Low tax rate to GDP ratio is not an excuse to increase tax – AfDB President, Adesina

African Development Bank (AfDB) has said that Nigeria’s low tax rate to GDP ratio is not an excuse to increase tax.

This was disclosed by the President of the African Development Bank (AfDB), Akinwumi Adesina at the 51st annual conference of the Institute of Chartered Accountants of Nigeria (ICAN).

Recall that Nigeria raised its value-added tax (VAT) rate from five per cent to 7.5 per cent in 2020.

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According to him, it will be double jeopardy to overtax citizens who provide basic amenities that the government has failed to offer.

 

He said, “While tax rates are relatively low in Nigeria, it simply is not an excuse to keep increasing taxes.

“Take the case of Norway for example. Its tax-to-GDP ratio is 39 per cent. Singapore’s tax-to-GDP ratio is 13.2 per cent. And Nigeria’s tax-to-GDP is 6.1 per cent. It is easy to make the comparison and say Nigeria needs to raise its taxes to similar levels as in Norway or Singapore.

But also consider the following – In Norway, education is free through university. Singapore, a country that had only 1/3 of Nigeria’s per capita income at its independence in 1965, today has 100 per cent access to electricity and 100 per cent access to water.

“While progress is being made the challenge, however, is that in many parts of Nigeria, citizens do not have access to basic services that governments should be providing as part of the social contract.

“People sink their private boreholes to get water. They generate their electricity oftentimes with diesel. They build roads to their neighbourhoods. They provide security services themselves.

“These are implicit taxes, borne by society due to either inefficient government or government failure. As such, we must distinguish between nominal taxes and implicit taxes — taxes that are borne by the people but are not seen nor recorded.

“It has become so common that we do not even bother to question it. But the fact is government can simply transfer its responsibility to citizens without being held accountable for its social contract obligations.”

Adesina who also stressed the importance of mutual accountability said government must fulfil its side of the social contract, and citizens must pay their fair amount of taxes. He believes government should be more transparent and citizens should have the right to know how public funds are used.

 
 

“This is why I believe that we must develop a ‘People’s Index of Governance’ with citizen accountability forums.

“But when people feel that their resources are mismanaged or being used for opulence, widening the gap between the leaders and those they are leading, it builds distrust and despondency, which then permeates the fabric of society.

 

“Leaders must not only be accountable; they must live simply. Power is not judged by wealth, but by transforming the lives of people. To earn the trust of people, we must create people’s wealth, not simply personal wealth,” he said.

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