…proffers solutions towards achieving tax justice
By Lubem Gena, Abuja
A coalition of frontline civil society organisations have expressed deep concern at the administration of tax and public expenditure in Nigeria.
The coalition made up of Civil Society Legislative and Advocacy Centre, (CISLAC), Christian Aid, Extractive 360; Akwa State Host of Tax Justice and Governance Platform; Accountability Lab Nigeria and Social Action Nigeria made their displeasure known today, Friday, 2nd January, 2024 in Abuja while addressing the press under the topic: “Addressing Nigeria’s Fiscal Challenges and Public Debt Management”, during which it noted that the country is facing a critical economic challenge, marked by a substantial allocation of its revenue towards debt servicing.
“As of December 2022, 80% of Nigeria’s total revenue is dedicated to this purpose. This financial strain is further exacerbated by a notable decrease in federal funding for crucial sectors like health, which saw a decline from 5.97% in 2012 to a mere 3.3% in 2019.
“The 2021 fiscal year saw a budget of N13.6 trillion, of which only N514 billion, or 3.7%, was allocated to health. 2022 witnessed a slight increase to 4.3%, and the highest allocation recently has been 5.7% in the 2023 budget. In the last administration (2015-2023) only N6.47 trillion was allocated to the education sector in seven years.
“The highest allocation to education was N745 billion (8.4%) out of the N8.9 trillion 2019 budget. Following the COVID-19 pandemic and the resultant debt crisis, the education budget has consistently dropped from 6.5% to 5.7% and 5.4% of the 2020, 2021 and 2022 budgets, respectively”, CISLAC Executive Director, Mr. Musa Auwal Ibrahim stated.
The CSOs wondered why the country will spend six times more on servicing debts than on building new schools and hospitals in 2024. Only 7.9%, 5% and 4% were allocated to education; healthcare; and social development and poverty reduction, respectively.
“It is also instructive to note that as Nigeria runs a dollar-denominated economy, so it may be more ideal to assess budgetary allocations to social services in dollar terms. A comparative analysis of the budgetary allocations to just education based on the exchange rate assumptions of the country’s 2023 and 2024 budgets show that the education expenditure budget has dropped by 36% between 2023 and 2024 from $56b to $36b.
“In its N28 trillion 2024 budget, the pattern of bloated recurrent spending new borrowings and unsustainable debt servicing costs still persist. Debt service is allotted N8.25 trillion and the President ambitiously projects debt servicing at 45% of total income while it currently sits at 98%, as the World Bank projects 160% by 2027.
“A critical analysis of Nigeria’s debt sustainability also reveals concerning figures. The Debt-to-GDP ratio stands at 45.4%, surpassing the self-imposed limit of 40%. Furthermore, the Debt Servicing-to-Revenue ratio has reached 73.5%, significantly higher than the recommended 50% threshold.
“This unsustainable level of public debt highlights the need for a reassessment of government spending and revenue generation. One area of significant impact is the substantial revenue forgone through tax expenditures, such as incentives, exemptions, credits, and waivers. The 2021 Tax Expenditure Statement (TES) estimates this loss at approximately 4% of GDP or N6.8 trillion, which was approximately 49.6% of the total 2021 budget.
“The expenditures for previous and succeeding years were N5.8 trillion in 2020 which was equivalent to 55% of the total budget, 5.3 trillion in 2022 which was equivalent to 39% of the budget and 5.51 trillion in 2023 accounting for 25% of last year’s budget”, part of their text of the address read.
Mrs. Nancy Ifeyinwa in her contribution said, o address this fiscal crisis, responsible decisions must be taken in areas of tax incentive administrators publishing cost-benefit analyses of tax expenditures to enable public scrutiny and assess the value of these incentives; regular audits of Public Debt Management operations, in line with World Bank recommendations, should be conducted every three years to ensure compliance and transparency
She also pointed out that Nigerian government must reduce its dependency on international and especially private creditor borrowings (which account for about 60% of the annual debt servicing cost) and prioritize concessional loans, in adherence to legal stipulations.
The current economic situation in Nigeria, characterized by dwindling government revenues and escalating public debt, demands immediate and strategic interventions. The government’s persistent reliance on borrowing and the loss of substantial revenue through tax expenditures have compounded these challenges.
Other stakeholders who spoke during the briefing including, Juliet Ukanwosu, the Executive Director of Extractive 360; Henry Udoh, Host of Akwa Ibom State Tax Justice Governance Platform; Odey Friday, the Country Director of Accountability Lab as well as Botti Isaac of Social Action Nigeria, used to occasion to proffer some solutions which they believe will see the country exit from the current quagmire it faces around the thematic area.
“The National Assembly should revise legal and institutional frameworks related to debt management, emphasizing transparency and accountability. This includes empowering bodies like the Fiscal Responsibility Commission and the Debt Management Office to enforce laws and regulations.
“Strong civil society involvement in public debt management is crucial for robust citizen participation and ensuring the alignment of debt-raising activities with national development goals.
“Loan approvals should undergo rigorous legislative scrutiny, with public involvement and transparent disclosure of terms and conditions.
“The Ministry of Finance, Budget and National Planning, and related agencies must enhance revenue generation by expanding the tax net, improving tax compliance and revising tax incentives.
“Implementing a net wealth tax or wealth tax policy can significantly boost revenue from high-net-worth individuals and organizations.
“Exploring revenue streams such as carbon taxes, in line with progressive taxation principles, can further augment government income.
“Review all the existing tax expenditures and criteria for such benefit including but not limited to Pioneer status, contribution to economy etc. Remove the power to grant tax expenditures from the Minister of Finance or the Executive and only place a duty on the Executive to document the recommendations, proposals and/or justification for tax expenditure subject to the approval of the legislature.
“Tax expenditures should not exceed 10% of projected revenue every year or within the medium term”.
According to them, transparency, accountability, and popular participation in tax expenditure management; adopting standard principles for designing good tax incentive frameworks; cost-benefit analysis of the potential impact of incentives before granting them and conduct periodic assessments, measurements and evaluation of tax expenditure milestones and impact on the economy among others are critical ingredients in salvaging the situation.
