Let’s Love Taxes

 

Those of us living in developed democracies should feel grateful every tax season. A state that doesn’t rely on popular taxation for its funds can be a very bad place to live. When used appropriately, taxes foster institution-building, transparency, accountability and most importantly perhaps, consent. Taxpayers can and often do demand their democratic governments show how their money is being used. On the other hand, oil revenues allow for a gap to emerge between the state and its populace; because the populace doesn’t fund the government, it has less reason to call for accountability in spending. There is no political need for the consent of constituencies in such places. Oil permits the state to avoid the political costs of voter opposition to taxation, as well as cultivate a population accustomed to low taxes and hostile to politicians who attempt tax hikes that would improve state robustness or democratic conditions. Ultimately, oil states are capital intensive enclaves that require a large investment to get the extraction started and then merely a modicum of rule to ensure uninterrupted flow.

Less than 10% of Nigeria’s annual budget is based on taxes and that is highly problematic. I vaguely recall reading somewhere that the vast majority of commerce of daily goods, something like 90%, is done on the informal market and therefore extremely difficult to tax.  I know that cash is king here, with people using boxes of paper naira to purchase homes and other big-ticket items. This leads to a question of causation: Are taxes impossible to collect because of the informal economy or does the informal economy make taxation impossible?

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3 responses to “Let’s Love Taxes

  1. Taxes aren’t impossible to collect. Lagos State for example depends on IGR for 75% of its funding (the most unique state in Nigeria). Nigerians will be more willing to pay taxes if they see that tax money is being put to good use.

    In Lagos, there is some evidence of tax money being put to use – road construction, better traffic management system, a light rail project and a state run (subsidised) mass transit system.

    Electricity generation is tricky because the policy framework guiding the production of electricity is still confusing. Once that is dealt with, expect Lagos to lead the way in electricity generation.

    Lagos is like the California of Nigeria. The premier lab for new ideas in government. Where Lagos leads, expect others to follow. You spend a lot of time in the Niger Delta, but Niger Delta governors tend to be less motivated to seek private sources of funding, because they are literally swamped in a flood of dollars (derivation fund etc). There are more progressive, less oil dependent states like Enugu and Cross Rivers.

    L

    Like

  2. Pingback: Remarks on social services in the Niger Delta | Niger Delta Politics

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