LIKE the Kenyan citizens’ agitations against a proposed finance bill and calls for a better livelihood, Nigerians face harsh economic realities that have further impoverished the masses.
Nigeria came into a new administration about one year ago, precisely on May 29, 2023, under the leadership of President Bola Tinubu, however, the steps he had taken to reform the country’s economy have left many of the citizens in untold hardships.
President Tinubu’s reforms focused on floating the exchange rate and removal of fuel subsidies. These two policies spiked energy prices which triggered high inflation on food and basic household items.
The 60-year-old Republic of Kenya came into a new leadership under the stewardship of President William Ruto, who was sworn in on Tuesday, September 13, 2022, however, his administration currently faced a stalemate over his government’s determination to force a fiscal policy on the people.
In May, President Ruto introduced the 2024 finance bill to raise funds to offset some of the government’s budget deficit.
But this was greeted with a public outcry as Kenyans demanded that the bill be stepped down because of the economic hardships faced by the citizens.
On Tuesday, June 24, the country’s members of parliament ignored the public outcry and passed the controversial finance bill.
The reactions of the Kenyans quickly resulted in an uncontrollable protest that led to the death of at least 10 people and hundreds sustained various degrees of injuries.
Ruto, who has about 14 days to sign the bill into law, on Wednesday, June 26, decided not to approve the finance bill, however, this has not quenched the anger and frustration of the people who want the bill entirely scrapped.
On Thursday, June 27, protesters returned to the streets demanding that Ruto and other leaders step down from their positions as the dust the proposed tax hike raised has yet to quell.
The feud about the finance bill
President Ruto’s finance bill is targeted to raise $2.7 billion in additional taxes to reduce the country’s budget deficit and borrowings.
The bill originally proposed a 16 per cent sales tax on bread and a 25 per cent duty on cooking oil; an increase in tax on financial transactions; and a new annual tax on vehicle ownership amounting to 2.5 per cent of the vehicle value.
It also proposed increases in the cost of essential items such as sanitary pads and babies’ nappies and further introduced an Eco Levy targeted at digital products, among others.
If passed, the finance bill would impose unaffordable tax increases on vulnerable citizens and businesses already weighed down by the high cost of living.
Following public rejection, the government on June 18 made changes to the bill.
It removed the proposed 16 per cent VAT on bread, transportation of sugar, financial services, and foreign exchange transactions; the 2.5 per cent motor vehicle tax; and increases in mobile money transfer fees and excise duty on vegetable oil.
It also made changes that locally manufactured products, including sanitary towels, diapers, phones, computers, tyres and motorcycles will not attract the Eco Levy.
“The stability you see in the foreign exchange regime is a result of our deliberate policies to reduce imports of things that are produced locally,” President Ruto said.
The finance bill, also imposed excise duty on imported table eggs, onions and potatoes to protect local farmers, however, the changes made by the government could not assuage the anger of the Kenyans, resulting in a crisis.
Kenya’s economic reality
According to data from the Kenya National Bureau of Statistics (KNBS), the country’s annual inflation rate increased to 5.1 per cent in May 2024 from 5.0 per cent in April 2024 but declined compared to 8.0 per cent in May 2023.
The rise in the recent inflationary pressure was mainly driven by an 8.1 per cent increase in transport costs, 6.2 per cent in food and non-alcoholic beverages; and 4.4 per cent in housing, water, electricity, gas and other fuels.
The three divisions’ items make up over 57 per cent of the weights of the 13 broad categories in the country’s inflation measure.
Other economic indicators show that the East African country with about 51,525,602 population has a 5.6 per cent gross domestic product (GDP) growth rate and a 38.6 per cent poverty rate.
Kenya’s public debt stands at 68 per cent of its gross domestic product (GDP), higher than the 55 per cent of GDP recommended by the World Bank and the International Monetary Fund (IMF).
The country grapples with acute liquidity challenges amid uncertainty over its ability to access capital from financial markets as it has turned to the IMF – which has urged the government to meet revenue targets to access more funding.
Amid the economic challenges faced, Kenyan protesters had argued that the planned tax hikes would choke the country’s economy and raise the cost of living for the masses already struggling to make ends meet.
The government of President Ruto, elected in 2022 on a pledge to uplift the lives of the poor, had used the finance bill to introduce a housing tax and to raise the top personal income tax rate, sparking anger, street protests and court challenges, Reuters recalled.
But… what can Nigeria learn from the fallout
President Tinubu-led administration celebrated one year in office on May 29, 2024, amid the sufferings and hardships his drastic reforms have caused households and businesses.
For instance, Nigeria’s inflation has risen by about 51.49 per cent to 33.95 in May 2024, from 22.41 per cent in May 2023 and has consistently every month under Tinubu’s administration, The ICIR reported.
The aftermath of his May 29, 2023 declaration that fuel subsidy was gone sparked increases in the costs of transportation, foodstuffs and other commodities and further stoked the economy.
The ICIR chronicled all the data on Tinubu’s one year in office and did a series of reports on how his administration affected various sectors of the Nigerian economy.
The economic situation in Kenya reflects the realities Nigeria’s economy portrays – high inflation, unemployment, widespread poverty, low revenue, high public debt, declining investments, an increasing rate of emigration, and worsening standards of living.
Also, like the Kenyan proposed tax reform, the Nigerian government is on course to reform the country’s fiscal policy and tax system.
On July 6, 2023, President Bola Tinubu set up a presidential fiscal and tax committee and inaugurated the team on August 8, 2023, with the mandate to reform and harmonise the country’s fiscal policy and tax system.
The committee, chaired by Taiwo Oyedele, a tax expert, in a stakeholder’s forum with journalists in Lagos state, discussed some proposed changes to the National Fiscal Policy.
He said the committee had proposed a reduction in multiple taxes and made other changes in the draft copy of the ‘National Fiscal Policy Framework,’ the committee had submitted to the National Assembly.
But how the government at all levels handled the committee’s proposal, considering the plight and suffering of Nigerians in mind, could go a long way in imaging what it learnt from the Kenya tax crisis.
For instance, the committee has proposed a reduction to the government value-added tax (VAT) revenue to about 64 per cent.
“We know that realistically, nobody can approve that,” Oyedele said, noting that VAT has been one of the highest-yielding revenue for the government.
He explained, “Remember that 85 per cent of it [VAT] goes to states. So, how do you think that states will approve of this brilliant idea? So for this idea to work we must adjust the VAT upward.”
No matter how good an idea and policy are, “you have to get the buy-in of the people before going ahead to implement them,” said the head of Financial Institutions Rating at Agusto&Co, Ayokunle Olubunmi.
The Kenya finance bill when it was brought to civil society suffered rejection but the legislature went ahead and passed it without considering the feedback of the people, he noted.
“This was one of the things that triggered the protest,” Olubunmi told The ICIR.
Like Kenya’s situation, Nigeria faces revenue issues and huge debt which it wants to use reforms to offset.
He said, however, “The government needs to be careful how it uses reforms because if it loads the buck of those reforms together, the adverse impact will affect a lot of people in the economy.
“We can see how the fuel subsidy removal and exchange rate unification has impacted inflation and other economic indicators.”
According to Olubunmi, while it is good to get feedback from the masses, he stressed that educating the people goes a long way in driving the acceptance of any policy or programme “because if they do not understand it, they could go against it.”
He added, “What the government also needs to realise is that there is a limit to how they can push people, no matter how docile they think the people are.”
An oil sector governance expert, Henry Ademola Adigun told The ICIR that key policymaking attribute is do pre-evaluation of policies to look at the shocks it could create in the economy,find a possibe way out before the pronouncement.
“We tend to overestimate those in authority as super humans that’s why they throw things at the people most often. Nigeria has similar issues with Kenya in terms of what happened when the President removed subsidies without proper incentives to absorb the shocks from the people.
“Also, the Naira devaluation worsened the whole issue and caused avoidable pains. In Kenya, there are lots of taxes on the people. I was there early in the year and interacted with the people who complained of all manner of taxations in the economy introduced by President Ruto,” he added.
Speaking further on Tinubu’s tax reforms, a tax consultant and owner of an Audit firm, Emeka Okoroeze who spoke to The ICIR said the Presidential Fiscal Committee on Tax Reforms must get the buy-in of states and key stakeholders to be able to make breakthroughs in the tax reforms.
“The bulk of the problem is in the states. That is where you have unofficial state actors exploiting the systems. Most of the states have tax consultants as political proxies and that is a political and economic problem in the reforms. The tax reforms issue must be delicately handled. Taiwo Oyedele committee is doing lots of engagements now and it is important that they get the buy-in of major stakeholders to have a breakthrough,” he added.
