In recent years, USA and the UK economies also suffered recessions. In less than two years these countries were out of the woods and on the path of growth again. Why could Nigeria not do the same?
The USA and UK governments used two main strategies in combating their recent recessions. Firstly, they used quantitative easing (print more money!) and spent their way out of recession by engaging in massive construction contracts. When government spends more on construction projects, more workers are employed, suppliers are busy and the economy is stimulated.
Award construction contracts in Nigeria and two things are bound to happen: the contracts are not executed and the money ends up in foreign accounts.
The second tool used is taxation. Any time USA and the UK want to stimulate economic growth, they reduce taxes for the poor and middle class who are most likely to go out and spend the money. Sometimes, they increase taxes for the rich to increase government spending.
Taxation is a veritable tool for controlling the volume of money in circulation. Unfortunately, Nigeria is still at a point where most people do not pay any tax and those who pay, pay very little. The richest people in Nigeria pay little or no tax.
There are too many people getting away with paying nothing as tax. As a result, Nigeria cannot effectively use taxation as a tool for controlling the volume of money in circulation. Until such a time when every working Nigerian pays decent income tax and pays more in indirect taxes, the government cannot use this tool to control the volume of money in circulation.
I am aware that many are averse to taxation. That is because they do not understand how powerful an instrument it is. It is so powerful that it will even reduce electoral fraud and corruption in high places. This is another debate. Suffice it to say that no one pays over 25% of their earning as tax and condones electoral malpractices and corruption. No one who pays decent tax calls it "national cake".
The need to diversify the economy is well recognised. We can no longer rely solely on petroleum. Be that as it may, let it be known that diversification only benefits a country that knows how to collect taxes that are due to it. If businessmen make billions from export of cocoa, groundnut, rice, tomatoes, petroleum, tin, gold etc and pay nothing as tax, we remain where we are as a country in recession.
As I have said since 2005 (Nigerian Observer), taxation is the answer to all our developmental problems. The difference between developed and developing countries boils down to effective and ineffective taxation. All countries with effective tax regimes thrive.
By: Sunny Oduware-Uwadiae