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Taxation remains most sustainable source of revenue for govt, Fasoto

Nigeria’s foreign reserves have been shrinking since July 2007 when it stood at 67 billion dollars. The books read $40.48 billion last March.


At the last meeting f the Federation Account Allocation Committee, the Minister of State for Finance Mr . Remi Babalola, said that in the last ten years, growth in discretionary spending by all federal, state and local government out paced the annual growth rate of the overall economy, resulting in deficits.

In this interview, former President of the Chartered Institute of Taxation of Nigeria, Mr Foluso Fasoto, speaks on why the nation should redirect its efforts to harnessing the vast potential of taxation revenue insisting that effective tax reform is the appropriate antidote to the current economic downturn.

How would you assess the country’s tax system?
To start with, Nigeria  is a very blessed country in richness of endowment, natural and otherwise. The country has vast potential in taxation revenue which are not yet fully tapped.

Though as it is in taxation, we also have it with non tax economic aspect because if you see the role being played by the underground economy that is the informal or black economy as some call it in a country like ours, it is very enormous. As I have said in the past, if it would be easier for the Federal Government to deal with about six or seven companies and gain 70 percent of the  revenue it requires, why should it be dealing with 150 million Nigerians to get 30 percent of the balance of the revenue .

So,  they better concentrate on the 70 percent.. That is really what is happening. But, when it comes to taxation, it means that you must bring every taxable adult in Nigeria on board.

Though the country finds it difficult to actually provide the necessary infrastructure to be able to do that and whether we like it or not, that is the most sustainable source of revenue for the government. The oil revenue though it is there, the question is: is it as sustainable as tax revenue?

The answer is no. So, the earlier we started to put the real infrastructure in place and ensured that we muster political will, then the better for the country. Lagos state that everybody knows today as the leader in terms of harnessing the vast potentials of taxation revenue, go and look at the activities of the  government, it gives taxation revenue the highest priority. It gives the state Internal Revenue Service all the resource within its power to ensure effectiveness of that particular arm of the government.

Can we say the same thing of the Federal Government and the remaining 35 states of the country? Though I am happy over recent report which says that the revenue of Edo state is also increasing, I believe that some state governments are now seeing the vast potentials in taxation revenue.

There must be the political will as where there is a will, there is a way and where there is no will you cannot have your way. So, if there is political will, then you would be able to ascertain all the necessary infrastructure needed by the taxation arm of your government and provide them with it. Then it will become like money spinner because there is no other alternative to this.

With the country’s reserves declining, do you think most states with inefficient tax system can survive the looming financial crisis?

It is not possible for the states to survive on continuous reliance on their sharing from the excess crude oil because excess crude account as unconstitutional as it is, is an economic factor. It is only what you save that you can share out.
The rate at which money goes in there is far less than the rate at which money comes out of that account. During the oil boom when a barrel of oil was sold for more than a $100 dollars per barrel, they were having huge amount of money going into that account being saved but recently there has been a dwindle in the price of oil in the international market and yet the states have adjusted themselves to the same amount that they were taking out of that account forgetting that they are not even having enough amount in that account to be shared. And that is what the Minister of State for Finance was trying to point the nation’s attention to recently.

The states need to go back home, look internally and strengthen their internal revenue arm but if the balance on the excess crude account is eventually depleted,  it would be suicidal for any state governor to be told in Abuja that he no longer has anything to share from the  account and therefore should start planning for how he would generate his own fund internally.

So, I’m appealing to the various states chief executives to start planning from now if they have not done so. Recently there was a case of a particular state governor who called on a member of the Chartered Institute of Taxation to advise him on how he would increase the state’s internally generated revenue.

He, in turn, wrote a proposal and the key thing there was that the governor must be ready to back up his internal revenue generation by ensuring that all the taxable adults pay their taxes at the right time and the first answer of this governor was , how do you want me to come back to this state house because most of these people are my political cronies?  So, if I should be hard on them on the issue of tax, when it is election time, they are not going to vote for me.

So,  he asked that member of CITN to still keep in view his proposal and till today he is yet to revisit that proposal.
Considering the high rate of poverty in the country and lack of an enabling environment for businesses to thrive, do you think a tax driven economy is ideal for us at this point in time?

When it comes to taxation revenue, it is actually a case of what goes around comes around. It is not totally a negative story . With every negative story in tax you, you always have about two or three positive stories.

Currently, factories are closing down, workers are being retrenched etc but what we have to look at is if government now makes up its mind that it is going to boost revenue from taxation, the very first thing which was what Dr. Bukola Saraki’s panel recommended when he was the chairman of  Non-oil Revenue Generation Committee under Obasanjo’s regime in 2001 was that government must first of all encourage industries to come up. How will they do that? They need to give incentives to these companies that are closing down may be in form of tax waiver for about two or three years and monitor them closely.

All those export processing zones which attract tax incentives should also be monitored closely. Recently on the issue of bailout, we had that certain billions were given to the textile industry to revive the sector. So, government needs to play its own part to encourage industries to come up as when they come up, they are going to recruit many Nigerians.

When these companies start making money, Nigerians and expatriates who are working there would start making money.  Then on this income, there would be tax. These people earning income have to spend it where by you would generate money for VAT.

So, Nigerians would be happy being employed, factories would be happy coming back to life and government would be happy generating taxes from these monies they are making. So, the first step is for government to ensure that they bail out the companies that are going under by creating a conducive atmosphere for them to operate. The issue of electricity must be addressed squarely. If we can get our power sector right, even those Nigerians that are retrenched, on their own majority of them would still find lucrative jobs for themselves that will yield income in which taxes will be levied by government.
How do you think the country can address the problem of corruption and restore tax payers confidence that their taxes would be put into good use?
There has been clamour that we should address the issue of corruption squarely and I know it is having negative effects on the tax system just like in any other system of the economy. One of the major reasons why government at various levels have not been paying attention to taxation is that where taxation is effective, there is always accountability. In developed countries, you cannot be collecting people’s money as taxes and not account for it.  People will match to the state house, write petitions and everything possible to ensure you account for the money you have collected from them
What would be the effect of the depletion of the country’s reserves on the implementation of this year’s budget?
Nigeria has been deluding itself for the past few years now particularly as the budget the country’s government has been dishing out to the populace, they themselves do not have faith in it. Throughout the eight years of former president Obasanjo, we had one disagreement or the other over the budget. The reason is that the revenue profile has always been over bloated whereas the actual revenue generated does not match the budgeted revenue. Meanwhile, the expenditure being provided for in the budget in most cases some of them is being exceeded. So, we continue to have this deficit budget but recently the Finance Minister made us to realise that the budget just assented to by the president appears not to be realistic because the amount provided for especially on state allocation, there is no way they can meet it on a sustainable basis .That within the next few months, the whole thing would collapse. So, we are back to square one but that doesn’t mean that there is no revenue potential for the government. Government still has revenue potential in taxation and that is why government must first of all put on the toga of accountability which they have been running away from. Government at all levels must be ready to account to the people by ensuring that money collected from them are utilized to  better their lot.


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