The Abia States economy is currently at a cross-road and has been for the past decades. The State has witnessed almost three decades of economic downturn and at best economic stagnation even at the time when Nigeria was growing at the rate of 7.5%. This growth did not see enough jobs or investments created with the economy failing to translate growth in output into lower unemployment and increased wealth creation. As growth accelerated, there was ample evidence to suggest that unemployment had increased. Outside oil and gas, tradeable sectors that pose huge potentials in the state have not been developed, leading to weak structural transformation and limited employment opportunities. Abia State’s economy has been largely consumption-based because of oil wealth but this has not increased productivity or urban/rural employment or reduce poverty as should be the case. Given the low employment capacity in the oil sector, economic diversification is important for economic growth, job creation, and poverty reduction.
Abia States’ informal small business sector which has been the engine of growth and diversification, continues to face a challenging business environment. In addition to continuing scant electricity supply, multiple taxation and illegal levies are one of the major impediments to doing business in the state (FIAS, 2008, DFID, 2008)[1]. The state comprises of 17local governments. The exact number of taxes levied on businesses in the state seems to vary significantly between what is imposed by the Federal government, state, and local governments throughout the state. Businesses may be subject to as many as 100 different taxes, charges, fees, and levies and in some instances, tax for the same event or asset that are levied by the three tiers of government.
In an environment where trade taxes, surcharges, and a plethora of other levies add to the cost of operational and transaction costs of business, their arbitrary implementation heightens the uncertainty to business enterprises in Abia State and further increases the cost of doing business. The impact of multiple taxations and illegal levies on competitiveness, and therefore external integration can be profound. Anecdotal evidence suggests that the current system of taxation in the state is characterized by a high incidence of “nuisance taxes” (illegal levies) on the mobility of goods and people within the State and across state boundaries and the prevalence of double taxation. The direct burden of official taxation on businesses is also compounded by the administrative burden to comply with these taxes which is found to be significantly higher than competitors from either the northern or western parts of the country[2].
[1] Multiple taxation is often referred to when same asset or event is taxed multiple times by different jurisdiction in a federal system. We extend the definition to include illegal levies as they can exacerbate the burden of administrative cost of government and businesses.
[2] The FIAS (2008), DFID (2008) and CIPE (2010) studies on taxation in Nigeria primarily focused on its direct burden.
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