Before Devaluation Or Ending Subsidy, Tax The Rich!
The author is the Managing Director and Principal of Kuranga and Associates, a full-service investment, political and economic risk consultancy, and asset management firm that specializes in Africa. He is also the author of The Power of Interdependence with Palgrave Macmillan Press.
With Nigeria recording the worst economic growth numbers in over a decade, it is becoming clearer that the country could possibly be headed for a collapse if everything continues on its current course. Since the overwhelming majority of Nigerian government revenue is still derived from oil exports and crude oil prices have fallen from 115 dollars a barrel to 40 dollars a barrel, economic indicators in Nigeria have spiraled out of control.
The naira has fallen to record lows of around 230 to 1 dollar, and Nigerian capital markets have seen investors flee. Calls are now growing to devalue the naira and to remove the fuel subsidy, as if these are the only means to redress the situation. Devaluing the naira will cause inflation on basic imported products and will make the cost-of-living rise much higher in Nigeria especially for the poor and working-class. Further, ending the fuel subsidy will also result in a higher cost for petroleum and the all important cooking oil used by many working-class families for basic sustenance.
Thus all the supposed knee-jerk solutions to the Nigeria’s economic woes being touted in mainstream Nigerian media is to place heavier burden on the nation’s poor. What is shocking is that almost nobody, either in mainstream media or in the state, has promoted solutions that place a heavier burden on the nation’s ultra rich elite class. Nigeria has one of the lowest tax rates on the planet at around 3% and Nigeria’s rich are by far the biggest beneficiaries of this gross negligence over the years.
Over the last decade, the number of millionaires and billionaires in Nigeria has increased exponentially. I have repeatedly said that Nigeria cannot afford to continue to allow its elite to get away with this, they must pay what they owe to the country. The elite in every other successful country pay their share to society in the form of taxes at an average 13% or more while Nigerian elite sit on their hands pointing fingers and promoting solutions that will largely affect the poor and bypass them. As we are now seeing, just as I predicted, it will be a long and protracted fight to curb corruption in Nigeria and recover looted funds, it will definitely not happen anytime soon. Yet the revenue problem can still be fixed, almost overnight.
There are a series of taxation measures that I have pushed for nationwide that would achieve this objective, all of which target Nigeria’s elite:
- Mansion Taxes – a. houses and Flats that are valued in the top 5% in the country (provisions for 80% of these taxes to be passed on to tenants where the properties are leased), b. owners of multiple houses, c. owners of houses abroad as well as property in Nigeria, d. more than 2 household servants.
- Luxury Vehicle Taxes – a. A personal vehicle valued in the top 5% in the country (this includes firms that purchase luxury vehicles for employees and owners), b. owners of more than 1 vehicle per household, c. owners of yachts and other leisure aquatic vehicles, d. owners of luxury private aircraft.
- Additional income taxes on incomes over 10 million naira, deducted by employer.
- Capital gains taxes on owners of companies, properties, and the shareholders of companies, including MSMEs that employ more persons than the registered owner and family.
- Government contractor taxes- an additional slight tax on the profits or earnings of any company or individual that has won a contract with the government in the previous 3 years.
- Inheritance Taxes – on estates valued over 10 million naira.
- Luxury Goods Taxes – luxury taxes on imported luxury consumer goods, wine, champagne, beverages, foreign brand foods, luxury textiles, satellite broadcasts, foreign film screenings, business class and first class travel tickets, and other luxury products as determined.
It will not be that great of a task for the Federal Inland Revenue Service (FIRS) to identify and target the 5 million individuals and several thousand companies that would be affected by these policies. Further there is more than enough money in the hands of the nation’s elite in their discretionary spending alone, to curb the current economic slide and bring the nation back on sound footing. Despite ongoing crisis in the rest of the world, despite the drop in oil revenue, an economic crisis in Nigeria can be adverted, the devaluation of the naira is not necessary, and austerity measures that reduces funding to social services like the fuel subsidy is also unnecessary. However if the administration continues to ignore this sound economic adjustment, the ongoing crisis in the Eurozone, China and Asia, and in oil markets could lead to a complete collapse of the Nigerian economy before the end of this year. No amount of probes will avert that. Since there was solution available, the blame should fall squarely at the doorstep of President Buhari and his administration.
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 2015 David Kuranga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.