Nigeria Needs Tax Innovation To Bring Citizens and Firms To Finance Education, Youth Development, Etc

Great comments on my piece on VAT, explaining the Nigerian government’s new tax initiative for the informal sector. Absolutely, Nigeria needs innovation on how to use tax to drive growth. The nation over years has done well on collecting money but has faded on helping the citizens and companies grow.

One area our tax system needs modernization is education and youth development. My village of Ovim (population, about 10,000 people) supports our three primary schools and two secondary schools via generous donations from the citizens. But as the citizens donate enormous resources to the public schools, there is no single tax benefit to them.

But in America, making those donations would have been a huge opportunity for the donors. Yes, Bloomberg might have given nearly $1 billion to my alma mater, the Johns Hopkins University. Across the U.S., many U.S. business schools are named after business leaders. Those people opened their wallets and made donations. Sure, they love the institutions but many would not have done so if the tax system had not stimulated the giving through financial incentives. Making those donations help balance many elements in their personal and company finances. Nigeria does not offer that.

Then when Apple, GM, Ford, etc want entry level technicians, they send the budget to community colleges (like polytechnic OND). Those schools use the companies’ training manuals and train young people on the skills those companies want. They typically hire everyone who graduates. Apple is doing this across America, doling out $10 million to these schools; great corporate social responsibility. But you know what: that is using one stone to kill two birds – get those workers trained and still claim that money as deductible during tax filing. The celebrated US industry-academic partnership was seeded on tax strategy. With that tax system, it would not have been as strong!

In Carnegie Mellon University, many companies connected as we were setting up the African campus in Kigali. You do the donation in the US to give you tax positioning.

• Companies can outsource the training, allowing them to focus on their businesses. The schools do the work for them. In Apple’s case noted above, it wants to popularize the Swift language. There is no better way to do so than working with schools

• Donation money given to schools is tax deductible because the schools are tax-exempt under the U.S. Internal Revenue Service tax code. This is the key reason. If Apple or GM were to do the training in-house, the tax benefits will not materialize. They will still train the young people, but they cannot deduct that money. But by giving the money to colleges, they get the trained people and still get the deductions. This makes it easier when you need scale, beyond what you can have inside as staff for talent pipeline.

• Apple through this training will be getting pipeline of talent. The same applies to most U.S. firms. They want welders; they fund a local school to train welders to ensure they have enough for their businesses.

• It also provides goodwill as the local economy will see a boost through the injection of capital in the schools. The implications are huge: the school fees will drop for the students as companies have subsidized some parts, nearby businesses grow, and everyone is happy.

My conclusion is clear: “The Nigerian tax system is not designed to support philanthropy. That is why we do not have a vibrant one. It does not mean that a nation must be rich first before its tax system can be engineered to stimulate philanthropy. ASUU can lead on that, through Tax Reform, and make it possible for individuals and companies to put money in the schools and get tax benefits.”

I have asked ASUU, activists, etc on education and youth development to champion rewriting Nigerian tax code. If we do, you will see Innoson Motors use Polytechnic Nekede to train its welders instead of setting up its own school. Indomie Noodles will tap FUA Abeokuta. And just like that, money will flow into schools. Today, doing that has no balance sheet strategic value for any company! That must change.

Comment on Feed

Comment: Prof I think some donations are tax deductible in Nigeria. I recall a bank I worked for building the road that passed in front of the HQ and getting some tax rebate for that. Also the government under Buhari deployed tax rebates to get some corporations to fund the construction of some federal roads. Dangote Group and MTN participated. Couldn’t this strategy be applied to education? We basically borrowed our own tax code from others who do this.

My Response: My understanding is that you are doing tax recycling. If Dangote Cement is to pay N100m tax, the firm can decide to use that to build a road for credit that it paid N100m tax. That is different from Dangote Cement donating N100m to a school, and getting N100m as deductible.

“I recall a bank I worked for building the road that passed in front of the HQ and getting some tax rebate for that.” – that is different. The bank spent government money for the government. The tax was never the bank’s money. It just spent it and the govt used it as a form of tax payment.

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