Diversifying government revenue streams

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Besides high import tariffs and increasing value added tax (VAT), government should also seek other novel sources of raising its revenues to meet its growing budgetary needs. This has become inevitable in an era oil revenues are no longer enough to meet government’s increasing needs to invest in the country’s economic diversification which is needed should be hope to diversify government revenues too.    

Government’s unconventional sources of revenues should include the formalization of the country’s millions of informal sector operators, who lacking tax codes hardly file tax returns not to mention paying the right taxes at the right time. Because ours is still informal sector economy, there is no other better way to increasing government tax revenues without increasing taxes paid by millions of informal sector businesses which without their legal formalization, will never pay the right taxes and as when due.

Another is the need for a carbon tax policy regime in Nigeria. Carbon tax is the special tax imposed on automobile through annual number plate renewal fees. Here, all automobiles should renew their number plates based on the engine capacities of the automobiles. For instance, automobiles with V12 engine and above engine capacities should annually renew their plates with as high as N200,000; those automobiles with between V8 and V10 engine capacities, should have to annually renew their number plates with N150,000; whereas autos with between V4 and V6 should be mandates to pay N100,000 in the annual renewal of their number plates; while automobiles with engine capacities below V4 should have to pay N50,000 annually in renewing their number plates.

This number plate renewal fee policy is to mitigate the social and pollution costs these automobiles impose on the society daily. The full implementation of the carbon tax policy in Nigeria, as it is the case in most modern economies, should undoubtedly become government’s important source of non-oil revenue. Of course, as high as N1.2 trillion should be the minimum annually revenue to be generated from the country’s automobile number plate annual renewal.

Tollgate policy should be returned on the country’s highways in a way that cars and trucks should pay according to the costs they impose on the roads. To ensure that the toll fees are not diverted as was previously the case, e-collection rather than manual should be used. Government should privatize the roads so that the private owners remit certain percentage of the toll fees to government while retaining the rest for maintenance and expansion of the roads. Also, government can borrow money to build roads and lease them out to private companies to pay a kind of mortgage fee plus interest until the cost of building the roads and the interest are offset, then ownership reverts to the private owner. 

Drug tax should be imposed on all drugs consumed in the country, particularly on dietary supplements. This means that ministries of health and finance should have their price tags all drugs sold in the country not only to create uniform price across the country but also to be able to tax the drugs sold as well as reducing drug abuses in the country. Government taxing drugs, especially disproportionally taxing imported drugs, drugs that could be locally produced, should not only be become an important source of revenue but should also become a way of encouraging foreign drug makers to begin to relocate their factories to Nigeria, in an effort to make their products competitive in Nigerian drugs market.

Lottery and jackpot tax should be imposed on lottery and jackpot operators and winners as well. Like most developed economies using lotteries and jackpots to generate a lot of revenues, federal, states and local governments in Nigeria should surprisingly discover how important lotteries and jackpots are as sources of revenue generation.

Our capital gains tax (profit incurred by individuals or corporations on the sale of non-inventory assets, mostly realized from the sale of stocks, bonds, precious metals and properties) which is one of the lowest in the world should not only be increased from 10 per cent to as high as 40 per cent but also should be fully enforced with high evasion cost and consequences. 

Property should be made an important source of government revenue, taxing both owners and renters of both residential and corporate property. If not for any reason, be it for providing security and policing as well as for cleaning and beautifying streets and neighbourhoods. As an important source of revenue for local authorities, property tax should however be designed in a way that discourages double taxation.

Property tax along with street and road traffic offences–wrongful parking, traffic light offences, driving on pedestrian lanes, driving without number plates, drunk driving–when fully implemented, could be a major revenue source, particularly for state and local governments.

With fiscal federalism and revenue sharing formula that mandates all the tiers of government to only use internally generated revenues for their recurrent expenditures, while oil and other federal sources of revenue are by law wholly spent on capital projects, mostly federal and interstates projects, is needed if we want government at all levels to become innovative and aggressive in their revenue generation efforts.  

E-collection policy as recently put in place by the federal government is one of the best policies of this government. This is because ministries, departments and agencies of government that are involved in revenue generation have been directed that all receipts by them be made directly to the Consolidated Revenue Fund (CRF) at the CBN using e-collection, an electronic channel process, which makes it difficult for revenue generating MDAs to corruptly divert public revenues collected by them.

By insisting on MDAs closing all their revenue accounts with deposit money banks based on CBN directives on Treasury Single Accounts (TSA), it has become difficult for banks to grow their credit portfolios on MDAs’ while at the same time helping them corruptly divert these revenues due to government. That is why with e-collection and TSA government should expect as high as N4.13tn in 2015 as remittances from MDAs to go into CRF account of the federal government.

With all these innovative and aggressive tax policy measures fully implemented, no doubt, our tax-to-budget ratio currently among the lowest in the world, should drastically increase over the years with the goal of getting as high as above 70 per cent. This, undoubtedly, should equally lead to increasing our current federal budget-to-GDP ratio from its less than 5.0 per cent to as high 25 percentage point, which is the minimal percentage point at which a budget moves from a consumption budget to an investment budget.

If South Africa’s June 2015 to June 2016 budget is $106.5 billion against its $384 billion GDP, isn’t it ironic that Nigeria’s January 2015 to December 2015 budget should be about $23 billion against its $510 billion GDP? That’s why for our national budgets to become pro-investment, pro-growth, and pro-jobs, going forward, the minimum federal government should budget annually should be between $100 billion (being 20 per cent of GDP) and $150 billion (being 30 per cent GDP), with as high as 70 per cent of the budget money coming from taxes and other internally generated revenues. This way, capital spending should be by law made to be as high as 80 per cent of the national budget.    

During his second term in office, President Jonathan should have in place an unconventional economic management team to be led by an exceptional common-sense economic development team leader, whose first goal should be to drive government’s ever innovative and aggressive revenue generation policies. In other words, from the onset of his second term in office, the Jonathan administration should be determined in raising trillions tax naira through both conventional and unconventional means, since without which, there is no way the administration should raise the kind of money needed to be able to tackle Nigeria’s infrastructure deficit head-on, and without which there is no way millions of industrial, particularly manufacturing jobs should be created in our efforts to be able to address the dangerous level of unemployment in the country equally head-on.

Odilim Enwegbara, a development economist writes from Abuja.

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