The Nigerian labour union proposed to tax the rich more. Are they not taxed enough?
By Shereefdeen Ahmad
When the government’s inappropriate economic policies turn perverted and the consequences spiral out of control, then you see the people demanding to tax the rich more. Such is the case of the Nigerian Labour Union proposing a wealth tax to feed the poor.
It all started when the Nigerian governors demanded a 100 percent increment on the Value Added Tax (VAT) to pay pensioners. In response, the Labour Union wrote that such “recommendations seek to make the poor pay more taxes while the rich pay little or nothing…” Instead, the Union said, the federal government should “raise taxes across the board for the rich, including increasing taxes on luxury goods and lifestyles.”
Though the idea of VAT increment is regressive, especially when the same was increased three years ago, the Labour Union tax-the-rich campaign is even more of a disservice to the poor than the governors’ demand could ever be.
No, the poor don’t pay more with VAT!
First, the union’s argument that the poor pay more with VAT is incorrect. Business Standard defined VAT as an indirect tax levied on goods and services for value added at every point of production cycle. With this, the rich are at disadvantage as the VAT increment affects the production costs for the business owners throughout the chain of production.
Even the Federal Inland Revenue Service (FIRS) revealed in 2019 that the increased VAT would ensure the Nigerian rich pay more taxes. And the fact that the Federal Government exempted 20 basic food items, including salt, from the list of items to be affected by the VAT proves the development targeted the rich people.
The Nigerian wealth taxes
Company Income Tax spearheads Nigeria’s tax regime targeted at the rich. Government takes 30 percent from companies whose annual turnover is above N100 million, and 20 percent from companies with a turnover between N25 Million and N100 Million.
Statistics from the first quarter of 2022 shows the country generated N532.48 billion from Company Income Tax, an increase of 35.6 percent compared to the first quarter of 2021.
To make the rich contribute to the subsidised education, an Education Tax (EDT), which forms part of the Tertiary Education Trust Fund (TETFUND), tasked a registered company to forfeit two percent of its annual assessable profits, a term for profits that are assessed for taxation purposes.
The result between 2011 and 2019 was the N1.7 trillion the federal government accrued from EDT.
There is also a National Information Technology Development Levy (NITDL), a tax imposed on companies with a N100,000 minimum turnover to surrender one percent of its profits before the payment of Company Income Tax.
There are others and the list counts on.
‘Nigerian government is taxing businesses out of existence’
Just two months ago, the Nigeria Senate passed a bill to establish a National Youth Service Corps Trust Fund, aimed at tackling the infrastructure deficits in the NYSC scheme and providing start-up capital for interested corps members to drive their business initiatives.
The sponsor said the Trust Fund would be financed, among others, with a “levy of 1 percent of the net profit of companies and organised private sector operating business in Nigeria…”
“If [the Bill is] assented to by the President, it will be in addition to at least five other taxes levied on the profits of companies in Nigeria,” wrote Taiwo Oyedele, a Fiscal Policy Consultant. “Despite all evidence showing more taxes will negatively impact the economy, it seems the National Assembly is bent on taxing businesses out of existence.”
The consequence played out in the last ten years, as no less than 11 major multinational companies, including Shoprite, have either left or signaled their strong intention to leave, most seeing the country’s economy as a sinking ship. And everytime, the country risks losing up to 20,000 job opportunities.
Discouraged by the rising insecurity and cumbersome regulatory procedures, the National Investment Promotion Commission said local and foreign companies withdrew 69.3 percent of the investment projects between the first quarter of 2021 and the first quarter of 2022.
“Governments are very good at making up all sorts of taxes left, right and centre,” said Kalaa Mpinga, the Chief Executive Officer of Mwana Africa, a pan-African resources company, in response to whether African billionaires should pay more taxes. “What you need, in fact, is to decrease and simplify the tax structure that the top companies and top earners have.
“If you look at the majority of the African countries, the few companies that are operating in the formal industry will tell you that their first area of concern is over-taxation.”
The gross effects of wealth tax, according to Angus Deaton, a Nobel Prize-winning Economist, is that the rich would start hoarding their wealth and avoid paying the tax.
With rising unemployment and the shrinking economy, the need for Nigeria to be a conducive home for investment cannot be overemphasised. The last thing the country needs is to see the rich hiding their wealth and evading taxes, or leaving the country to a place more accommodating.
The Labour Union might have made the request out of compassion, just that more tax for the rich would not enrich the poor, but can make businesses disappear and people lose their jobs.