Hello,

I was having a chat with a colleague and we stumbled on an idea that might put more transparency into the governmental process. We propose that:

1. Each department within the government - police, military, social security, state governments, health department, etc - should maintain a separate debit account (preferrably with the central bank).

2. Towards the end of each year, each government department must prepare a separate budget for the next year and present it to the senate for ratification. Adjustments will be made until the senate is satisfied.

3. At the end of the year, the central bank will collate the departmental budgets, check their account balances, and calculate how much money needs to be collected as tax revenue during the coming year to cover the combined budget for all government departments.

4. Based on the approved departmental budgets alone, the central bank will calculate the revenue sharing ratio for each government department. E.g. 1% for police, 5% for health, 4% for Lagos State, and so on.

5. After using the budget to calculate the amount of tax revenue required for the year, the CBN will set the various tax rates (income tax, value added tax, everything) in such a way as to meet the exact tax revenue required.

6. At the beginning of the new year, the new tax rates will immediately come into operation.

7. As tax revenue flows in from any of the various sources, it will be immediately divided based on the revenue sharing ratio for each department (calculated in step 4) and moved into the departmental accounts.

8. Once tax money is in the account of one government department it will be under the control of the head of that department and must be used by that department for the predetermined purpose. (money meant for education can't be used to pay senator's travel allowance or buy a presidential jet).

I feel that such a system will encourage accountability to a maximal level and discourage corruption. When people pay tax, they will now what percentage is being used to pay the police, what percentage is going into health, and what percentage is being wasted by just using viewing the CBN website to view the revenue sharing ratio.

Is it good? Should our lawmakers pursue a reform along this direction?

Seun.

Interesting idea, but the devil is in the details.

For example:

"2. Towards the end of each year, each government department must prepare a separate budget for the next year and present it to the senate for ratification. Adjustments will be made until the senate is satisfied."

I can foresee each department putting forward budgets for extraordinary schemes just so that they can claim a larger share of the pie. In the end, power will lie with the Senate. Expect lots of large multicoloured polystrene bags to trade hands.


Also, although it will try to ensure efficiency, I don't know whether it will really discourage corruption. As Education Minister, who is to stop me if I divert part of the funds meant for building a school into something else and build the school with inferior materials with what's left over?

I can foresee each department putting forward budgets for extraordinary schemes just so that they can claim a larger share of the pie. In the end, power will lie with the Senate. Expect lots of large multicoloured polystrene bags to trade hands.

That is a problem of the senate. There will be another proposals to make the senators more accountable to the public.

However, there is something that we can do under 'transparent taxation': the rationale for each government departmental budget (the ones presented to senators) should be made public so citizens and political opponents of the senators in power can scrutinize then and raise an alarm (like the 3rd term alarm) if something doesn't add up.

Well I'm not a financial genius but I forsee #6 being a problem. I think it introduces alot of uncertainty into the government and even personal life. Uncertainty and fear (of the future) is what drives honest men to corruption. (Of course others are motivated purely by greed and they can prey off of other's fears.) It's also a mighty big task to have to do every year. How about every 5 years when the changes can be made that really take the direction of the country into consideration rather than a fluke year.

Seun:

6. At the beginning of the new year, the new tax rates will immediately come into operation.

The basic gist of my proposal is this. Government, before you take my money, you mus tell me what you are planning to use it for and make sure that it's used for exactly that purpose and not something else!

I think it introduces alot of uncertainty into the government and even personal life.

Last year, Nigeria earned an unexpectedly large amount of foreign exchange from crude oil sales. Wouldn't it be nice if that translated into lower taxes this year? By following this year's news, next year's tax rates will be predictable.

However, your point is a very strong one. Many people prefer a life of apparent certainity. We prefer stable jobs with constant salary regardless of performance (although one can be fired and lose all).

Yes our Lawmakers should introduce a transparent and effective tax laws PLUS THEY SHOULD be a strong taskforce to monitor and prosecute tax evasion and mismanagement, and an online report of what the money is spent on!!

_{the U.K basically survive on tax!!}

I just don't want a situation where we in Nigeria will be turned into tax slaves like the Europeans. Where otherwise productive businessmen wil be in jail because of "tax evasion". I want a transparent system to be in place that prevents the tax machinery from being hijacked by all these communists who like to punish people who work hard.

the foundation of this proposal is that the government shouldn't collect tax unless they actually need it.

we dont have to be turned into tax slaves but there wont be the usual excuse of lack of funds, it will help ALOT
our main revenue is from oil as for now,

Education, pension, salary. healthcare

every "productive businessman" understands the importance of tax in the economy and im sure then he wont have to waste so much to generate electricty,bribe police, bribe lecturers for his children

the government always needs tax- what is tax for to provide for the people aint it?

Ka:

I can foresee each department putting forward budgets for extraordinary schemes just so that they can claim a larger share of the pie. In the end, power will lie with the Senate. Expect lots of large multicoloured polystrene bags to trade hands.

Seun:

That is a problem of the senate. There will be another proposals to make the senators more accountable to the public.

That's the problem that needs to be solved first.

Seun:

the foundation of this proposal is that the government shouldn't collect tax unless they actually need it.

Well there is something similar in the US, you pay the "high" tax and get a tax refund at the end of the fiscal year. Granted, its an interest-free loan to the government for a whole year, but then you don't entirely lose the principal.

However what also happens if revenue from other sources during the year falls short, or you have an extra-ordinary event like a war to prosecute. You'll have a deficeit that will have to be funded by a high rate short-term loan. It could get expensive.

Well there is something similar in the US, you pay the "high" tax and get a tax refund at the end of the fiscal year.

[s]It's like father christmas - he collects entrance fee for each chilf and gives you cheaper gifts. A cheap psychological trick![/s] Based on my research, it appears that tax refunds come back to those who have overpaid their tax. It's not as if they are returning un-needed money, but they are returning money that wasn't meant to be paid at all.

However what also happens if revenue from other sources during the year falls short, or you have an extra-ordinary event like a war to prosecute.

Wars are meant to be expensive. If they are too cheap, leaders will engage in them more often. They would disregard the cost on human lives if the cost on the treasury is low.

You'll have a deficeit that will have to be funded by a high rate short-term loan. It could get expensive.

If a department within the government expects a crisis - such as the army on the Niger Delta crisis - they can put the expected costs in their (independent) budget. They will have to convince the senate that:
1) The disaster has a reasonable chance of occurence
2) The disaster is important enough to require government intervention if it happens.

If the expected crisis does not happen, that amount can be rolled over into the next tax period. It must not be used for any other purpose. It is important to keep the system simple to it can be scrutinized.

If the crisis is completely unforseen, the president can create a special account for managing the crisis and ask for donations and from Nigerians and corporate bodies, international relief agencies, arms of government who deem their operations to be less important than management of the crisis, etc. If the donations are not sufficient, then the CBN governor can ask the senate for permission to start creating money (selling bonds) to deal with the crisis. This will cause inflation, but the excess money can be mopped up during the next taxation cycle.

Your concern about the lack of transparency in government accounting - its receipts and expenditures is legitimate because we need to hold our government accountable for their actions and reduce incompetence and greed in the public sector.  Good reasoning, but your recommended course of actions are not in consonance with government accounting and its operations.
For example, what purpose will the debit account serve?  Are you not aware that government agencies all maintain acounts with the CBN?  It also seems that you are unaware that these agencies prepare budgets each year.
You also called for the central bank to collate the budget of the agencies, a call that will duplicate the statutory budgetary functions that is being handled by the budget department of the Fed. Ministry of Finance.  There is no reason why the CBN should be saddled with this function.  They have their own statutory functions.  Although the CBN and the Fed. Ministry of Finance act in concert to regulate the economy,  they have separate and distinct functions.
The issue of budgetary allocation is done by a committee known as statutory budget allocation committee which consider and hear inputs from all agencies before approving their budgets, although final approval lies with the NASS (National Assembly)
The revenue sharing ratio among the Federal, States and the Local government is derived from the constitution. As for its agencies, I think the agencies has to defend their budgets and the Fed will approve it based on anticipated revenue receipts for the coming fiscal year.  
There is nothing wrong with the present system of government accounting.  I think the staus quo should be maintained. But more importantly, I think the NASS could set up an oversight department that will monitor the implementation of the budget and ensure they are used for the purpose for which they are approved.  This oversight department can be an arm of the NASS with full powers to audit the books of the agency and bring an erring government official to book after a prima-facie evidence of guilt has been established against them.  (Jobs for the Accountants)

You left out the Federal Inland Revenue Service from your equation on the revenue collection drive of the government.  It is the responsibility of the FIRS to collect revenue for the government and not the CBN, and by extension, they also have the statutory powers to fix the rate of taxation albeit through approval of the Fed.
To me, the problem of tax collection is more complex.  How many people, other than those on the payrolls of the government and some well established companies in the private sector pays the income tax?  The number is negligible, if there is any.  There has to be a system whereby every citizen will pay to the treasury, taxes according to their income. And the taxes can be levied either by flat, progressive or proportional rates.  What about the self employed, do they pay taxes?  In Nigerian, the answer is a resounding NO, unless you can prove me wrong with facts.  
What about the VAT? Do you think all the revenue collected by the businesses in trust for the FIRS are turned over to the govenment?  I don't have the facts, but I do not need a fortune teler to tel me that half of the revenue collected for the government are not accounted for.  That is where the problems lies.  Accountability is the answer.

Seun:

Based on my research, it appears that tax refunds come back to those who have overpaid their tax. It's not as if they are returning un-needed money, but they are returning money that wasn't meant to be paid at all.

err, nope. Yes those who overpay get a refund as they should, but during the fiscal year laws are sometimes passed to provide a "tax cut". Essentially a temporary reduction in your taxable income
because of certain activities/purchases you engage in. Granted its not because the govt does not need the money, its because they want to encourage/stimulate certain activity, i.e. small business or home ownership.

Seun:

If the expected crisis does not happen, that amount can be rolled over into the next tax period. It must not be used for any other purpose.

Back to the main issue. Accountability. I think the proposal focuses on the wrong issue. Accountability for the currently collected funds is job No.1. Then we can say for sure if the govt collects too much tax or not. At this time I'm pretty certain only govt employees and companies pay income tax regularly.

Seun:

If the crisis is completely unforseen, the president can create a special account for managing the crisis and ask for donations and from Nigerians and corporate bodies, international relief agencies, arms of government who deem their operations to be less important than management of the crisis, etc. If the donations are not sufficient, then the CBN governor can ask the senate for permission to start creating money (selling bonds) to deal with the crisis.

Donations are voluntary and unreliable. Creating money(bonds) is also more expensive/less reliable and requires "less" accountability than taxation. Its a voluntary loan that has to be repaid with interest and the government can spend it as it desires, taxation is "free" money but ideally you account for it to your citizens. Let's not forget that a country asking/begging for donations will also be hard pressed to find buyers for its bonds. No investor wants their loan to go unrepaid, and yes the buyer of your bond is an investor.

taxation is "free" money but ideally you account for it to your citizens.

What are you talking about? You can't eat your cake and have it. You can't spend money and not earn it from somewhere. Either you get donations from people who are concerned about the crisis or you print money. those are two things that governments are already doing even in the absence of crisis, so what are you sayng? It seems you are just arguing for the same of arguing. I don't like that at all.

Seun:

What are you talking about? You can't eat your cake and have it. You can't spend money and not earn it from somewhere.

Taxation is "free" money because you do not have to pay interest on it. You put a law in place and collect. A loan/bond is not free because you pay for the loan. I hope that's clearer?

Ok, i understand what you are saying. The bonds will require payment of interest and so the taxation burden the year after will be a little bit more (3% or so?).

Well I think that's ok. First, government already routinely issues bonds even when it's not cash-strapped. Secondly, it's ok to take a small hit when this unforseen situation occurs. Such incidents are rare, and it's unlikely that heads of government departments will refuse to donate if a disaster occurs. Such an action will spoil their images. The interest payment acts as compensation for those who gave the Government money when others were unwilling to donate. If the bond auction is open to the public, then the interest payment might be very low.

However, it seems that there's no demand for this my idea at the moment. People just want more transparency. Noted. Thanks a million for accomodating our idea. I had fun!

.

Gbenga

I see the whole western taxation system as a money spin. First of all, you work for one week, and earn like 200 pounds working for 40 hours. at the end of the day the inland revenue will take lik 50-70 pounds out of your pay on tax, and you wonder what they are doing with it.

they are paying policemen,repairing roads, clearing rubbish, donating to charity 

I recently discover that people on benefits actually live on your tax and u work to feed them.

they are loopholes in every system  , and not everybody is honest

they are loopholes in every system

In the US, that 'loophole' consumes 40% of national production. In the UK, it's even worse than the US!

In the US, that 'loophole' consumes 40% of national production.  In the UK, it's even worse than the US!

_{laws are constantly being passed to check these "loopholes" , and value for money- moreso tax payers are ALLOWED TO complain if they think are not gettin the best deal and that applies to enterprenuers n manufacturing sectors aswell  in the 2 countries}

In your proposal what will happen to under-performing departments?
is ur proposal 100% ? loopfree