Permit me to use a Bible account to start this article. Whether a Christian or not, this account of Solomon’s son highlights some key aspects regarding government and taxation. The passage is from 1 Kings 12:1-20, describing when Rehoboam became king after Solomon, the son of David:
Rehoboam went to Shechem, where all Israel had gathered to make him king. When Jeroboam son of Nebat heard of this, he returned from Egypt, for he had fled to Egypt to escape from King Solomon. The leaders of Israel summoned him, and Jeroboam and the whole assembly of Israel went to speak with Rehoboam. “Your father was a hard master,” they said. “Lighten the harsh labor demands and heavy taxes that your father imposed on us. Then we will be your loyal subjects.”
Rehoboam replied, “Give me three days to think this over. Then come back for my answer.” So the people went away.
Then King Rehoboam discussed the matter with the older men who had counseled his father, Solomon. “What is your advice?” he asked. “How should I answer these people?”
The older counselors replied, “If you are willing to be a servant to these people today and give them a favorable answer, they will always be your loyal subjects.”
But Rehoboam rejected the advice of the older men and instead asked the opinion of the young men who had grown up with him and were now his advisers. “What is your advice?” he asked them. “How should I answer these people who want me to lighten the burdens [taxes] imposed by my father?”
The young men replied, “This is what you should tell those complainers who want a lighter burden: ‘My little finger is thicker than my father’s waist! Yes, my father laid heavy burdens [taxes] on you, but I’m going to make them even heavier! My father beat you with whips, but I will beat you with scorpions!’”
Three days later Jeroboam and all the people returned to hear Rehoboam’s decision, just as the king had ordered. But Rehoboam spoke harshly to the people, for he rejected the advice of the older counselors and followed the counsel of his younger advisers. He told the people, “My father laid heavy burdens on you, but I’m going to make them even heavier! My father beat you with whips, but I will beat you with scorpions!”
So the king paid no attention to the people. This turn of events was the will of the Lord, for it fulfilled the Lord’s message to Jeroboam son of Nebat through the prophet Ahijah from Shiloh.
When all Israel realized that the king had refused to listen to them, they responded,
“Down with the dynasty of David!
We have no interest in the son of Jesse.
Back to your homes, O Israel!
Look out for your own house, O David!”So the people of Israel returned home. (emphasis added)
There is truly nothing new under the sun. This happened more than 2,900 years ago (ca. 922-901 BC). The previous leader of the country, Solomon, had burdened the people with high taxes and regulations, and the people were experiencing the negative consequences of those burdens. Then came the new leader and the people came to him asking for tax cuts—not elimination of taxes. However, he planned to increase taxes. As a result, the kingdom split and he never regained full control.
It’s deja vu in Africa. It started with Kenya, the people groaning under “big government” crying for relief. Instead, what did President William Ruto do? He attempted to pass a new finance bill—egged on by the “opinion of young men” like the International Monetary Fund—to increase taxes on the people. This included taxes and levies on bread, transportation, and even sanitary pads, according to BBC Africa. The reasoning behind it was to reduce the country’s debt burden. What was the end result? The exact same thing that happened in the passage above—people rose up to oppose the president; this time violently.
Not to be outshone by Kenya, the Nigerian federal government is in the process of passing its own tax increases under a set of tax reform bills. And, just like the young advisers in the passage, the government has its own “young men”—a presidential committee headed up by a tax veteran of more than two decades.
The tax reform bills are four in number, which are meant to cover a new formula for sharing value-added tax (VAT) among the federal and state governments, the creation of a centralized tax collection agency, and the plan to use technology to monitor the bank accounts of all citizens of the country to try and prevent any leaks in taxes. The rationale behind this tax increase is to generate more money for capital expenditure by the government, eliminate multiple taxations by different government agencies/sub-national governments, and drastically reduce government money printing. It was really nice to hear the government tax czar openly admit that government money printing to cover deficit spending causes price inflation. You would never hear that from the central bank or most mainstream economists in the country.
Of course—being an experienced and savvy person—the tax czar knows that piling on more tax increases (from 7.5 percent to 10 percent, and possibly to 15 percent in two years) is not going to fly. Even he was against the increased VAT from 5 percent to 7.5 percent in 2019, as shown in his own tweets in 2019:
So, how do they sell this idea to increase taxes and force everyone into a government-monitoring system of every banking, investment, payment platform that any citizen may be a user of? The answer is by marketing the tax rises as being for only the rich.
Another marketing ploy is to state that Nigeria has one of the lowest VAT rates in the world, that the poor would be exempted from income taxes, small businesses would get tax credits from the government which would counter any effects, and debt/money-printing would go down if the bill becomes law. The problem is that many of these statements, assumptions, and promises are not accurately portrayed. For example, on the claim that Nigerians pay the lowest VAT, here is a chart that absolutely wrecks such claims:
The chart clearly shows that, despite Nigeria having the lowest VAT rate, the inflation rate more than compensates for the low VAT. Yes, Nigerians pay less VAT, but they pay far more in the inflation tax, thus, the rational thing to do will be to get the inflation down to single digits before contemplating any increase in taxes. Other taxes which are not taken into consideration in government tax data are local government taxes, such as TV license charges on businesses, taxes on bus drivers, and police checkpoint “taxes” on goods being transported interstate.
There is also no evidence that increased revenue for the government would lead to reduced deficit spending. As we have seen from Western nations, increased government revenue usually comes with more government spending. In fact, most of the debt taken on behalf of African countries by their leaders ends up being shared by international agents, governments, and their cronies, with very little going to the ordinary citizens. When the interest bill comes due, ordinary citizens who benefit least are asked to foot the bill.
What is the solution? Restructure the existing debt, cut government spending and money-printing to allow savings to accumulate into capital, which would be led by the private sector. Rather than being in a hurry to become Dubai in two years, let capital accumulate in a similar way a previously unemployed new graduate gradually begins to accumulate assets over a multi-year period when he finally gets a job.
Right now, unfortunately the major bone of contention among the political elite and economist class on the tax increase bills is not the tax increases themselves, but which national or sub-national government gets a larger share of the increased tax revenue. We worry that this may be the “Smoot-Hawley Tariff moment” in the current economic situation in Nigeria. If it passes, Nigeria may plunge down into the deep.
