CBN Plots A Grand Tax Revenue Playbook Even As Nigeria Ignores the Godzilla of Revenue
First, there are many activities which are ongoing in the Central Bank of Nigeria (CBN) headquarters. The apex bank is doing everything to digitize how people pay and are being paid in Nigeria. Of course, the passion to digitize payment is not driven by the construct to make the economy more efficient, rather, to make it easier to collect taxes in the nation. Nigeria’s tax collection ability is abysmal. (Do not remind me of the inefficiency of the utilization of the little which is being collected.)
So, from the tax collection perspective, CBN is working to boost the nation’s revenue: NNPC has financially divorced from Nigeria on the old terms, and is now pursuing a new mission under the quasi-private structure, thereby putting enormous pressure on the government to find new revenue sources.
If CBN can get most transactions to happen within the banking system, connected to BVNs, you can see financial miracles. Yes, that man owns 10 cows and generates tons of money, but while a teacher in Benue State pays tax on his N18,000 salary, this farmer pays nothing. The other man inherited lands which he leases to farmers in your village, generating good revenue yearly, but that man has never paid tax. That man is a goat farmer who sells 3 goats every main market day. But check, he does not understand tax. CBN believes that if payments move digital, good things can happen to the national revenue. That is how I see this cash withdrawal limit policy.
Yet, as CBN goes after the small marginal boost on tax revenue, I challenge the apex bank and the government to go after the real deal: real estate tax. Nigeria is a place where rich people do not pay taxes. They build mansions and pay zero taxes. That is the reason why South Africa budgets more than $120 billion when Nigeria can muster $42 billion yearly. In South Africa, the government has the money; in Nigeria, the money stays with the citizens. The problem though is this: with no public funds, the government cannot fund initiatives to help many who need help!
If Nigeria implements an effective real estate tax policy, our national budget will hit at least $80 billion. You may ask why can’t this be done? Answer: real estate tax will affect the 1% who unfortunately have the power to influence who makes it to the government houses. They cannot fund you (the politician) only for you to make them less whole!
But if CBN wants to fix Nigeria, that is the real deal. If you tax all the mansions in your village as the Americans do (real estate tax funds basic education), your local school will have resources to make it a top-grade primary and secondary school system. Magically, the local government will have real budgets, out of the resources on its land.
People, from CBN to the Presidency, Nigeria knows what to do but since 1999, everyone is afraid because doing it will cost you votes! A real estate tax that charges 0.8% on property value per year will transform Nigeria.
In the Igbo nation, real estate tax belongs to the class of “Osisi na ami ego” [revenue that comes by you doing nothing because the houses are there]. You can also call real estate tax the godzilla of revenue. Nigeria needs that playbook.
Comment 1: Yes my Prof. CBN has done well with this particular policy. In my presentation to one of the regulatory agencies in the financial service sector three weeks ago, I told them that a mere redesign of Naira was not going to achieve much for us. I suggested to them to accompany the naira redesign with a withdrawal of the N500 and N100k bills from circulation and strict implementation of the cashless policy. I’m glad to see they were thinking along that line. CBN right now need to assist in massive deployment of POS devices and network improvements to reduce cases of failed transactions.
This recent push has wide positive effect on the Nigerian economy. Tax effect is one huge one. Transactional taxes will increase significantly, property taxes could become the new oil. We equally need to introduce inheritance tax in Nigeria. My worry is that the Tax Authorities at the federal, states and LGAs might not be ready to take advantage of this.
Comment 2: You need to do more “GLOBAL” research, People can be Asset rich and cash poor. Even in Nigeria , maybe you guys don’t see it in your “day to day”. But Yes!!! many Nigerians worked damn “haaarrrdddd” for their money in those darn days of the Military regimes, bought their properties in the hinterlands that have now become prime areas in major cities, thinking in their retirement they’ll live happily ever after. Now you want to tax them 0.8% annually or if they can’t pay make them homeless or force them to sell up. Asset Rich, Cash poor happens all over the world, and it is rather for want of a better word NAIVE to simplify peoples lives into Monetize the Asset . Once a gain it shows the lack of empathy in the make up of Nigeria . Every “thinking” is punitive, Nigerians can’t ever think of ways to not make people uncomfortable.
Comment 3: a simple policy document or legislation can address your concern, it’s not as complicated as you paint it. How about designating one property of choice as ‘home’, which won’t be taxed? This way, you take care of retirement or ancestral property. Once you own more than one property, the rest should be taxed. People build so many mansions that are never occupied, yet they are not paying for laundering money via such schemes. There’s no excuse for bad behaviour, this we must always bear in mind.
Comment 4: This is one of the very rare times I would totally disagree with Prof Ndubuisi Ekekwe. There have to be an exception of your primary home which happens even in a tax crazy place like the UK. Many working class Nigerians work all their lives to be able to build a home so that they could stop paying rent and not a house for economic activity. How would u have such person to pay yearly tax on a family house he isn’t using for commercial purposes. So every single home owner must sell their homes or commercialize it just to pay tax to government on asset value?? And is this inclusive of the money being collected via the Land Use Act??
My Response: Americans pay this tax for primary homes where they live and they have not disappeared. It is about 1% of the value, say N100k on a home worth N10 million. There is no emotion on this – Nigeria can remain where it is or move to the next level as a nation. The good schools in America are financed from real estate tax. – “Property taxes, or real estate taxes, are paid by a real estate owner to county or local tax authorities. The amount is based on the assessed value of your home and vary depending on your state’s property tax rate. Most U.S. homeowners have to pay these fees, usually on a monthly basis, in combination with their mortgage payments. If you pay off your loan, you receive a bill for the tax from local government occasionally during the year.” https://www.rocketmortgage.com/learn/property-taxes-by-state
Comment 5: Ndubuisi Ekekwe this is in a system where social support is prevalent. If a home owner ends up not being able to take care of them self post retirement the government steps in. That homeowner in the US doesn’t provide his own water, security on his street/house, alternative power with generators.. not to mention being taxed in multiple ways. We can’t always just copy what is done in US without context to the social structure and Marco economy that supports that policy to thrive over there.
My Response: As I noted, this post is not a debate on the use of the little we have. If South Africa spends $120 billion on 60 million people, Nigeria cannot just spend $42 billion on 220 million. Your choice: Nigeria continue digging and make no change.
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