Nigeria's looming Bankruptcy Crises (1)

By Terhemba Osuji 

Well the Minister of finance (I am always mesmerized by her accent, please don't tell her) has finally confirmed that Nigeria is broke and the country can no longer borrow to finance its deficit spending on salaries and other miscellaneous items. 

She also hinted that it is time to explore new ways of taxing areas of the economy that have been dodging taxation to fill the shortfall in revenue. 

In signaling a shift towards exploring new tax revenue, the minister seemed to overlook the fact that: 

1. The legitimate tax base has been under assault by this administration through its rash forex rationing policies and many companies and airlines have fled, all the indices of production are down, basically this administration is facing a terribly depleting tax base that will shrink further by more taxation.

2. Though growing steadily, only a sliver of economic activities are conducted by credit or by charge, most of the daily economic activity in the country is conducted by cash and there is no mechanism to capture, report or to collect taxes from these sometimes trade by barter transactions and that will not change for a long time.

3. Besides lacking systems that feed personal income of individuals to the authorities to cross check, Nigeria as of yet does not have systems where all citizens are required to report their incomes and pay taxes at the end of the year. Most taxes are targeted at buildings and businesses and at the seaports and at politicians who tender some proof of payment on terribly inaccurate and underreported income.

4. Truth be told many Nigerians really cannot tell you how much the make. Very few people live on their salary and make ends meet by all manner of hustling, and a mix of fraudulent with semi-legitimate means to make ends meet, including personal loans and pools that are all subject to taxation in advanced economies, but unreported in Nigeria. 

5. Attempts have been made to track the source of incomes through BVN numbers at banks but many people just have accounts opened by subordinates or the cash is hidden in a mattress or underground bunker and even though banks issue statements, these statements are not used to file personal income taxes at the end of the year.

5. The obvious next source of revenue and the most talked about economic savior is agriculture, but a critical examination of that sector reveals a classic case of baboon de work and money de chop. Truth be told commodity prices to a degree are controlled by the trading exchanges overseas which keep the prices fixed within a specific range to avoid volatility. While Nigeria seeks to target exports overseas and successful does it still has to deal with a lopsided exchanges rate that allow the dollar or pound buy tonnes of raw produce at pennies on the dollar and export the raw finished goods back to Nigeria.

7. While some regions have experienced increase yield in agriculture, vast tracks of farm land in some zones have been abandoned with farmers relocating and changing occupations due to the onslaught of revaging herdsmen and Boko Harem terrorists in the North east leading to famine in the midst of growth in other regions leading to a negative equalizer of recessive growth. Basically the subsistent agriculture that Nigeria depends on is in decline and unlikely to act as an income generator that can be taxed individually for the foreseeable future.

6. Nigeria maintains a terribly lopsided balance of trade with the west and has not found a way to cut down its appetite for consumer or luxury goods which leads to a steady outflow of capital overseas.

Without new sources of income since the fall of crude oil prices and without similar earners of hard currency, Nigeria cannot substantially increase revenue receipts to the government even if it plugs every single fraudulent link and channels them into the economy.

The time has come for the administration to focus on the expenditure side of the equation if it is to escape bankruptcy


(Part 2 coming out soon, I need to finish my lunch.)


By Terhemba Osuji

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