By Babajide Okeowo
Stakeholders in the Nigerian economy have posited that the timing of the increase in Value Added Tax, VAT rate from five percent to 7.2 percent was wrong and will lead to untold hardships on Nigerians.
A former Director-General, the Securities and Exchange Commission, SEC, Dr. Suleyman Ndanusa, said the timing was wrong and rather than increasing VAT, the paradigm should shift from revenue-driven taxation to growth-driven taxation.
“The timing is quite wrong. At this point, our economy needs to be helped by policies that will ginger more consumption and more disposable income for the masses. The paradigm for me has to change. Are we increasing tax just for revenue or managing our fiscal policy taxation for growth? The paradigm has shifted from revenue-driven taxation to growth-driven taxation,” he said.
He added that government needs to introduce incentives, reduce interest rates and pump up consumption to help the economy to grow instead of increasing taxes.
“The approach must be holistic, obviously at a time like this when there is a seeming recession or coming out of recession. The government needs to pump up consumption; when you begin to tax expenditure just for the purpose of revenue generation, it will further dampen demand and affect businesses” he said.
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On his part, The Director-General of Nigeria Employers’ Consultative Association, NECA, Mr. Timothy Olawale posited that if the new VAT rate is implemented, the purchasing power of citizens will reduce, sales of goods and services will reduce and inventories for business will be high and could lead to the closure of businesses.
“If this new VAT rate is implemented, the purchasing power of the citizens would have been reduced, sales of goods and services will reduce and inventories for business will be high and could lead to the closure of businesses that ought to be supported by the government in reducing the unemployment rate that is currently alarming. Furthermore, the benefits of the recently signed national minimum wage of N30, 000 would be neutralised by the proposed increase in the VAT, further reducing the purchasing power of the citizens, leading to increase in prices of goods and services. It will result in the upward movement of the inflation rate, and further contraction of the economy” he said.
Olawale further said that if the government must increase the VAT rate against the will of the people, it should have been limited to luxury or ostentatious goods.
Meanwhile, economic analysts have expressed concern about the Federal Government’s proposed increase in Value Added Tax (VAT) from five per cent to 7.2 per cent, saying government should instead widen the tax net.
Reacting to the development, the President of Manufacturers Association of Nigeria (MAN), Mr Mansur Ahmed, said that government was supposed to have widened the tax net instead of increasing VAT.
He noted that the government should fashion out measures to restructure and strengthen the taxation system, such that more people would pay tax.
The MAN boss said that more than 50 per cent of the taxable population bracket was not paying taxes in Nigeria.
According to him, the increment will induce inflation and reduce demand for goods and services in the country, as the purchasing power of Nigerians was already low.
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“We do understand that government wants to generate more revenue, to enable it to fund implementation of the national budget and the new minimum wage structure.
“Increasing the VAT is not the best option to actualise the objective. Let there be more enlightenment on taxation, so that taxpayers will be encouraged to continue to pay taxes, while the tax evaders will be captured into the tax net.
“Hence, expanding the tax net, implementing tax reform, and ensuring robust tax administration are useful alternative strategies to increase government revenues with less negative impact on the economy,” Ahmed said.
The National President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Hajiya Saratu Aliyu, said the VAT increment would reduce competitiveness of Nigerian goods and services in the international markets.
She said the increment would also bring about increase in the cost of production and a rise in unemployment, as the real sector would adjust to rising costs of production.
According to her, the country’s economic growth and trajectory has not fully recovered from the 2016 economic recession.
“Gross Domestic Product (GDP) growth rate per quarter has been 1.74 per cent on average, since the country regained positive economic growth in the second quarter of 2017.
“Inflation Rate is still high, revolving around 11.3 per cent since May 2018. Double-digit inflation is still driven by high food prices.
“The unemployment rate as at the third quarter of 2018 stood at 23.1 per cent, an estimated 20.9 million people are unemployed. With these in mind about the Nigerian economy, certainly, increasing VAT is not advisable now,’’ Aliyu said.