many other goods and services will become more expensive. This will include new clothes, fridges, televisions, cars etc etc. As a result, of these changes, the general rate of inflation will increase even higher. This is one of the reasons why the NLC organized a four-day strike back in June 2007. This was successful and managed to reduce the rate of VAT back to 5% from the 10% that had been already been agreed by the National Assembly.
We need the trade unions to take action against these tax bills and stop these gifts to the rich elite. We have already suffered massively from the ending of petrol subsidy and the massive devaluation of the naira. The new minimum wage will hardly make a difference and state governments are having to be forced to implement even this, despite the huge increases in their oil and other revenue over the last couple of years.
The overall level of taxation in Nigeria is already one of the lowest in the entire world. We need to increase the level of taxes paid by rich individuals and companies to pay for decent public education, health and water services for the majority. At the same time many common people are suffering from multiple taxation and having to settle public officers, the police and so on. We need the rich to pay more tax and the poor majority to be protected with decent salaries and lower taxation and other types of extortion.
