Should wealthy Nigerians be made to pay more taxes, to grow our economy & solve inequality?
Short answer the Nigerian in me would give: “Why should he pay more than others? Na im talk say make Nigeria get bad economy or say make some others no get bar? (Or like Davido would say) my papa get money, na my fault?”
But, let’s examine this issue holistically, starting with “why?”
One, the Nigerian economy is in very bad shape and there seem to be no signs of light at the end of the tunnel as it stands. Crude oil is also not generating enough revenue to offset the slowdown in revenue from non-oil sources such as agriculture, manufacturing and transportation. It is also not uncommon these days to hear the government telling Nigerians to “still tighten their belts and prepare for tougher times ahead”, even as the government continues to borrow money to finance its operations.
Two, there’s the issue of widening economic inequality gap in the country. According to an article by Oxfam, “ in Nigeria the scale of economic inequality has reached extreme levels, and it finds expression in the daily struggles of the majority of the population in the face of accumulation of obscene amounts of wealth by a small number of individuals. While more than 112 million people were living in poverty in 2010, The richest Nigerian man will take 42 years to spend all of his wealth at 1 million per day… The amount of money that the richest Nigerian man can earn annually from his wealth is sufficient to lift 2 million people out of poverty for one year.”
The question now is: Can we offset the economic slowdown, sidestep having to borrow more, and solve the problem of inequality by increasing the tax rate for wealthy Nigerians?
So, for instance, Nigerians earning less than N10m annually continue to pay 7% to 24% of their taxable (not gross) income as personal income tax rate while Nigerians earning above N10m annually as taxable income pay let’s say 70% of their annual income as personal income tax.
On the surface, a merit of this move is instantly clear: Government would have more money on hands to provide for the citizenry. The problem of inequality gap also somewhat get solved, as it’d effectively put a cap on how much an individual can earn. But what are its comparatively salient demerits?
1, Tax evasion & avoidance
Firstly, let me state that tax evasion is different from tax avoidance. The former refers to illegal means an individual undertakes to reduce his tax liability, while the latter touches on the reduction of tax liability within the ambit of the law.
Even without disparities in the tax rate different individuals are subject to, mere high tax rates lead to an increase in taxed individuals seeking to reduce their tax liabilities illegally (and legally). Disparities in tax rate proper would thus inevitably lead to a lower level of tax compliance among income earners in the higher-tax-rate bracket. And this would defeat the ultimate purpose of the higher taxes in the first place. The government would wind up raising less money, and for pure politicians who find themselves in positions of leadership, this could affect their political career and popularity.
2, Reduction in entrepreneurship
If a person knows once he earns N10m above, he’d effectively get poorer than someone earning half of what he earns, as he’d pay N7m in taxes leaving him with N3m, while the N5m earner would pay N1.2m in taxes leaving him with N3.8m to settle other expenses, he would have less incentive to earn more. The majority who aren’t avoiding or evading taxes would most likely stop putting in more entrepreneurial work, leading to a slowdown in, for instance, provision of jobs by the private sector.
3, Emigration of a certain class
Increase in taxes for a particular group of people could lead to members of such a group leaving the country to go invest and reap benefits of their investments in countries with less tax. Some might even go as far as denouncing their citizenship if it means Nigeria would lose the right to take 70% of their money.
With the aforementioned merits and demerits in mind, is it out of place to tax the rich more? In the US, for instance, there has been some evidence that higher taxes on the rich have been successful in creating a wealthier government without any adverse effect on entrepreneurship activities etc. Some have also argued that the rich aren’t getting more entrepreneurial by the day. Rather, they’re making and sitting on the money.
As Alana Samuels of The Atlantic, citing Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva’s ‘Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities’ paper, further states on consequences of the past occurrence of higher tax rates in countries like Denmark and lower taxes in countries like Britain, “…. high taxes didn’t lead productive earners to flee, and low tax rates didn’t motivate them to produce more. [Thus,]… while there isn’t a lot of proof that high taxes result in economic slack, there’s a compelling link between low taxation and a growth in inequality.”
On the flip side, there’re the arguments on prevalent corruption in the country and if the government is really efficient enough with even its current income, to warrant getting more funds to further what it already does; and if it is proper to ‘tax billionaires out of existence’.
In conclusion dear reader, should wealthier Nigerians be made to pay more taxes to grow our economy & solve the problem of inequality?
By Mayowa Samuel Adegoke
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