The Side Effect Of An Increase In Taxation On Nigerians

On the 13th of December 2021, According to TheGuardian the Finance Minister of Nigeria, Mrs. Zainab Ahmed said “there might be introduction of new tariffs and levies in 2022 as the economy was now on a recovery path.” This got me thinking, what will actually be the fate of Nigerians if there should be an increase in taxation. This thinking of mine also led to the publication of this article “The Side Effect of an Increase in Taxation On Nigerians”.

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Taxation is the act of taxing people or companies. It is a government’s form of generating revenue for investing in other sectors of the nation. The taxation of a particular country is based on a certain percentage. While tax can be defined as the levy imposed on a taxpayer to pay the government of a particular country.

Taxation can be seen as the act while tax is the actual amount paid. Tax could either be Direct or Indirect. Investopedia.com defines Direct Tax as “a tax that a person or organization pays directly to the entity that imposed it” and Indirect Tax as “the tax collected by one entity in the supply chain (usually a producer or retailer) and paid to the government, but it is passed on to the consumer as part of the purchase price of the good or service”.

At the end, one can see that the consumers who are the people of the country are the ones that stand to suffer the most from an increase in tax.
The increase in taxation is one thing that can affect the economy and the lives of citizens in ways that are catastrophic.

The Nigerian Government maybe concerned about boosting the Nigerian Economy by increasing the tax but the irony of the situation is that this will only ruin jobs and productivity, due to the fact that output will be reduced. For the corporate sector, an increase in tax, most especially Value Added Tax (VAT) will only push consumers to look for immediate substitutes with low tax or zero levy, thereby leading to a deduction in demand for such corporate body and a deduction in demand means a reduction in the inflow of cash.

In this article, I will briefly highlight five possible outcomes, if the Ministry of Finance should increase tax.

THE CITIZENS WILL EXPERIENCE LOW WAGE OR SALARY

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In an economy, there is a presence of what is called circular flow of income, where money moves from one place to another. The money can move from Mr. Andrew to Mr. Barry when Mr. Barry buys something, the money can move to someone else. But the main concept behind the circular flow of income is the fact that money should always be in circulation. But when high tax comes into play, it will automatically lead to low wage or salary for citizens. This is because after the tax have been deducted from an individual’s wage or salary, what is left is called Disposable Income and it would be a small amount for the individual’s day to day expenses. For instance, if in January 2021, Mr. Andrew makes $20,000 monthly and paid 20% of his salary as tax, which happens to be $4,000, Mr. Andrew will be left with $16,000 as his disposable income. But come January 2022, Mr. Andrew still makes $20,000 and now pays a 25% of his salary for tax, which means Mr. Andrew now pays $5,000 as tax and he will be left with $15,000 as his disposable income. Mr. Andrew has experienced an increase in tax but still on the same base salary. This is why an increase in tax will definitely lead to low wage or salary because sadly an increase in tax does not lead to an increase in wage or salary.

LOSS OF JOB WILL BE RAMPANT

When companies that are responsible for employing citizens start to experience an increase in value added tax from the government, they begin to look for ways to cut down on their outflow of cash in order to stay committed to their main purpose which happens to be making profit. In cutting down on their outflow of cash, companies always tend to cut down the first outflow of cash which is payment of staff. They start from the bottom by looking for job positions in the companies that are not entirely essential in the sustenance of the company, then cut them off. Although these job positions may not be essential in the sustenance of the company but these job positions are essential for the livelihood of the persons occupying them. This can even bring about stagflation, which is the simultaneous increment in both the price of goods and service(inflation) and the number of unemployment. Stagflation = Inflation + Unemployment.

PRODUCT MAY EVEN BECOME UNAVAILABLE

This is a likely outcome companies suffering from an increase in value added tax may experience. When there is an increase in value added tax on a product, there will also be an increase in the price of such product, thereby making consumers of such product to source for alternatives. A company that makes luxurious goods like cars or expensive clothes, watches and bags could increase the price of their product if they experience an increase in value added tax from the government. But this act will only make their customers to develop a lifestyle of living without their product or service. This will even bring about loss of profit for the manufacturing company of such product. Most times, the Federal Government employ the use of increased value tax to restrict certain companies from operating in their country.

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POVERTY AND HIGH CRIME WILL BE THE ORDER OF THE DAY

When unemployment and inflation roams the street, the citizens can be forced to extort forcefully from those who have in abundance (The Rich), since poverty hunts them and high crime is something you do not need to pay tax for.

POOR LIVING STANDARD WILL GRADUALLY BE THE FATE OF ALL

With high tax, we will gradually begin to see our finance deteriorate before our eyes. Usually, on a monthly basis, we could be making a good sum of money as our wage or salary but after tax has been deducted and we pay for the necessities of life (food, cloth and shelter), we come to realize that all we have left in our possession is nothing to write home about. Thereby making us to scrap out every plans to invest and save.

In conclusion...

These are my thoughts on what an increase in tax could do to the finance of Nigerians. It will do more harm than good and if the government are truly concerned about the prosperity and well-being of their citizens, they should know that an increase in tax to generate more revenue is a terrible choice for both the citizens and government.

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