FEATURE ARTICLE

Alfred AisedionlenMonday, March 12, 2012
[email protected]
London, UK

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FINANCING NIGERIA�S ANNUAL BUDGET (2)

he first of this piece was published on this site on 27th February 2012. Were it not the unwarranted insecurity that the northern Muslims unleashed on Nigeria, today finance would have been the critical factor in the country. However, finance affects all the segments of society with no exception. It has no political colouration. The issues today are how to generate enough revenue, safeguard it, spend some and preserve some, all without the need for the Government going cap in hand. What we need to do and the means to do them are at home with us, in human and material terms. It is now incumbent upon us.


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As the western world is no longer in the position to dictating the prices of commodities on take it or leave it basis, can Nigeria now plan her economy and prepare the budget with reasonable certainty? After the determination of the necessary budget expenditure for the fiscal year, the Government should be able to determine the sources of the revenue to finance it. So far, these are significantly from crude oil, less from all forms of taxation, duty and charge. As the minimum price of crude oil per barrel is today $100, the Government should be able to use at least $80 per barrel as the benchmark for the budget. The world economy now dictates that crude oil price is not expected to �recede� by more than $20 per barrel.

In order to have enough avenues for the generation of adequate revenue and the tools for the maintenance, we need to adopt a system of mixed economy. This is where the economy of the country is significantly controlled by the private sector and the Government collects taxes. Here, the systems for nurturing the economy, which are Education and Health, are heavily shouldered by the Government, in terms of funding. The near optimal ratio for the economy should be about 70% private sector and 30% Government control. In the 70% - 30% ratio, every sector finances and controls its allotment. Where necessary the Government would give a helping hand to the private sector. With this there would be sufficient avenues to generating fund for the country.

I am not here talking about private partnership participation (PPP) scheme, which is a conman�s system of finance. That is where some private individuals or corporate bodies use public fund to run their own businesses at public expense. The Government obtains or borrows money from the private sector at huge interest rate or put up part or the whole of its fund on establishments or projects and ask the same private sector to be managing or controlling them.

Nigeria should today be able to provide a fully free Education up to at least secondary school level. She should in addition be able to provide fully free Healthcare system in the country generally as found in the United Kingdom. These are possible even within the present level of economy of the country, only if revenue is pursued vigorously and raised proportionately. A well educated and healthy society is a productive society, hence adequate revenue for the country. Within a mixed economy, the Government is always in a firm position to adequately watch the system for efficiency and productivity through Control Commissions.

Given that the current year budgeted expenditure of N4.648tr could be crudely allocated to each of the potential 70m tax payers of individuals, businesses and incorporated entities in the country at N66400 but paid proportionately, the pattern of such payment could be as follow. The Government should be able to set a four scale of rates for personal income tax on gross emolument, without any personal allowances. As those that earn certain amount of income must pay tax, the scales could be 5% on each tax payer who earns between N216000 and N299999 per annum. The second scale could be 10% on a tax payer that earns between N300000 and N599999 per annum. The third scale could be 20% on a tax payer that earns between N600000 and N1999999 per annum. The fourth scale could be 30% on a tax payer that earns N2m upwards per annum. The Government could adopt 10% rate of corporation tax on ordinary businesses and incorporated entities turnover. That is tax on turnover rather than tax on profit. With these there is no individual or business that would significantly evade or avoid payment of tax or payment of the right amount.

The Government could extend the applicable scale to the amount that is found in a tax payer�s bank accounts and investments that are tucked away in the country, abroad or safe haven, whose means are certain or uncertain. If they are found to be corruptly etc. acquired, the Economic Financial Crime Commission (EFCC) would move in to recover the net amount of Government appropriate tax. The yearly incremental of these could be so tax. These days the means for tracing and locating such otherwise hidden funds and investments wherever they are in the world are there. Today, many individuals and corporate bodies in the country are holding billions of Naira that could be taxed in these manners.

Tax allowances are formality, academic and unnecessary. They make tax assessment and computation unnecessarily complicated and a monopoly of the experts. Tax allowances can be discarded all together. For example, the Government can get the same amount of tax if it applies a high rate of tax on the residue of gross income, after deduction of available tax allowances, with a low rate of tax on the gross income, without deduction of tax allowances. The low rate can even yield more tax revenue. But the Government would argue that apart from the tax allowances that are common to every tax payer those whom further tax allowances are due would get them and those they are not applicable would not. With tax allowances you do not have to come to the Government for much further help. This is not always the true situation.

If the Government is able to raise revenue in the above manners, the capacity which is no doubt abounding in the country, it would have a huge treasury. There would be sufficient fund to maintain free Education and Health in the country. Fund would be available for the necessary grants and subsidies. This would enable businesses to sell at low prices, thrive and survive. This means fund that has been taken in the absence of the formality of tax allowances is given back in different forms to those that actually need it. Within the potential 70m tax payers of individuals, businesses and incorporated entities in the country today, with revenue from natural resources, duties and charges, the Government would always have fund to maintain a balanced or surplus budget. There will be no need for quantitative easing and jacking up lending minimum interest rate beyond 5% all that are inimical to the Naira and growth of the economy.

As the total projected annual revenue is stated in the budget, it is only wise for the Federal Government to incorporate the projected amount that would be paid out as derivation and allocation to the State and Local Governments in the annual budget, as items of expenditure. Hence, derivation and fund allocation from the Federation Account to the three tiers of the Government should be paid quarterly according to the budgeted amount rather than the actual revenue generated. The State and Local Governments would here be able to finalise their budgets as soon as the Federal Government budget is published.

At the end of the last quarter, the budgeted amount that was paid out as allocation and derivation would be reconciled with allocable actual revenue. The allocation and derivation account would be adjusted accordingly for the payment of the year to reflect actual revenue generated and allocable. The only amount that would be left in the annual revenue generated would be the amount that was taken to national reserve, which is not anyway available for allocation but for specified national expenditure. With these, there will be no need for Excess Crude Oil Account or Sovereign Wealth Fund let alone the argument as to how the fund shall be shared or used.

During each quarter, the fund for allocation should preferably be divided equally among the six geo-political zones. Each zone would then share its allocation among its State and Local Governments according to the federal revenue sharing formula. The argument about North and South fund allocation, State and Local Government creation inequalities will not arise. It will be then left to each zone as to the number of State and Local Governments it already has and allocation per each.

Under sections 84 and 124 of the Constitution, the President, Vice President, State Governors, Deputy State Governors, top Judges, Government appointees, top Civil Servants etc. cannot have their emolument reduced. Some people are now interpreting this to mean that these categories of people are exempted from personal tax payment on their total emolument. This is a very wrong interpretation of the Constitution. Personal tax is not a reduction of emolument but a contribution which every citizen and resident that earns sufficient income has obligation to make to society. In the first place, issues about emolument and natural resources derivation payment should not be a Constitutional matter. These are matters of statutory laws which are within the remit of the National Assembly. The least emolument of every member of the National Assembly is about N200m per annum. The whole amount should attract personal taxation. The Federal Inland Revenue should not have any assumed legal encumbrance to fail to assess and collect personal income tax from this group of people in society.

The Federal Government should abolish domiciliary bank accounts system in the country. In as much as the commercial banks can hold some of their funds in foreign currencies for cash transaction on the counter, the individuals and non banking companies have not the actual need to holding bank accounts in foreign currencies. In addition to the foreign exchange round tripping abuses on the accounts, domiciliary bank accounts are the conduit through which the holders keep their corruptly acquired fund, transfer the money in the same foreign currency out of the country through internet banking to their overseas bank accounts. This is without the need for further foreign exchange. With accounts in the overseas branches of their home banks, the transfer is instantaneous without the need for the bank to handle the transaction for them on instruction to transfer fund.

The Federal Ministers should be able to control their Ministries, be on ground as to what happen in every department, that things are done accordingly, contracts are being performed and performed, especially those that generate revenue. For example, a revenue critical Ministry such the Ministry of Petroleum Resources should have a capable Minister. The Minister should be able to ascertain at all times the actual crude oil and gas that are extracted in the country on daily basis and that every single barrel of crude oil produced is accounted. The Minister should be able to see that those crude oil and gas are wholly sold by the Sales department. The Minister should be able to see that the sales proceeds are totally accounted for and remitted to the appropriate Federal Government department and bank accounts on daily basis. With these, there would be no need to be setting up committees upon committees to be doing the job which a Minister was first appointed to do and the President was elected.

With the above, the Government does not need to run a deficit and unattainable budget nor will there be any need for the Government to go cap in hand, begging for fund, borrowing either in the form of loans or bond issuances.

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