A financial expert and Chief Economist at KPMG Nigeria, Dr. Yemi Kale, at the weekend expresses concerns about the potential negative impact of additional taxation on household expenditure and private business expansion.
The former Chief of the National Bureau of Statistics (NBS), noted when the government increases taxes, it is squeezing the household consumption expenditure as well as the earnings of business, and therefore preventing businesses from expansion.
He noted that in the Nigerian economic model, household consumption expenditure and private investment are the two largest contributors to GDP.
“In terms of public finance, I am one of the few people that does not believe in increasing taxes. I’m not one of the people that is a fan of pushing up taxes, particularly in a recession and when the economy is struggling with fragile growth,” he said.
Dr. Yemi Kale suggests avoiding tax increases and instead focusing on harmonizing existing taxes and improving public-sector efficiency, such as eliminating wasteful expenditures like fuel subsidies.
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He emphasizes the need for revenue agencies to exercise restraint in spending as revenue increases.
“I’m not a fan of increasing taxes. I prefer harmonizing the multiple taxes that are out there, I’m a bigger fan of more efficient, public-sector expenditure. For example, getting rid of wasteful expenditures like fuel subsidies. When you look at the revenue agencies, you find out that as the revenue goes up, they will find more things to spend and increase the expenditure,” he said.
The Chief Economist advised the government that public sector reform should not just be the usual rationalization of the public sector but from the perspective of the capacity of the public servants.
“We have a situation where you cannot get rid of public servants, they can do whatever they want, and it’s difficult to get rid of them. And if you succeed in getting rid of them as soon as you go, they get back into the system.
“So, until such things are also fixed, where you get the public service to build their capacity and their mindset in terms of wanting these things to work, I don’t think it will work no matter how good and credible you are.
“I think the target should be to harmonize the taxes and expand the tax net using technology and a more efficient expenditure structure. If we were able to do this in terms of public finance. If we can reform the public sector, I think that’s when every other thing ties in properly. And will see some significant growth,” he said.