By Chief Ajibola Ogunshola
Return half of removed subsidy to the people through tax reduction.

THE Federal Government wants to phase out the subsidy in the pump price of petrol.  It should be noted that diesel, which is mostly used in industrial production, is not subsidized.

A high proportion of the petroleum oil that is consumed in Nigeria is imported and by the time the petrol reaches the final consumer at the fuel pump, the cost in Naira of the product, after allowing for all charges and profits along the way, exceeds the present mandatory pump price of N65 per litre.  The differential is what is called subsidy since the seller would have sold it at the higher price if the price had not been controlled.

As to the petrol refined in Nigeria, it has been argued that if the refineries, which are government_owned, had been repaired, maintained and made to work and new ones established and made functional, there would be no need to import petroleum and that the true cost of the locally_refined petrol by the time it reaches the fuel pump would probably not be significantly different from the present controlled price of N65 per litre.

It is because of this line of reasoning that many people are saying that there is no subsidy to be removed, that what constitutes subsidy now is the consequence of government corruption, mismanagement and fraud which has prevented the local refinery from being functional and expanded.

Those who seem to know go further to allege that the local refineries are being deliberately sabotaged to pave the way for continued massive importation of petroleum from which many highly placed government protégés are defrauding the country.

Corruption free-system

They also argue that what is required for sanity is to expose such people, hold them to account and institute a corruption-free system.  But we have to admit that firstly that is not yet about to happen and that in any case, government control of the system would always inevitably be riddled with corruption and nepotism.

Now, from the country’s past salutary experience of deregulation of previously government_controlled monopolies and abolition of import licensing, one wonders whether the best thing would not be to get the government out of the way.

As long as the government continues to be involved in the local refining and importation of petroleum, with all the associated inefficiencies and corruption, the economic and political tension involved in subsidy removal debates will continue to come up from time to time especially when crude oil prices rise and whenever the naira weakens against the US dollar.

Therefore, the government must get out of the way.  Refinery construction and petrol importation, storage and distribution should be thrown open, subject only to quality control.  The refineries should also be privatized.

Since we know that our governments are profligate and corrupt, I propose that the extra money that will come into the hands of government from no longer subsidizing petrol should not entirely be left in the hands of the government but that one_half (50 per cent) of it should be returned to the people through reduction of VAT, personal income tax rates and company tax rates, based on the projected Year 2011 revenues of the federal and state governments from these sources on one hand and the projected amount to be spent on subsidies in Year 2011, on the other hand.

This can be easily worked out mathematically and the consequent tax reductions agreed at the next meeting between the governors and the Federal Government and the Nigeria Labour Congress and the Trade Union Congress, along with their technical advisers, should also have a seat at the table to ensure that what is done is what is to be done.

Finally, I urge all concerned to examine this simple proposal as a way of resolving the problem as it does not involve the award of new contracts to cushion the effect of removal as Nigerians are fond of demanding.