Who should the Nigerian government tax?
Who should the Nigerian government tax? Source: Stears Business

Show me your tax code, and I will tell you who you care about. 

My sister and I came up with that line after reading about the Nigerian government's recent move to place a tax on carbonated drinks as part of the strategy to shore up government revenues. I have been writing about taxes a lot in the past few months, which is hardly surprising given the flurry of government activity around it.

Some takeaways:

 

  • Taxes are important, but they can create distortions in the market. Whether the producer or consumer bears most of the tax cost depends on how sensitive people are to price changes and if the producer has enough profit to cover the tax.

  • Besides raising money, taxes can also serve as an important way to incentivise and punish certain behaviours. The government's new tax on sugary drinks will lead to less consumption of a product with possible health implications. 

  • People may choose not to pay taxes either because they feel the government will not utilise the funds well or they can get away with it. For the second reason, people assess the possibility of getting caught for tax evasion and the penalties before paying.

 

In summary, the Nigerian government has gotten busy widening its tax base from increasing VAT to taxing lottery players.

It's interesting because growing taxes shortly after a pandemic when people are getting poorer and the nation faces its highest unemployment crisis does not precisely line up with economic thinking. Then there is also the fact that this is a pre-election year, so naturally, it should be political suicide for any government to increase taxes (Nigeria is truly a land of contradictions).

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Fadekemi Abiru

Fadekemi Abiru

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