Moghalu: Nigerians Don’t Pay Taxes Because They Lack Faith in Govt
A former Deputy Governor of the Central Bank of Nigeria, Prof. Kingsley Moghalu believes that the federal and state governments are not doing enough in terms of their approach to revenue generation. Moghalu, in this interview with Chika Amanze
Nwachuku and Obinna Chima, stressed the need for a fundamental response from Nigerian citizens, especially the youths, in order to address the leadership deficit that has long contributed to the poor policy choices. Excerpts:
Now that the economy is out of recession, what measures do you think should be put in place to achieve sustainable growth?
First of all, it is a good thing that, even if it is simply technically speaking, we can say that the recession is over. Economic growth will be anaemic for a while, and it will also be fragile. The reason it will continue to be fragile is because from what I can see from the numbers, growth has not been very strong in manufacturing. Manufacturing is what should drive jobs and productivity in developing economies. To a large extent, the growth we have seen this year has been driven a lot by the oil sector, which is always volatile because of possible price shocks from external factors. Relying on the price of a raw commodity is not a secure basis for economic planning. So, that is my caution.
When we speak about the path forward, I believe that the fiscal management of Nigeria needs to be completely overhauled. I worry about the debt burden that Nigeria is getting into. I see that the government recently requested the approval of the National Assembly for $5.5 billion in borrowing. If you consider that more than 60 per cent of revenues earned by Nigeria are already going into debt servicing, you can see that we are going into dangerous territory. The argument is always there that these When we speak about the path forward, I believe that the fiscal management of Nigeria needs to be completely overhauled. I worry about the debt burden that Nigeria is getting into. I see that the government recently requested the approval of the National Assembly for $5.5 billion in borrowing. If you consider that more than 60 per cent of revenues earned by Nigeria are already going into debt servicing, you can see that we are going into dangerous territory. The argument is always there that these loans will be used to execute some important infrastructure that can accelerate growth. But in practice, the quality of the use of foreign debt in Nigeria has not been encouraging. All the foreign loans that were taken in the past have not significantly improved economic growth and development in Nigeria loans will be used to execute some important infrastructure that can accelerate growth. But in practice, the quality of the use of foreign debt in Nigeria has not been encouraging. All the foreign loans that were taken in the past have not significantly improved economic growth and development in Nigeria. Therefore, we have to worry about whether or not this is not a politically inspired move, seeing that the government is facing difficulties and may want to be seen to be staying afloat. I worry about the implications of all these loans because this debt will hang on subsequent governments and future generations of citizens. After former president Olusegun Obasanjo wiped out the debts that were taken by previous governments, we are once again becoming heavily indebted. We are told that with our debt to Gross Domestic Product (GDP) ratio at 19 per cent is safe to borrow more. That is shallow economic thinking. What matters is the debt service- to-revenue ratio. For a developing country like Nigeria, that is what should concern us.
I feel that the federal and state governments should look inward a lot more. I see a bit of laziness in both the federal and state governments, in terms of the approach to generating revenue. There is a knee-jerk reaction to go for foreign borrowing because it is easy and once you get it, you can spend it. But if states and the federal government look inward, I think they can generate a lot more revenue. Let’s give an example with the federal government – taxation. If you look at Nigeria today, you find that the penetration of mobile telephones is very high, about 140 million lines out of 180 million people. You also find that the informal economy is huge in Nigeria – 65% of our GDP according to the IMF. But, what is the effort that is being made to bring the informal economy into the formal economy? It is when you bring the informal economy into the formal economy that you can generate massive amounts of tax revenue. Now, how do you bring the informal economy into the formal economy? The path to achieving that runs through the mobile telephone. If the government were to follow mobile telephone ownership in Nigeria, they would get to nearly every Nigerian. If you get to every Nigerian whose sim card is registered, then you do a tax audit of that individual. If you are not paying tax, why not? What is the arrangement that can be set up now so you can pay taxes? Even if you are a street hawker and you have a mobile phone that is registered, why would you not pay tax to the state? I will tell you why a lot of people don’t like to pay tax and try to avoid tax. It is because there is no social contract between the government and the citizens of Nigeria. There must be a social contract. People do not trust the government. They don’t trust that if they pay taxes, the taxes they pay will be used appropriately. So, because of this lack of confidence, people try to hide their earnings
But I will tell you why a lot of people don’t like to pay tax and try to avoid tax. It is because there is no social contract between the government and the citizens of Nigeria. There must be a social contract. People do not trust the government. They don’t trust that if they pay taxes, the taxes they pay will be used appropriately. So, because of this lack of confidence, people try to hide their earnings. How can this problem be solved? This trust deficit must be addressed and overcome. If the government says to the people: we are going to make a new social contract and if you pay your tax, this is what we promise you at a minimum that we will deliver in terms of security, healthcare, social security in your old age, and so on. For example, we have about 300,000 policemen in Nigeria, with a population of 180 million persons. That is an extremely low investment in the security of life and limb, which is the number one duty of the state to its citizens. Even worse, half of the 300,000 policemen are guarding Very Important Persons (VIPs). Do you see where the breakdown of the social contract begins? Fundamentally, people have no trust that their security is being invested in. So, they rather invest their resources in their own security. So, there is no social contract between the state and the individual in Nigeria. I think this is where we must begin. If we start from there, we can get a lot of monies into the revenue coffers of the federal and state governments.
When you borrow more and more, you have very little left to provide services. The less we borrow, the more we can have expendable revenue that can be spent on development. The percentage of Nigeria’s spending on development, is one of the lowest in Africa. My thinking is not to increase taxes, but to improve tax collection. When you improve Continued on page28
MOGHALU: NIGERIANS DON’T PAY TAXES BECAUSE THEY LACK FAITH IN GOVT
There is no other solution to the leadership deficit in Nigeria than a fundamental citizen response. The current political leadership class in Nigeria has failed Nigeria. Broadly speaking, with very few exceptions, this is the case. We don’t have good leaders in Nigeria because our democracy is all politics and no leadership. It’s all transactions but no substance. The real purpose of politics is to produce leadership. But in Nigeria, the purpose of politics is not to produce leadership. It is to entrench vested interests - whether ethnic irredentists or people who are trying to get returns on their political investments or godfatherism. So, the whole purpose of politics in Nigeria is warped. It therefore cannot produce the type of leadership that can take Nigeria forward tax collection, you have more revenue to spend on the things that can stimulate the economy, including infrastructure. We claim to be focused a lot on physical infrastructure, which we do not even deliver well in terms of the quality of the projects, but we ignore social infrastructure such as health and education. What is the spending of the government on health and education? Very low! And these are the things that are also tied into the absence of a social contract. If people don’t feel that they can go to a hospital and get treatment, they won’t feel that they owe their government anything.
Another requirement for economic growth is to restore local international investor confidence with the right policy adjustments. I see that the government is talking a lot about improving the Ease of Doing Business. But we have to see the results. I tried to register a think-thank as a company limited by guarantee in Nigeria. The process took more than one year. At a point I was so frustrated that I incorporated a foreign version of the same organisation in the United States so that the vision would not die. It took me all of two days to do it in the US. Two days!! So, compare two days with one year and you will see what the problem is with doing business in Nigeria. The bureaucracy in Nigeria is humongous and it strangles private enterprise. It is one thing to talk about Doing Business reforms, but until people begin to see in a practical manner the efficiency of registering a business in Nigeria, you have a lot of economic growth being stifled and people may be going into other countries. We see a lot of foreign investors now trying to go into West African countries like Ghana.
From all you have just said, I think the country needs to urgently address the issue of leadership deficit. What do you think can be done to address the issue of quality leadership in Nigeria?
There is no other solution to the leadership deficit in Nigeria than a fundamental citizen response. The current political leadership class in Nigeria has failed Nigeria. Broadly speaking, with very few exceptions, this is the case. We don’t have good leaders in Nigeria because our democracy is all politics and no leadership. It’s all transactions but no substance. The real purpose of politics is to produce leadership. But in Nigeria, the purpose of politics is not to produce leadership. It is to entrench vested interests - whether ethnic irredentists or people who are trying to get returns on their political investments or godfatherism. So, the whole purpose of politics in Nigeria is warped. It therefore cannot produce the type of leadership that can take Nigeria forward.
I would recommend some things. First, Nigeria’s citizens need to wake up to their responsibilities. Every country gets the leaders it deserves. So, if we are sitting around complaining about the leadership we have in Nigeria, it is because we have not taken the action to elect a better set of leaders. So, the citizens in Nigeria have a big share of the responsibility for the leadership crisis Nigeria faces today. We have huge practical problems in Nigeria today – we have 29 million Nigerians unemployed; we have 10 million children out of school, the highest in the world; we are 187 out of 189 in the health system’s ranking of the World Health Organisations – these are practical problems that need to be solved. How do you solve these problems? We need technocratic leadership in Nigeria in the phase we are going into. We need leadership that has the knowledge base, the experience base and the global network base to be able to address these practical problems. If the leaders you are producing are people who have spent their political careers distributing bags of rice or hiring thugs, how can they address the problem of 29 million unemployed people or 10 million kids out of school? Like I said, our politics and politicians are not solving these problems. On top of that, we need three things. Number one, I think we need a lot of leadership training within the Nigerian political class. People need to be trained on what leadership means so that they understand that leadership means vision, that leadership means the ability to mobilise and inspire, set targets, and ensure accountability and delivery. That is what leadership is! Leadership is not about ‘my tribe is in power’, ‘it’s our turn’ or invading the public space with religious chauvinism that leads to conflicts and instability. In fact, we are regressing into a primordial dark age. We are led in this journey into backwardness by the very people who ought to secure our future. We are not making real progress because of this leadership crisis. If this leadership- competence crisis is not fixed, we will keep running around in circles. Leadership training is very important. Also fundamental is citizen action and responsibility which is needed to hold leadership accountable. Nigerian citizens can decide to go for a different set of leaders. Let’s try technocrats and people who have the knowledge of economics, political economy and other practical skills we need in order to solve these problems. That is what we need. This is how the leadership problem, in my view, can be solved in Nigeria. We focus too much on political party loyalties but not on the quality of candidates, and our political parties are not based on any real ideologies. I would recommend some things. First, Nigeria’s citizens need to wake up to their responsibilities. Every country gets the leaders it deserves. So, if we are sitting around complaining about the leadership we have in Nigeria, it is because we have not taken the action to elect a better set of leaders. So, the citizens in Nigeria have a big share of the responsibility for the leadership crisis Nigeria faces today. We have huge practical problems in Nigeria today – we have 29 million Nigerians unemployed; we have 10 million children out of school, the highest in the world; we are 187 out of 189 in the health system’s ranking of the World Health Organisations – these are practical problems that need to be solved
How do you think this will happen considering the level of poverty in the country where the electorates are always willing to trade their votes?
I talked earlier about leadership training, citizenship action for accountability, but I missed the point of citizenship education. This is why I decided to return home and set up the think-thank – the Institute for Governance and Economic Transformation (IGET) as my own contribution to solving this problem. IGET is not going to be doing the kind of technical research that only professors can read. We want to do it very simply and accessibly, to educate the citizens on governance and economics. This is because when citizens are empowered with that sort of knowledge, they can now demand for their rights. When the citizens understand that you are doing yourself a disservice by selling your votes every four years; the politician comes and gives you N5,000, buys your vote and disappears, only to reappear four years later. After four years of unemployment and other maladies, they come again and give you another N5,000 and you sell your vote. So, this issue of poverty is real, and Nigerians are selling their democratic rights and their future for a mess of porridge. But we must let the citizens know that they can create a medium to longer term prosperity for themselves if they can look beyond their short-term. By electing the right types of leaders and working together, the problems can be solved in a more durable fashion, rather than electing the wrong type of leaders because they buy your votes every four years. It all comes back to the citizens. They are poor, that’s true, but they need to be educated to know that the solution to their problems is in their hands. How can you have a country like Nigeria, which has numerous global talents and, as far as human capital is concerned, is number one in Africa. And yet we get third rate leaders most of the time. There is a disconnect. It is true that politicians rig elections, but that is because citizens allow them to rig elections. If the citizens were to rise up to protect their votes, it becomes difficult. I keep saying it: the citizens must take responsibility too. They are not yet angry enough. If and when they are angry enough, they will change their destiny.
And to a large extent, Nigerians do not believe the electoral body are independent. How do you see that? Continued on page 29