N25.7tn debt: Experts oppose IMF’s call for tax hike, say Nigerians overburdened

• Increasing tax will help FG to off set debts, execute projects – Fund

• LCCI, don, others advise government to widen tax net

Finance experts, Lagos Chamber of Commerce and Industry, a university don, among others, have disagreed with the International Monetary Fund on the fund’s latest recommendation to the Federal Government to raise its tax rate in order to meet Nigeria’s huge amount spent on debt servicing and developmental projects.

The Federal Government spends an average of N2tn annually servicing its debt obligation to local and foreign creditors.

About $3tn is reportedly needed in the next 30 years to address the country’s infrastructure deficit.

But the IMF on Wednesday called for an effective debt management strategy that would ensure that the amount borrowed posed limited risk and the funds deployed for developmental purposes.

The IMF’s position was presented by the Financial Counsellor and Director, Monetary and Capital Markets Department, Tobias Adrian; the Deputy Chief , Monetary and Capital Markets Department, Evan Papageorgiou;  and the Assistant Director, Fiscal Affairs Department, Mrs Cathy Pattillo, during a media briefing on the Global Fiscal Monitor Report and the Global Financial Stability Report.

The briefing was also attended by the Director, Fiscal Affairs Department, IMF, Victor Gasper, and the Deputy Director, Fiscal Affairs Department, Paolo Mauro, among others.

The global body said that with Nigeria having one of the lowest tax revenue in the world, it would be challenging to service its debt obligations without broadening the fiscal space.

The nation’s total public debt rose by N3.32tn in one year to N25.7tn as of the end of June 2019, the Debt Management Office said on Tuesday.

The Federal Government owed N20.42tn as of June 30, 2019 while the 36 states and the Federal Capital Territory had a total debt portfolio of N5.28tn.

Adrian said that while domestic and external debts markets were important for economic growth, they should be managed in a manner that would ensure that negative shocks did not arise.

He said, “Both domestic and external debts market are important for economic growth and development and both markets should be well developed.

“But, of course, any borrowing has to be managed in a responsible manner so it can be helpful for economic growth and investments. But it can also be dangerous when negative shocks arise.”

In his assessment, Papageorgiou said while Nigeria had a large exposure to domestic debt, it was important to effectively manage those risks associated with debts incurred in local currency.

He said, “Local currency borrowing could be preferred in some cases but it is not a panacea. The guiding principle is prudent debt management.

“Local currency flows have been more volatile and Nigeria was not an exception to that. Nigeria has a large exposure to domestic debt, particularly from the central bank bills. And then as we understand the central bank bills, there are a lot of higher redemption and more rollover going forward.

“So, managing those risks, particularly with respect to local currency debt managing debts and behaviour of non-resident debt, is very important.”

Shedding more light on how the Federal Government could boost revenue, Cathy said the priority was how to increase non-oil tax revenue.

She said this was vital based on the fact that the country’s interest payments as a share of tax were very high.

She added, “On Nigeria, the priority is a comprehensive reform to increase non-oil tax and there are a number of reasons this will contribute to creating space for important spending in infrastructure and human development spending.

“For Nigeria, this is very important for a number of reasons. One, because right now, interests payment as share of tax are very high around a third of overall and two-thirds for the Federal Government.

“And that is because interest payments are particularly high because the denominator is incredibly low. Nigeria has one the lowest tax ratio in the world and it is not because Nigeria doesn’t have big development problems but because the challenge is that Nigeria has a lot of needs for education and health spending.

“It has some very low indicators in that area and in demographic projection. Nigeria has been projected to be by 2050 the third most populous country in the world. So, addressing those challenges is really important.”

On the global economy, the IMF said declines in interest rate had further motivated investors to search for yield by increasing duration and credit exposures.

It said the amount of government and corporate bonds with negative yields had increased to about $15tn.

As a result, the Fund said vulnerabilities had continued to intensify, adding that this development was putting growth at risk in the medium term.

Responding, a professor of economics at the Olabisi Onabanjo University, Ago Iwoye,  Sheriffdeen Tella, said the advice to raise tax had to be analysed to determine whether the IMF was asking Nigeria to increase tax or widen the tax net to accommodate those that are not currently captured.

He said, “If they are advising that we should keep increasing tax, that will not be proper. The economy of Nigeria is currently weak and tax is a function of the income of the people. Increasing tax will be putting too much pressure on income.

“We should rather talk of reschedule the existing loan to enable us to have a longer time to pay or pay less.  In addition to this, we need to widen the tax net.”

On his part, the Director General of the Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, pointed out that economic growth through reforms would happen if there was greater commitment to creating an enabling environment for investors.

He said the taxpaying segment of the economy had been victim of regulatory and policy shocks in recent years.

“Monetary policy is tight enough in my view.  Calling for more tightening will be overkill. Lending rates are high and government borrowing continues to have a crowding out effect on the private sector.  We need to push back on portfolio flows  as the pillar for stabilising the forex market.  I subscribe to the demand for the rationalisation of the multiple forex windows and rates.”

A former President, Association of National Accountants of Nigeria, Dr Sam Nzekwe, noted that many Nigerian businessmen were not paying taxes except workers, whose taxes were being deducted from their salary.

He said, “They should be proactive, go to the people and widen the tax net, they should bring those who are not paying tax into the tax net.”

The Chief Executive Officer, Enterprise Stockbrokers, Mr Rotimi Fakayejo, said the advice given by the IMF to Nigeria was not progressive because it would impair productivity of businesses.

 “I don’t think this will have an advantage because when you increase tax, you reduce consumption and when you reduce consumption, total productivity also come down. What we think we will get from an increment in tax will be lost from the total collectibles. At the end of the day, we are the loser for it,” he said.