A recent opinion poll in the United Kingdom put the Conservative Party led by David Cameron at its highest rating in the past 15 years. The Conservative Party polled 41 percent, compared to Gordon Brown-led Labour Party’s 38 percent. This trend has undoubtedly put a lot of stress on Brown, considering the fact that his predecessor, Tony Blair, had to step down as Prime Minister two years ahead of the end of his term, in deference to public opinion that there should be a change. This article attempts to narrate how the slip shod tax policy of the Labour Party contributed to the current change of its political tide and the lessons for Nigeria.
Just about six weeks ago, Brown was the toast of the British Press and that of the average electorate. He was generally believed to have significantly contributed to the growth of the economy during his 10 years as the Chancellor. He was rated as a high performer within the short period of becoming the Prime Minister. Brown was, apparently, moved by his rising profile to promise during the Labour Party’s Convention last month that he might call a snap election in autumn, although he did not have to do so until 2009. His profiles soared further after his extremely brilliant speech at the convention.
The Conservative Party was, however, able to pull the rug off the feet of the Labour Party two weeks later at the party’s convention. David Cameron not only delivered an equally brilliant speech but unfolded a tax reform programme which appealed to a large spectrum of the populace. In sum, the threshold for inheritance tax will be increased to estates from 300,000 pounds to one million, meaning that only millionaires will pay inheritance tax.
Anyone buying their first home for below 250,000 pounds will be exempted from stamp duties. The tax cut will be financed from a new 25,000 pounds per annum flat tax on ‘non domiciled residents’ who live in the United Kingdom but are not considered permanent residents. The new tax is estimated to generate revenue of about 3.5 billion pounds. The proposed tax reform may seem to Nigerians as mere tokenism, but it struck the right cord in the teeming majority of middle class people who stand to benefit significantly from it.
Buoyed by his confidence in seeming superiority of his electoral promises, Cameron held Brown to his promise to call a snap autumn election. Assessing the damaging impact of the proposed tax reform of the Conservative Party on its electoral fortunes, the Labour Party was constrained to reconsider its plan to hold election at the risk of its credibility in the estimation of the public. It was apparently a choice between the devil and the deep blue sea for the Labour Party. Smarting from the abyss of the moral dilemma it found itself, the Chancellor, Alistair Darling of the Labour Party unfolded in his pre-budget speech a tax reform in a manner that was similar (yet inferior) to that of the Conservative Party. Labour also promised to reform the Capital Gains Tax with effect from April 6, 2008.
If Labour had thought of regaining voters’ sympathy by its belated tax reform proposal, it was a complete error of judgment on its part. The Press was awash with negative responses from different spectrum of the public. The Labour Party was described as being “short-sighted and managing the economy by responding to polls,” ‘tax reform based on political self-preservation rather than public needs,’ ‘desperate,’ ‘dishonest’ and “shameless theft of Tory’s tax idea.” While these developments are significant, they may not be decisive of which party will win the election if Labour is able to get its acts together between now and the election time.
What are the lessons of these developments for Nigeria? What is the status of each of the three taxes that have become a nightmare to the Prime Minister of the United Kingdom?
There is, presently, no inheritance tax in Nigeria. The Capital Transfer Tax was abolished by the budget speech of 1997 based on the untenable ground that it was not compatible with our tradition and difficult to administer. Yet, each state has continued to levy ‘estate duties’ pursuant to the High Court rules which is administered by the Probate Department without appropriate statutory framework on imposition, assessment, collection, appeal procedure etc. The consequence, therefore, is that more revenue is generated into private pockets of the relevant officials than government coffer.
Stamp duties may be a relatively insignificant source of government revenue in Nigeria. History tells us that the Stamp Act was a major catalyst for the American Revolution. The law and administration of Stamp Duties in Nigeria are bedevilled with myriads of constitutional and administrative controversies and problems so much that the Study Group on Review of the Nigerian Tax System recently recommended the abolition of stamp duty in Nigeria.
Dr. Abiola Sanni teaches Law of Taxation in Faculty of Law, University of Lagos.