Tax rebates as soothing balm for subsidy removal pains

By Gbenga Salau

Since the Federal Government announced the removal of fuel subsidy, there have been efforts by governments at both the federal and state levels to deploy one form of palliative, or the other to cushion the effects of the policy on the citizens.

In Lagos State, for instance, Governor Babajide Sanwo-Olu has announced a cut in transport fares; free antenatal care, child delivery services, and normal and Cesarean Section (CS) to expectant mothers at general hospitals, and Primary Healthcare Centres (PHCs).

Just last Sunday, Sanwo-Olu flagged off the distribution of food items to individuals and groups, disclosing that the state government plans to reach 500,000 households with the food items, including rice, beans, and cassava flakes.

Residents have criticised the government for planning to reach such a low number of households. In 2022, the National Bureau of Statistics (NBC) disclosed that 29.4 per cent of Lagos’ population is poor.

However, the earlier slash in transport fares announced by the state governor has been of no consequence. While transport fares on state-owned buses have been reduced by about 35 per cent (as against the 50 per cent) announced by Sanwo-Olu, private commercial bus drivers have failed to yield to the governor’s directive hence the failure to slash their fares by 25 per cent as requested by the governor.

Across many routes in Lagos, the fare for moving from one point to another remains the same.

Just after Sanwo-Olu announced palliative measures for residents of the state, the Federal Government gave an N5b grant to each state in the country, as well as truckloads of bags of rice to be deployed as palliatives.

While some have commended the initiative, many are worried that apart from the grossly inadequate number of food items, even the little available to the state may not get to those who need it, especially in a state like Lagos, with a huge population. This is why they suggested a multi-dimensional approach to helping the citizens cope with the fuel subsidy removal.

Specifically, some of these concerned persons have suggested tax rebates or tax holidays for not only workers but also for business concerns, especially manufacturing companies, who are bedeviled by a cocktail of levies and charges collected by the state government.

A resident and social worker, Mr. Samuel Ajayi, stated that because of the increased vulnerability scale, which has nearly forced the middle class into extinction in Nigeria, tax holidays or rebates for workers would be a welcome development.

“Nevertheless, this effort will only address a small fraction of those being affected by the government’s economic policies. Those in the informal sector will require different interventions. The flip side of it is the effects on government revenue, which is needed for infrastructural development and economic growth, which must also be assessed. These two sides must find a balance.”

He added that a cut, or total removal of income tax has to be approached with caution, and it should be done progressively, meaning that the principle of equity should be applied.

“Outright removal or cut are applied based on individual earnings. Those with little income should be considered for outright removal, the average earners can be considered for a rebate, while others should be excluded or their taxes increased based on certain parameters.”

For Akaoma Onyeonoru, commercial bus drivers having to cut their fares by 25 per cent, is nothing short of wishful thinking, by the state government because, they had no agreement with the government to that effect, even as they are also victims of harsh economic policies.

“It is common knowledge that commercial drivers would not comply with the so-called directive, especially given the fact that the government is not making plans to repay them one way or the other without stress. I am all for the government reducing taxes by at least seven per cent. It will give more families opportunities to purchase more commodities.”

Onyeonoru, who works for a pay TV, added that if the state government gives her a tax holiday, or rebate, it will allow her enough room to do more with her income since a chunk of it still goes back to the government as taxes.

Godwin Oyedokun, a tax expert, who works in a private organisation stressed that the removal of the petrol subsidy has affected everybody in diverse ways.

According to him, powering his car, and power generating set among others have become cumbersome since the petrol subsidy was removed.

“I am not part of the extremely poor, so how will I recoup my exorbitant new spending on petroleum products now? If the Federal Government is giving states money to distribute or to use, what is my benefit? How will I be consoled for this? So, that is my issue with subsidy and palliative of government.

“Compulsorily everybody pays Value Added Tax (VAT), and you cannot escape it. So, the government should let the VAT rate come down drastically for the prices of products to come down too. If I don’t work with the government and the salary of government workers is increased, how does that affect me? How does that affect my private organisation? How does that affect my employer of labour? But if the personal income tax rate is reduced, let’s say for a year, we now know that whatever remains as our disposable income will be enough to cater for the effect of the subsidy removal.

“Private organisations can also benefit if there is a kind of income tax reduction. Small size companies are not paying income taxes, but there are some in major and large categories paying income tax, which can be slashed by 50 per cent because petrol cost is now two times higher. These to me are good palliatives that will go around as far as I am concerned.”

Oyedokun stated that the Lagos commercial bus drivers should not be blamed for not reducing transport fares by 25 per cent because we should ask ourselves, “What has the government done for them in the sector to warrant it? Every single opportunity should be explored. Look at what happened during the COVID-19, palliatives were dished out by the government, but did not get to many that were to benefit from.”

He maintained that approving tax rebate/holiday will bring a lot of relieves to many, and bring more disposable income into the hands of the citizenry.

“I know the government can do this if it gives it a thought, But I say no to the distribution of cash; I say no to unreasonable and unbalanced palliative,” Oyedokun stated.

Another tax expert, Adeboye Adeyemi, who emphasised that subsidy removal was necessary as criminally-minded persons were robbing the rest of us through that route, added that the short-term impact of subsidy removal is the increment in fuel price, which has negatively impacted the cost of living, and doing business in the country.

He noted that taxes are collected by the governments to generate revenue that makes it possible to invest in infrastructure, and in the provision of public services, adding that tax collection is primarily to raise revenue for government expenditures, although they serve other purposes as well. “Given this scenario, subsidy removal is necessary, and a temporary challenge, but the money realised from it can benefit the general public if properly managed and accounted for.”

He, however, said that the government could help commercial bus drivers and the citizens by checking the activities of transport union officials (including the ones they call “agberos”, who appear to be above the law and extort commercial bus drivers both on the road and at motor parks.

He also stated that pending the time that there will be functional refineries in the country, the government could consider reducing taxes being paid by individuals and companies.

“A reduction in income tax will result in an increment in net income after tax for both individuals and companies. Please note that tax cannot be removed as the government needs the taxes to create public infrastructure.”

The Lagos State Chairman of the Nigeria Labour Congress (NLC), Comrade Funmi Sessi, expressed optimism that the food palliatives by the state government will get to those who need them, especially as the state government has put in place a mechanism to ensure transparency through the multi-stakeholders committee set up to distribute and monitor distribution.

She therefore implored those whom God has blessed not to try to benefit from the palliatives, rather they should allow the poor to breathe.

She also enumerated some of the efforts by the Lagos State government to alleviate the pains of residents and workers, including an increment in salary in January by 20 per cent, and a cut in transport fare.

Sessi disclosed that labour unions in the state are already discussing with the state government to cut working days by two so that they could use it to farm.

According to her, having a living wage is critical, which is why the labour union at the national level is already discussing and negotiating with the government for workers to have such.

She also stressed that if the government implements a living wage, it will address some issues that bother workers in the state.

All these notwithstanding, she added that it won’t be a bad idea if tax for the poor is written off, or reduced, while those who are rich should pay more tax.