Of Taxes: Between The People And Their Government, By Ifeanyi Uddin

Ifeanyi Uddin

In the first week of February, the National Bureau of Statistics (NBS) released the country’s trade figures for last year. Importantly, we appeared to have sold more last year (N22.45tn) to the rest of the world, than we bought off them (N5.62tn). At least one analyst that I read on this, proceeded to account for the growth in our foreign reserve balance by the difference between last year’s export and import figures. The visible trade balance last year was a healthy N16.82tn.

Behind these fancy numbers though, there is plenty to worry over. The annual commitments of successive governments to the process of diversifying the economy is clearly not working, since the extractive industry still accounts for the bulk of our exports (N18.87tn or 84.1%). Crude oil export alone was 69.2% (N15.53tn) of total exports last year. Obviously, the case for further privatisations of government’s holdings in the economy, improvements to the efficiency of the public service, strengthening the criminal justice system, ramping up the providion and maintenance of public and social infrastructure, and generally lowering the cost of doing business in the country, is made stronger by these numbers.

The structure of our imports also speak to a different type of problem. Machinery and transport equipment are significant import types because they are capital. Invest enough in them, and you have the means to produce more: either of similar capital goods; or of consumer items. The point is that with enough capital you increase a society’s net welfare. For this reason, this category has remained the biggest component of our imports: last year (23.52%) as it was the year before (31.47%). The drop, year-on-year, does speak to a failure last year to invest in additional capacity. This should result in a drop off in production this year, which in light of the concerns over weather conditions this year and the consequences of this for agriculture output, we can least afford.

Notwithstanding all of this, the trade data conveyed a slightly different set of concern. Manufactured goods fell from N1.18tn in 2011 to N699.91bn last year. What could have weaned us off imported consumer goods? “Domestic production of substitutes of equivalent quality” is one possibility. But we all know that this remains in the realm of the hypothetical, until the much talked about reforms to the economy leave the lips and saccharine-coated tongues of government functionaries, and acquire a life all their own. In all likelihood, what we are seeing here is the result of weaker consumer capacity as the different increases in tariffs last year (multi-year tariff order for electricity supply, increases in import tariffs for rice, sugar, and wheat flour) take large mouthfuls from our pockets.

Any tax, transfers value from citizens’ coffers to the sovereign’s. Most times, we part with the tax only because the sovereign possesses enforcement powers that could see us suffer huge penalties for not paying. But at the beginning of the fiscal relationship between the sovereign and its citizens (whenever that was) was the understanding that the citizen bore this financial diminution in favour of the sovereign only because thus is society able to afford those large-scale spending that each citizen would have single-handedly been incapable of, and collaboration in the provision of which by a group of citizens would have been frustrated by the fact that each acting separately, and in his/her best interest tends to use up shared assets even when each such person is aware that depleting shared resources is not in the long-term interest of the commonweal.

In other words, we agree to cede to the government part of the reward for our labour in return for the provision of certain services that either would be too expensive for each to provide all by him/herself, or the provision of which by a pooling of resources by some of us will be most inefficiently done. Put simply, we pay taxes because of the presumption of a minimum level of competence on the part of government. Remove that competence, or the assumption thereof, and the moral bases for paying taxes is similarly compromised.

It is this moral vacuum that the trade numbers for last year highlights. The Nigerian consumer who suffered the effects of last year’s innumerable tax increases lost twice. First, from a reduction in his purchasing power. Second, from the absence of those things that s/he paid government for (roads, railway lines, pipe-borne water, electricity, security, working law courts, etc.). In the end, a more efficient recourse to an incompetent government is to leave more money in the people’s pockets.

Ifeanyi Uddin, one of the nation’s leading monetary economists and economic historians, writes a weekly column for Premium Times from Lagos.


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