Taxing Nigeria’s Rich

The national and state governments in Nigeria are facing a massive shortfall in government revenue due to the crash in global oil prices and the failure of the government to save and increase reserves during the past 4 years of record high oil prices. Questions are now being raised as to the credit worthiness of Nigeria going forward as the naira is collapsing to record lows and Nigerian capital markets are among the worst performers in the world. The blame for this falls squarely on the current administration whom despite record high oil prices over the last several years, has not managed to increase but rather have actually depleted the nations reserve account. Even though they cite minor development projects as the reason, many of the projects were facilitated in part by borrowing and not by actual spending. Still regardless of whether the claims of eye-popping corruption are true, the core problem and the height of incompetence in the current administration, particularly in the ministry of finance, is that despite its claims to the contrary, the government at all levels has done very little to diversify its revenue.

…over the last 5 years, Nigerian government, at the national, state, and local level has failed to collect over 100 billion dollars in revenue…

Given that the rich in Nigeria have become richer over the last decade, and that the current inflation caused by the collapse of the naira is disproportionately going to hurt those at the lower-end of society, redistributive revenue generating taxation policies are long overdue. The fact that policymakers and the finance ministry has not moved swiftly to do so already is borderline treason, given the dire fiscal predicament that they know Nigeria faces today. I wrote earlier about the need for state and local governments to utilize parking meters to generate revenue from motorists who park on public streets; (SEE: kurangaandassociates.wordpress.com/2015/01/29/nigeria-loses-over-10-billion-dollars-annually-in-parking-revenue/), in addition to these fees the federal and state governments should have already implemented taxation measures targeting the wealthy in Nigeria and built up savings to close the gap caused by potential shortfalls in oil prices like we see today. What is important is that redistributive taxes target the ultra rich and not the general public.

What are some tax policies that Nigeria should use to target the rich and diversify its revenue? This is a question that nobody running for political office in Nigeria should be allowed to ignore. The answer lies in dissecting and targeting the lifestyle of the ultra rich. Among the key lifestyle activities that the wealthy engage in throughout Nigeria, is the practice of building massive opulent homes. Many times elites compete to see who can build the biggest home on the block or in the town. In times like these, the federal and state governments have an obligation to the people to generate revenue from these elite practices to avert the kind of fiscal crisis Nigeria is facing. In New York City, one of the wealthiest cities in the world, any home that sells for over 1 million US Dollars is subject to a “Mansion Tax”. The same is true in many cities and in a number of countries throughout the world including in The City of London. New York State in 2014 reported tremendous revenue from taxing homes that sold to the upper 1% of their population; (SEE: http://nypost.com/2014/03/20/mansion-tax-produces-geyser-of-revenue-for-new-york/). In Nigeria today, there are a plethora of homes and condominiums that have been bought and built by the elite that would parallel the prices of high-end homes in London and New York. Homes valued over a certain threshold throughout Nigeria should be subject to the same tax measures that homeowners in the United States and the United Kingdom deal with. Nigerians would not be surprised to learn that many Nigerian elite are actually paying these taxes in those countries where they own second, third and sometimes 5th and 6th homes. Specifically in the Nigerian context, mansion taxes should apply to any Nigerian who; 1) Owns a home over a certain value that places them in the top 5%; 2) Owns multiple homes within Nigeria; and 3) Owns a home abroad as well as a home inside of Nigeria. Stiff penalties should be leveled on any among the elite who fail to declare their status or attempt to bury their ownership of multiple residences anywhere on the globe. Mansion taxes should be leveled at the time of purchase, and paid annually for current owners.

In addition to homes, the elite in Nigeria have developed an affinity for high-end foreign cars. Every known luxury car can be found in Nigeria. Luxury vehicle taxes should be leveled upon the owners of these luxury vehicles of all kinds. In addition, Nigerians who own a large collection of vehicles should also face similar luxury vehicle taxes. The only exemptions to the multiple vehicles should be given for those who purchase the Innoson Vehicle, that is a 100% Nigerian-owned automaker that manufactures indigenous cars in Nigeria. Those purchasing foreign vehicles, or those distributed by foreign subsidiaries, should pay luxury taxes annually for each additional car per household. In addition to cars, owners of yachts, leisure aquatic boats including jet skis and speed boats, owners of private aircraft (no matter where they are domiciled and registered), should be required to pay luxury taxes and fees for all those who seek to use these items as a mode of transport in Nigeria. No longer should the elite be allowed to cruise through Nigeria's waters, streets, and skies, in their uber high-end toys, without paying into the system to support those among the general public forced to watch them and dream. Anyone owning, using, and/or operating these luxury items in the country without declaring, registering, and paying the luxury taxes associated with their ownership and/or authorized use within the country on an annual basis should face heavy fines and possible seizure of their illicit luxury items.

Going beyond luxury homes and modes of transport, the elite in Nigeria have developed an insatiable taste for luxury consumer goods, all of which should be taxed. Luxury goods like champagne, wine, tobacco, and other high-end imported brand-named foods, designer cloths, shoes, jewelry, furniture, satellite broadcast television, and foreign movies that elite often prefer over their local equivalent, should all be subject to luxury taxes. Nigerian elite throw huge celebrations for weddings, birthdays, and seasonal events, that are loaded with the consumption of luxury items that are beyond what the average Nigerian could afford with their wages in a year. To make matters worse, the elite are known to hire magazines and news papers to come and take pictures of them at these celebrations and to publish them in the press and online so that the rest of the public can see that they are that much better off than them. No longer should the general Nigerian public have long-faces when they see the extravagances of the ultra rich, many of whom are linked to past officials known to have been involved with exploitation and theft of public funds, because they will have something to smile about knowing that these elite will be paying luxury taxes on many of the excesses that they consume at their celebrations. Luxury taxes and fees should also be applied to luxury services like business class flights, especially those going outside of the country, and among elite that no longer even fly commercial airlines. In addition, households that employ more than 2 household helpers should also be required to pay household employer taxes and registration fees depending on how many employees their household retains. Failure to register and declare any of these should result in heavy fines that exceed the taxes by at least 7 times.

The final major elite consumption item is gambling and gaming. Increasingly Nigerian youth and elite engage in betting and gambling, primarily on football matches, but also in other areas. It is a common practice throughout the world to curb these activities and to generate public revenue from leveling substantial taxes on those who engage in them and the companies that sponsor it. This is an area for substantial revenue in Nigeria, that would target even those who would not be considered among the elite. Those in society who practice betting and gambling clearly demonstrate that they have disposable income so the state must cash in also. There is some general collection of revenue on this already but there is plenty of room to increase it.

The question remains how much money would Nigeria generate from a wave of progressive luxury taxes on the country's upper-class? There are about 5 million people in Nigeria that these measures would particularly target, this includes the country's elite and their ex-patriot counterparts living in Nigeria. A collection of luxury taxes should hit-up each member of the upper-class by an average of 2000 dollars a year at the minimum. This would still put taxation of the rich in Nigeria well below most of the world and nowhere near what you would find in London, New York, Paris, Los Angeles, Atlanta, and Toronto where many Nigerian elite also reside. Still this would give the country over 10 billion dollars in additional revenue to increase federal government savings and make-up for shortfalls due to oil price fluctuation. If you couple the projected revenue from these redistributive policies, and the amount of revenue that state and local governments could potentially generate from parking meter initiatives I discussed earlier, over the last 5 years, Nigerian government, at the national, state, and local level has failed to collect over 100 billion dollars in revenue. This by far exceeds the loss in revenue due to the collapse in the price of oil, and by all accounts, also exceeds the amount lost over the same time from even the wildest possible claims of corruption and mismanagement in the entire government. This just goes to show that the biggest problem in Nigeria today is not the collapse of oil prices as the administration claims, or even corruption as the opposition would have you believe, but rather it is the complete and total incompetence among policy-makers and administration officials at all levels, that have failed to diversify public revenue.

If you look at the election campaigns of both major parties, none of them have presented concrete and specific policies to diversify state revenue in any meaningful way, which is the single biggest problem the state faces today. The opposition is parading around pretending to be less disposed to corruption than the incumbent, and that eliminating corruption alone is a panacea for all Nigeria's woes, while the ruling party is trying to convince the public that the current predicament is out of their control and that nobody can do anything better than them. The conduct of campaign events among the major parties looks like a circus orchestrated by playful groups of infantile characters clamouring for their chance to play with the microphone. All the while, mainstream Nigerian media continues to broadcasts and cover this nonsense and allow policy-makers and political candidates at all levels to run around throughout the entire campaign season without even delivering a legislative agenda with clear cut articulated policies to address the shortfall in government revenue. Neither the existing administration nor the leading opposition has provided a legislative agenda or campaign platform to address the issue. Mainstream Nigerian media have instead relegated themselves to whining about whether or not a candidate will attend their debate. Why they have not demanded that each party provide them with a legislative agenda so that they can publish and broadcast it to their readers and listeners is inconceivable. I am not aware of any candidate for the senate or the house of representatives that has been required by media to provide them with actual pieces of legislation they have drafted to address the core problem of government revenue should they be elected. Executive governors, finance ministers, and legislative leaders are all given a free media pass an allowed to speak around policy issues on programs and in interviews, give public statements, and publish open letters and criticisms without EVER articulating legislative policies they have developed to CHANGE the current budget shortfall.

The embarrassing juvenile conduct of the mainstream political parties in Nigeria, making a mockery of the political process by refusing to provide legislative agendas and definitive policy initiatives to address the core problem of diversifying state revenue demonstrates unequivocally that they are both unfit to govern. The refusal of mainstream Nigerian media to demand answers from policymakers and the political candidates that seek to replace them in an election year is a dereliction of their fiduciary responsibility to the public. No state in the federation run by either the ruling party or the opposition has managed to resolve the issue of diversifying state revenue despite having the time and the capacity to do so. The federal government, in the executive council and the legislature, is filled with personalities that are more preoccupied with being called “honourable” and drawing salaries and massive allowances from the federation accounts than they are with delivering honourable solutions to the nations problems. They attempt to give the public the impression that they are doing everything they can while in reality what they are doing is merely scratching the surface of what they could actually do given the time and resources at their disposal. Even with the collapse in oil prices, even with massive unchecked corruption and mismanagement, the real shortfall and deficiency, the real problem in Nigeria's governance is political incompetence among policy-makers and executive administrators at all levels and the unholy alliance they have with mainstream Nigerian media to propagate this failed system bound to fall well short of the global standard of good-governance.

Moving forward, Nigeria cannot afford to continue to rely on oil to finance the state. There are a myriad of ways that states all over the world without oil pay their bills and finance their development, almost none of these methods have been implemented in Nigeria despite the vast potential for their implementation and use. Even though the private sector in Nigeria has developed and diversified itself, making Nigeria the largest economy in Africa, the state in Nigeria continues to lag far behind in its failure to develop an increase its sophistication to generate revenue and promote fiscal stability in-line with global standards. The obsession with political corruption among the general public at this stage is becoming a distraction from the staggering and mindboggling incompetence of even the most celebrated public officials. The fact that the minister of finance had the audacity to brag about increasing federal public revenue by just half a billion dollars in a year when she with sweeping economic powers had the ability to push for more than 20 times that through a diversified set of policies, shows how low standards truly are in Nigeria; (SEE: 1) https://www.youtube.com/watch?v=UeJLf9XwPec; 2) http://www.channelstv.com/2015/01/27/tax-remittance-nigeria-records-150bln-naira-revenue/). Its very easy to bring up corruption, and just as easy for finger-pointing and denials to dominate the political narrative, especially when mainstream media allows it. Yet when you start to focus on the real issues of policy, which is the gross incompetence among policy-makers at all levels, from all parties, it is not that easy for anyone to deny whether or not they implemented a policy that they should have. It is equally difficult for political candidates to deny whether or not they proposed an actual policy alternative. As crazy as it may seem, the Nigerian public now needs to focus more on political policy than on political corruption and demand their media outlets do the same.

Kuranga and Associates Limited is an investment management advisory firm and an asset manager with a principle practice area of Africa. To learn more about Kuranga and Associates go to www.kaglobal.net. © Copyright 2014 David Kuranga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

David O. Kuranga; Ph.D.
Managing Director
Kuranga & Associates Limited
Phone: 212.363.0936
[email protected]
https://kurangaandassociates.wordpress.com
http://us.macmillan.com/thepowerofinterdependence/DavidOladipupoKuranga

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Articles by David O. Kuranga, Ph.D.