The President of the African Development Bank (AfDB), Akinwumi Adesina, has stated during the maiden edition of the national tax dialogue that Nigerians are among the highest implicit taxpayers globally.
The AfDB president faulted the situation in which Nigerians do not enjoy basic infrastructure that should be provided by the government despite paying taxes.
Implicit taxes are levies that are borne but are neither seen nor recorded.
He stated that residents are left with no option but to provide their own electricity, road, security, water, among others, adding that the government must rise to its duty rather than allowing citizens bear such burdens.
“We must also distinguish between nominal taxes and implicit taxes — Taxes that are borne but are not seen nor recorded. Truth be told, Nigerians pay one of the highest implicit tax rates in the world — way higher than developed countries,” he said.
“Think of it: they provide electricity for themselves via generators; they repair roads to their neighborhoods, if they can afford to; there are no social security systems; they provide security for their own safety; and they provide boreholes for drinking water with their own monies. That in incredulous in itself. Boreholes are not the way to provide water in the 21st century. Every household should have pipe borne water!
“Take for example that 86% of small and medium sized enterprises in Nigeria spend $14 billion annually on diesel for generators. Nigeria’s companies lose on average 10% of sales because they do not have access to reliable and affordable electricity.
“Governments, over time, have simply transferred their responsibility to citizens. When governments or institutions fail to provide basic services, the people bear the burden — a heavy implicit tax on the population.”
He said Africa’s gross domestic product (GDP) growth declined in 2020 by 2.1 per cent, the worst in two decades, while the cumulative loss to Africa’s GDP is estimated at $173-236 billion for 2020 and 2021, respectively.
“The (Nigeria) economy shrunk by 3% in 2020 on account of falling oil prices and effects of the lockdowns on economic activity. The pandemic has impacted on budgetary balances and increased debt burdens,” he said.
“Nigeria’s Debt-to-GDP ratio will push debt service payments beyond more than 60% of federally collected revenues. With shrinkage in oil revenues, debt service payments pose the greatest risk to Nigeria.
“To put a human face on the pandemic effects, we estimate that 28-40 million people in Africa are projected to fall into extreme poverty, and 30 million jobs would be lost due to the pandemic.
“We project that Nigeria’s economy is poised to recover to growth of 1.5% in 2021 and 2.9% in 2022, according to the African Development Bank’s soon to be released African Economic Outlook.”
Adesina said building back will require a lot more resources, adding that taxes form a significant part of government revenue.
He urged the federal government to focus on corporate taxes and ensure full compliance.
The AfDB president added that small and medium enterprises should be supported through tax exemptions or tax deferments.
“It is crucial to ensure that the tax base expands. Given that over 60% of Nigerians are in the informal sector, priority should be to support measures to move a large part of this from informal to formal sectors,” he said.
“The Government should focus a lot on corporate taxes, and ensure full compliance. But it is important to ensure that such taxes do not discourage investments
“Profit shifting, base erosion and tax avoidance by multinational corporations form a huge part of “Africa’s missing taxes”; and account for a large share of the over $60 billion illicit capital flows that Africa loses annually.
“If a company works in Nigeria, benefits from Nigeria, it should pay taxes in Nigeria. Small and medium sized enterprises should be further encouraged and supported, as they are the lifelines of earnings and the creators of jobs. Tax exemptions or tax deferments can be used to support their growth.”