By Abdullahi Ismaila Ahmad, Ph.D.

The tax reform bills recently sent to the National Assembly by President Bola Ahmed Tinubu, GCFR, have generated controversies over the past weeks. Many commentators have expressed their views in support of the bills or against some of their provisions. The Northern Region has expressed vehement objection to the bills. They are against the bills because, in their views, the bills are entirely or partly anti-north. Given most of the observations and the pros and cons of the arguments advanced by the various commentators, it is pertinent to say that whatever views are advanced by the Northern stakeholders, the truth that must be told is that Northern Nigeria must yield itself to the full extent of modernisation, anyhow and soonest. The tax bills will invariably switch a region like the North out of its encrusted traditional and provincial life patterns.

There is no need to regurgitate the controversial issues around the tax reform bills as they are already in the public domain, and much has been said about them thus far. However, three keywords about the VAT derivation model proposed in the tax bills should form the cornerstone of deliberations and whatever decisions may be taken afterwards by the Northern stakeholders. These signature words are production, consumption, and competition.

The Value Added Tax (VAT) is described as a consumption tax. However, before consumption occurs, there must be production, whether in goods or services. Therefore, production is a key factor in any consideration or discussion of the Value Added Tax. Our rudimentary economic class tells us that factors of production are land, capital, labour, and entrepreneurship, which are the building blocks of any economy. Any society that desires economic progress will not take these factors of production for granted. Without mincing words, these production factors are abundant in Northern Nigeria, almost to the point of waste. One would expect that the North will have no issue with production, which invariably gives rise to consumption.

As an output of the production process, consumption depends on the purchasing parity of a people and their cultural tastes. Nonetheless, consumption can happen away from the point where goods and services are produced. It is expected, however, that both production and consumption can occur at the same place, thereby enriching the economy of that particular place. This is because trading and commerce will enhance people’s purchasing parity. Without mincing words, Northern Nigeria is essentially a consumption society but with the potential to be a producing economy. It must embrace progressive ideas and modernisation to harness its full economic potential.

This is where competition comes in. There is competition in every aspect of our lives, from the products and services being churned out daily to how societies employ strategies to grow their economies. This makes every society think progressively and forecast the future. No society lays back or indulges in wastefulness or a careless lifestyle and expects to be at par with other societies that have moved on the fast pedestal of development.

The pertinent question to ask at this juncture is why Lagos has suddenly become the envy of the entire nineteen northern states. What does Lagos state have that all northern states do not have or cannot have? The answer to the second question is that Lagos state has painstakingly embraced the full extent of modernisation through its deliberate policy planning and execution, it has embraced technology, industrialisation, financial inclusiveness and wealth creation strategies. Northerners are among those who made Lagos State what it is today with their massive investment there.

The point being emphasised here is that the VAT derivation formula being proposed by the tax bills should also be seen as a wake-up call for the Northern stakeholders and political establishment to stir the region out of its slumber and decipher these salient issues dredged up by the bills and quickly embrace the imperative of modernisation. Modernisation does not mean only the erection of skyscrapers, the construction of flyovers, or paved motorways. Suppose we have all these, by all means, okay. In other words, modernisation refers to a reformation of habits, which W. H. Auden refers to as a ‘change of heart’, which is not simple. In this regard, modernisation ‘is the reshaping and resharing social values, such as power, respect, rectitudes, affection, well-being skill, and enlightenment’. This is to say that the Northern leadership and political establishment must change its old ways of engaging with the people and the society. It must change its way of perceiving reality to begin to understand that leadership is an instrument for improving the conditions of a people, not a tool for manipulating them. It must wake up to an understanding that modern life is about competition, progress, and overcoming challenges that improve the condition of a people. It’s not about rhetoric and hyperbole.

The Northern political establishment must develop a mindset that comprehends the reality that governance is about service to the people, building capacities, developing human resources, bettering the living conditions of a people, and challenging the environment to yield its potential for the growth of the society. Indeed, governance should not be approached as a private fiefdom, a personal estate for a wilful distribution of privileges and patronage. For too long, the Northern political establishment has held down its people in poverty to authenticate its affluence and influence, thereby closing the space for more engaging and productive ideas and wealth creation. That’s why the political class would instead purchase bicycles, coffins, grains, wheelbarrows, and other mundane items purportedly as empowerment when politicians from different regions build their people on ICT and technology pedestals and build food security hubs and other progressive ideas.

The change of attitude required of the Northern political establishment should be the type that will lead to an organisation of economic activities, automation of business transactions, creative development of natural resources, and development of human resources through restructuring of education system and manpower training. W. W. Rostow states that for a society to sustain economic growth by its autonomous operations, ‘it must be effectively geared to the skills and values of the people who make it work’. That is to say that people’s entrepreneurial skills and values of hard work, industry, and resilience must be sharpened and attuned to the demands of modern life. Small and medium enterprises abound in the North. Still, they require uplifting through capital incentives like access to interest-free loans and other grants and enabling environment such as electricity, potable water supply, access roads to agricultural belts, etc. For example, through loans and grants, business owners can be encouraged to develop a value chain in their business lines and offer jobs to unemployed youth.

On automation, it’s essential that state governments in the North also recognise the role of technology in business transactions. Globally, technology is being used to drive revenue collection. Today, the record-breaking revenue collected by the FIRS is made possible because of the massive investment in technology allied with administrative finesse. Therefore, automation of tax payment processes is the norm everywhere. Automation can be done right from the point of business registration, where the data of a business owner can be collected and included in the financial or fiscal process.

Most importantly, this automation option becomes more compelling with the proposed derivation method of sharing VAT. In terms of consumption, it’s unarguable that soft drinks like 7UP, Fanta, Coca-Cola, Mirinda, Sprite, etc, are widely consumed in the remotest part of the North. In the North, soft drinks equate to the liquor in the South. To be able to appropriate VAT from these drinks and other goods like indomine, pasta, sugar, cement, etc, an automation process needs to be implemented to track how VAT is charged at the wholesale distribution point. This is what is referred to as the output VAT.

Regarding the input VAT, deliberate policy can be made to create a value chain in producing and processing products like rice, yams, vegetables, and fruits. In other words, instead of selling the products in their raw forms, state governments should encourage investors to set up factories to create value chains necessary for generating the required revenue. Given its large population, the North can gain more from the consumption-based VAT method if a deliberate strategy is implemented to optimise the process of output VAT.

There is nowhere in the proposed VAT law explicitly stating that the 60% proposed is entirely and exclusively for Lagos state. The presumption that the VAT proposal will favour only Lagos state is just a figment of the imagination of those peddling the sentiment, which stems from a feeling of inadequacy. The clause says, ‘wherever the consumption of goods and services takes place’ will be given the percentage of the VAT it generates from the earmarked 60% of the overall monthly VAT volume generated. So, the onus on every state and region is to put its act together to track and authenticate the VAT it generates. Instead of lamenting or expressing the sentiment about Lagos getting the large share of the VAT, it behoves the North to look inward to harness its potential and organise its economic activities. Northern states must wake up to the challenge and stop the lamentations. The North has a population; it has all the factors of production, and it is equally endowed with natural resources to be ahead of other regions. So, why the panic?

Talking about natural resources, there is a concentration of mineral resources in the North like lithium, uranium, talc, limestone, gold, and even black gold and a host of others to make it able to establish companies and industries for the manufacture and production of all kinds of goods and services. And so, the North is not a poor region as it is being iterated; it is just reeling in misplaced priorities and elite complacency. As it were, if the North had kept to the trajectory of the examples set by Sardauna and Balewa who set up viable business ventures and strategic institutions, built manpower, and laid solid economic framework for the future, all of which have now gone with the winds, it won’t be crying wolf now. However, what it requires now is the political will and negotiation skills necessary in politics to turn things around for the better. To be sure, politics is about negotiation over scarce resources. Therefore, the sharper your negotiation skills are, your chances of gaining a competitive advantage in a political arrangement will increase.

For instance, what stops the North from negotiating a tax credit scheme to revamp the moribund textile industries in the North? Why did the North allow the Bank of the North to be taken over? Why didn’t the Northern political establishment say anything about the stoppage of the dredging of the River Niger and the abandonment of the Baro Port? What happened to its cotton potential and the ginnery enterprises? What is it doing with the vast water bodies and arable land? So many questions, indeed.

The VAT debacle has provided the North an opportunity for negotiation and introspection. The present atmosphere of regional competition makes the matter even more enjoyable. Therefore, the North must muster every skill to get a better deal out of this debacle and seize this moment to modernise its social and economic institutions for more financial inclusiveness and overall economic growth. This is a time to change the old habits and embrace progressive ideas. It is instructive how the North raised its voice in unison to object to the Tax Reform Bills. It is equally expedient for the North to rise in unison against the spate of insecurity bedevilling the entire region. Let the Governors, the Emirs, the Ulamas, and the whole people equally give marching orders to their legislators in the National Assembly, as they did on the tax reform bills, to end the insecurity in the region.

Let the North rise against the misplacement of governance priorities and begin to chart the course of modernisation. As recently suggested by the immediate past Executive Chairman of FIRS, Muhammad Nami, the North must take the issue of financial inclusiveness seriously to be able to move on the same pedestal with the other regions of the country. There are probably billions of naira circulating in the North outside the banking system because the handlers detest bank interest. Indeed, the North has no other option but to start modernising now.

For instance, what stops the Northern stakeholders from using diplomatic instruments to get Middle Eastern banks like Al Rajhi to set up branches in key Northern states’ capitals to attract those outside the banking system to bank their money? It must be stressed that transactions through the banking system and the embrace of the BVN and NIN, which ensure that everybody is captured in the National Database and the overall fiscal construct of the country, are no longer optional; it should be considered obligatory on everybody, whether young or old, educated or not. Therefore, the North must shift away from the traditional way of doing business and tax collection to a more financially inclusive way to benefit from the VAT windfall.

Abdullahi Ismaila Ahmad, Ph.D. is the

Director, Communications & Liaison Department, Federal Inland Revenue Service

By Dele Sobowale

…“If they go about solving the problem this way, how many more problems will they have created by the time they are through” -James Baldwin, 1924-1987, VANGUARD BOOK OF QUOTATIONS, VBQ, p201, available online.

By any objective measure known to adults globally, what we have on our hands with regard to fuel problem is a fiasco. You cannot ask any of those in control of our fate in this regard a straight question and receive a reliable answer. Two Presidents, the Minister of Petroleum, the Minister of State for Petroleum, the Minister of Finance, the Central Bank of Nigeria, CBN, the Debt Management Office, DMO, the Group Managing Director of the Nigerian National Petroleum Company Limited, Alhaji Aliko Dangote, all the regulatory commissions and agencies of government. The conspiracy of falsehood started since the Dangote Refinery was nearing, but still far from, completion in March 2023.

As many Nigerian observers will recollect, President Buhari commissioned the Dangote Refinery using the language that gave the impression that fuel production would start within a few months. We now know the truth. Buhari and Dangote just wanted the former President to be the one to have his name on the refinery plaque instead of his successor. Among the promises made or implied were the following: The refinery would end fuel scarcity and queues at filling stations; it would crash the price of petrol which was about N180 per litre at the time and create 150,000 jobs-directly or indirectly. The impression was also given that Nigeria’s four refineries would be resuscitated to complement the Dangote Refinery supply; and, government would no longer dictate fuel price. It all sounded great then; but my Fellow Nigerians have failed to understand one abiding truth.

“Every government is run by liars; and nothing they say should be believed” – I. F. Stone, 1907-1989, VBQ p80.

Of all the entries in my book of quotations, this I perhaps the one most frequently used; and for easily demonstrable reasons. In Nigeria and elsewhere in the world, the totally honest politician is almost impossible to find. Since politicians run for office, the electorate in every country is condemned to choosing between all the available dissemblers running for office. That, however, is in even a so-called democracy. In totalitarian regimes, the people are destined to accepting the falsehood published by their captors. Nigerian politicians are not the worst by any means; in fact they are better than those in Cameroon or Afghanistan. When it comes to peddling untruths, they are ranking amateurs. That is why what they say is so often easy to disprove – as in the issue of petroleum resources and fuel. Everything that was said by virtually everybody in government and the private sector providers had turned out to be false.

WAS DANGOTE REFINERY ESTABLISHED TO STOP IMPORTATION?

“I am beginning to wonder how many fools it takes to make the term ‘My Fellow Citizens’” – Honore de Balzac, 1799-1850, in LOST ILLUSIONS.

Most of the 220 million Nigerians alive today are not in any way better than their forefathers. Ask anybody if there was free education in the old Western Region?

And, ninety-nine per cent of the time, the answer would be “yes”. I thought so too until August 1964 when I took my Economics la Course at the university in the US. The lecturer would usually start his first class by telling a story which I will repeat below. A young prince, 12, became king when his father, just 40, suddenly died. Not wanting to make terrible mistakes in governance, the monarch gathered all the leading experts in every field – including economics – and instructed them to summarise the ideas, principles, laws etc in their fields. All returned three months after with truckloads of documents; which overwhelmed the poor youth. He asked for further reductions. They returned with twenty four pages of Executive Summary. Finally, like all those with absolute power; he ordered that the ideas be reduced to one sentence. The economists quickly put their heads together and the leader raised his hand; after being recognised he pronounced: “There is no such thing as a free lunch.” For that matter, there is no such thing as free education, free health service and there should be no free ride on highways. I raised my hand out of ignorance to state categorically that “there is free education in the Western Region of Nigeria, Sir.” Dr Cohen looked up; and said:

“You are the third Nigerian who would repeat that statement in my class. How many more fools are there in your country; who cannot distinguish between ‘free and public education?’ What is practised in Nigeria is public education, just like several countries in the world. The taxpayers are paying for that gimmick.” I would have gladly crawled into a hole if one had opened up. I learnt a simple economic principle the hard way. Later, in the third year, I received another knock on the head to drive home a truth which has escaped many Nigerians today. The professor teaching Business and Economy, when opening the section on ‘Entrepreneurship’, would kick off by announcing that the capitalist investor is motivated primarily by his desire to make as much money as possible.

He does not start a business for any other reason. That is why it was at first amusing, and later alarming, to me when several self-deluded Nigerians, including President Buhari, the CBN Governor, financial/economic analysts and commentators, assumed that the Dangote Refinery was being established to stop fuel importation, to create jobs and to grow the Gross Domestic Product, GDP, of Nigeria. Starting with that fallacy, they quickly jumped to the fatal conclusion that Dangote must be given 100 per cent support to achieve his objectives; apparently without regard to the individual and collective interests of “Fellow Nigerians”. Well, the Dangote Refinery is here. Why then are we paying N1, 200/litre for petrol which we fetched for N180/litre before it was established? I must have been one of the few Nigerians who knew right from the beginning that Nigerians were being taken for an unpleasant ride. For reasons I don’t now want to disclose, it is my candid view that the establishment of Dangote Refinery is not the salvation we expected. Most certainly, it will not crash fuel price as expected

https://www.vanguardngr.com/2024/11/fuel-fiasco-as-metaphor-for-governance-by-dele-sobowale/

By James Aduku Odaudu, PhD, FPA

Introduction

The intricate relationship between economic policy and the living standards of rural populations often reveals itself through pivotal changes in subsidy programs. In the context of Nigeria, the recent discourse around oil subsidy removal has sparked critical debates regarding its potential ramifications on rural communities, which predominantly rely on affordable fuel for agricultural and economic activities. Subsidies have traditionally served as a buffer against the volatility of global oil prices, providing essential support to an economy deeply intertwined with crude oil production. However, the potential elimination of these subsidies invites an exploration of alternative economic frameworks and the possible socio-economic repercussions that could arise, particularly for those at the grassroots level who may lack the resilience to absorb sudden increases in fuel costs. This essay will delve into the multifaceted economic implications of this policy shift, examining both immediate impacts and long-term consequences on Nigeria’s rural populace, ultimately arguing for a nuanced understanding of subsidy reform in the broader context of economic development.

Overview of oil subsidies in Nigeria and their historical context

The historical context of oil subsidies in Nigeria is deeply intertwined with the country’s quest for economic stability and development. Initially implemented in the late 1970s as a response to volatile global oil prices and domestic inflation, these subsidies aimed to shield consumers from the adverse effects of fuel price fluctuations. Over the years, they evolved into a critical aspect of Nigeria’s socio-economic fabric, often being justified through the lens of providing affordable essential goods to the populace. However, this well-intentioned policy also cultivated a dependency that distorted market dynamics, led to inefficiencies, and exacerbated corruption. By the early 21st century, the financial burden of these subsidies became increasingly unsustainable, consuming a significant portion of the national budget. This unsustainability has prompted discussions on the necessity of subsidy removal, sparking concerns about its potential economic repercussions, particularly for Nigeria’s rural population that relies heavily on subsidized fuel for transportation and agricultural activities.

Economic Impact on Rural Livelihoods

The removal of oil subsidies in Nigeria has profound implications for rural livelihoods, particularly regarding income stability and access to essential goods. When subsidies are eliminated, the immediate effect is an increase in fuel prices, which disproportionately impacts rural communities that depend on affordable transportation for both the movement of goods and access to markets. This heightened cost of living exacerbates existing vulnerabilities, leading to a decline in purchasing power for rural households whose income is predominantly derived from agriculture and informal economies. Consequently, rural producers face higher operational costs, ultimately jeopardizing food security as agricultural outputs decline due to reduced investments and higher transportation expenses. Furthermore, the ripple effects within local economies amplify these challenges; diminished income for farmers can lead to decreased demand for services and goods in rural areas, creating a vicious cycle of economic stagnation. Thus, the removal of oil subsidies serves not only as a structural shift in fiscal policy but also as a catalyst for heightened economic precariousness among Nigeria’s rural population.

Analysis of changes in household income and expenditure patterns

The economic landscape in Nigeria is undergoing transformative changes, particularly in rural areas, as households navigate the ripple effects of oil subsidy removal. As these adjustments unfold, a noticeable shift in both income sources and expenditure patterns can be observed. Rural households, previously reliant on government subsidies for affordable fuel, are now compelled to reassess their budget allocations in response to increased fuel prices. This reassessment often results in a reallocation of funds, diverting resources from non-essential goods and services—such as education and healthcare—towards more pressing needs such as transportation and food. Furthermore, a significant portion of the rural population may explore alternative income-generating activities, seeking to compensate for diminished purchasing power. The interconnections between household income fluctuations and expenditure patterns underscore a broader socio-economic challenge, suggesting that adapting to these economic changes may ultimately exacerbate existing vulnerabilities and inequality within rural communities. Such dynamics warrant close examination to inform effective policy interventions.

Effects on Agricultural Production and Food Security

The removal of oil subsidies in Nigeria is poised to create both challenges and opportunities for agricultural production and food security. On one hand, the increased cost of essential inputs such as fertilizers and fuel could lead to higher production costs, exacerbating existing vulnerabilities among smallholder farmers. These farmers, who often operate on thin margins, may struggle to absorb increased expenses, potentially leading to reduced crop yields and a decline in overall agricultural output. Conversely, the subsidy removal could encourage a shift toward more sustainable agricultural practices, as farmers are forced to innovate and adopt efficient resource management strategies. As the market adapts, investments in alternative energy sources and improved agricultural technologies could emerge, fostering resilience in food systems. Ultimately, the net effect on food security will hinge on the governments ability to implement supportive measures, such as providing targeted assistance and promoting access to credit for rural farmers, enabling them to thrive in a more competitive economic landscape.

Examination of the relationship between fuel prices and agricultural productivity

Fluctuations in fuel prices directly influence the cost structures within the agricultural sector, significantly affecting productivity levels. High fuel prices increase operational costs for farmers by raising expenses associated with machinery, transportation, and inputs such as fertilizers and pesticides. Consequently, these elevated costs can deter investment in essential agricultural practices, leading to decreased yields and reduced profitability. As farmers struggle to adapt to this financial strain, shifts toward less fuel-intensive methods or even the reduction of cultivated areas may ensue, further exacerbating food insecurity. Additionally, the cyclical nature of fuel price increases can create an unpredictable environment, making long-term planning challenging for agricultural stakeholders. This volatility undermines not only individual productivity but also broader market stability. Therefore, understanding the intricate relationship between fuel pricing mechanisms and agricultural output is crucial for policymakers, particularly in contexts like Nigeria, where rural populations heavily rely on agriculture for their livelihoods. A strategic approach to addressing these challenges could foster more resilient agricultural practices and enhance rural economic stability.

Conclusion

The culmination of this analysis highlights the intricate relationship between oil subsidy removal and its economic ramifications on Nigeria’s rural populace. By eliminating subsidies, the government aims to redirect funds towards infrastructural development and social services, ostensibly fostering long-term economic stability. However, this shift presents immediate challenges for rural communities, which heavily rely on subsidized fuel for transportation and agricultural activities. As fuel prices surge, the cost of goods and services inevitably escalates, disproportionately affecting the livelihoods of rural households already grappling with limited income and access to resources. Furthermore, the anticipated benefits of subsidy removal, such as improved public services, may take considerable time to materialize, leaving vulnerable populations in a precarious position during the transitional phase. Ultimately, careful consideration of the socio-economic dynamics at play is essential to ensuring that the policy shifts do not exacerbate existing inequalities but rather promote equitable growth for all segments of Nigeria’s diverse society.

• Dr James Odaudu is a development scholar / administrator and a Fellow of the Chartered Institute of Public Administration of Nigeria. Email: jamesaduku@gmail.com