Enyeribe Ejiogu, Olakunle Olafioye (Lagos) and Uche Usim, James Ojo (Abuja)

The dust raised by the recent announcement by the Federal Government that it would approach the National Assembly to seek an increase in Value Added Tax, from the current five per cent to 7.2 per cent, effective from 2020, has continued to swirl as condemnations have trailed the proposal.

Key representatives of the Organised Private Sector and the Labour movement, as well as other notable Nigerians who spoke with Sunday Sun were aghast that the Federal Government could conceive such move, which they believe would only worsen the hardship in the country and deepen the penury of the majority of Nigerians who are not privileged to enjoy huge budgetary allocations.

Moreover, they noted that in the run-up to the 2019 elections, the All Progressives Congress (APC) and President Muhammadu Buhari had promised to take the country to the Next Level in terms of economic development and prosperity, security and overall national wellbeing. Further, when the president addressed the nation at the event marking the first Democracy Day to be observed on June 12, 2019, he assured that his administration would not put more burdens on the people.

Also recall that when the issue of increasing VAT was first mooted just before the elections, the APC National Leader, Asiwaju Bola Ahmed Tinubu had kicked against it in his speech at the colloquium held to mark his birthday, on grounds that such move would lay additional burden on the low income earners who would ultimately bear the brunt of the extra production and operating costs of businesses in the country.

He advised the government to rather seek to widen the tax net, to be able to bring in more taxable individuals, small-to-medium enterprises that have not been paying income tax.

But barely months after the general elections and the presidency back in its grip, the APC-led Federal Government made an volte-face and decided to increase VAT, thereby setting off a firestorm of protests among Nigerians.

Expressing his ire on the proposed VAT increase, Secretary General of the Nigeria Labour Congress, Comrade Emmanuel Ugboaja, who spoke with Sunday Sun reporter on the phone from outside the country, described the move by the Buhari administration as a show of wickedness and ill-timed.

His words: “The move is coming at a very wrong time. The purported gains from the new minimum wage, which is yet to take off will be wiped off. As a Labour centre, we reacted promptly by condemning and rejecting the increase immediately the Minister of Finance announced the intention of the government.

“I am repeating it that Nigerian workers reject the VAT increase, because as it is, it shows that it will clearly erode what ever purchasing power the minimum wage may bring.

“It is sad that such increase in consumption tax is coming when the poor are becoming poorer. This is one government policy not well thought. It’s impact on Nigerian manufacturers and job creation and retention will be nightmarish.

“ It is clearly insensitive to the plight of the ordinary Nigerian. What the government needs to do is to widen the tax net and get people to pay tax and not to over tax those that are in the net as of now.”

Speaking in the same vein, respected labour leader, Comrade Issa Aremu said: “The VAT increase as planned by this government will make nonsense of the minimum wage, and this is more reason the NLC has condemned it. I believe it will undermine the purchasing power of the workers and the masses in general. What Labour is doing with the demand for a better wage for workers is to ensure an improvement in their purchasing power, but when you agreed to increase minimum wage and turn around to increase consumption tax, it is like giving a gift with the right hand and taking it back with the left hand. Therefore, raising consumption tax is even contradictory.

“What the government should do is to tax the rich more and not to add to the burden of the poor. By this, we will have a progressive taxation regime where the rich pay more instead of the present system where the poor pay more than the rich. The truth is that an increase in consumption tax is an unjust tax, whereas what we need is a just tax regime.

“This is achievable by making the collection of property tax a top priority. What we have presently is that rich people, who own property do not pay appropriate tax. This should be corrected. Any proposed increase or decrease in the percentage of VAT to be paid is a matter of the law, so, the National Assembly should demonstrate that they are with the masses who voted them as their representatives by rejecting the proposed increase.”

Dismissing the proposed VAT increase as evidence of insensitivity of the Buhari administration, Comrade Ayodele Olorunfemi, General Secretary of SSASCGOC, noted that the announcement was made barely 24 hours after the leadership of the Trade Union Congress paid a courtesy visit to the president.

His words: “The proposed increase in VAT from five per cent to 7.2 per cent by the Buhari government is an evidence of insensitivity to the plight of Nigerian masses. Anybody contemplating such an increase must be wicked from the heart, going by what the people are presently passing through to stay alive. It implies that for every consumable item, there will be an increase in the cost, meaning that people will pay more.

“What made the announcement deceptive is that it came a day after the new leadership of the Trade Union Congress (TUC) paid a courtesy visit to President Buhari, who pledged that his government will not add to the burden of the people.

“If I may ask, is an increase in the cost of goods and services not an additional burden?  This shows that the government is not sincere with the people. Labour has announced that the increase is not acceptable and has been rejected. We stressed it for government to know that the masses are ready to oppose any obnoxious policy or laws that will further make living a burden. Government should not test the will of the people, who are always at the receiving end of bad policies. The tail cannot continue to wag the dog.”

Leaders of the organised private sector, through their umbrella body, Nigeria Employers’ Consultative Association (NECA), had in a statement cautioned against the timing of the announced VAT increase.

Director General of NECA, Mr Timothy Olawale, in a statement noted that recently released data of the country’s GDP growth indicated a contraction in the past two quarters (Q4, 2018 (2.38 per cent), Q1, 2019 (2.10 per cent), Q2, 2019 (1.94 per cent).

Moreover, he stated, the International Monetary Fund recently revised downward its global economic growth forecast to 3.2 per cent due to the sluggishness in global economy. Therefore, Olawale explained that the IMF analysis of global trend suggested at a period of time like the present, economies should be formulating fiscal measures and policies that would stimulate their economies.

He said: “The benefits of the recently signed national minimum wage of N30,000 would be neutralized by the proposed increase in the VAT, further reduce the purchasing power of the citizens, leading to increase in prices of goods and services, resulting in upward movement of the inflation rate, and further contraction of the economy.”

He lamented that since the purchasing power of the citizens would have been reduced, sales of goods and services would reduce and inventories for business will be high and could lead to closure of businesses that ought to be supported by the government in reducing the unemployment rate that is currently alarming.

Olawale also opined that in the event that the government must increase VAT against the will of the people, it should have been limited to luxury or ostentatious goods only.

He also urged the government to double its efforts at expanding the tax net, reduce the income gap and improve the economy through more friendly fiscal policies and promote the ease of doing business in Nigeria.

“The Federal Government should bring up machinery in order to further increase the tax bracket, widen the tax net as the country is presently achieving less than 10 per cent of its VAT potentials,” Olawale said.

 

Why government increased VAT

When the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed shocked Nigerians last week with the announcement that the Federal Government planned to increase the Value-Added Tax (VAT) from five per cent to 7.5 per cent as recommended by the Presidential Technical Advisory Committee (PTAC), but which the government eventually settled for 7.2 per cent, she also listed anticipated benefits that would accrue from the utilisation of the increased revenue.

Speaking on the reason for the VAT increase and the benefits, the Minister of Finance, Mrs Ahmed, insisted that even as 7.5 per cent, Nigeria’s VAT rate will still be at about half the African average and amongst the lowest in the world, thus sub-national governments get 85 per cent.

Mrs Ahmed who spoke through her Special Adviser, Media, Tanko Abdullahi, said: “The benefit of an increase in VAT is, therefore, more beneficial to state governments and local government areas (LGAs) in the country, many of which are already facing difficult conditions.

“The proposed increase in VAT is, therefore, expected to create additional fiscal space. The existing VAT Act exempts the basic necessities such as food, medicines and education, which, therefore, minimises the impact on the poor and vulnerable segments of the Nigerian society from the burden thereof.

“It is expected that the exemptions will be maintained in the amended Act. It is gladdening that the VAT increase, if correctly implemented, could bring in huge revenues, which would actually reduce the fiscal deficit burden.

“The government’s borrowing programme could then ease and certainly the financially affected states and local governments could later focus on issues like poverty reduction, healthcare and power generation and transmission.”

According to industry experts, the VAT increase, if enforced properly, forms part of the fiscal consolidation strategy for the country.

The experts believe that it could, in fact, help address the fiscal deficit problem and the revenues estimated to be collected just as it could actually mean lowering of the fiscal deficit burden for the government across board.

As financial experts indicated, the new VAT rate, when implemented, would generate not less than N2 trillion into the government coffers in 2020.

The amount represents about 21 per cent of the N9.7 trillion of the 2020 budget proposal that would be sent to the National Assembly by the end of September.

While Nigerians are still trying to reconcile Buhari’s promises with the harsh realities on ground, the government has since forwarded the proposed VAT hike to the National Assembly to secure legislative approval. Lawmakers are expected to amend the revenue Act to reflect the proposed increase before it becomes law.

Early this year, the Federal Government set up a technical advisory committee comprising competent and leading economists from both the public and private sectors chaired by a renowned economist, Mr Bismack Rewane, who is now a member of the newly constituted economic council established by President Buhari to provide him advise.

The committee, inaugurated on January 9, 2019, was to advise on the implementation of the new minimum wage. It submitted its report on March 21, 2019 and made the key recommendation that the government should increase VAT from five per cent to 7.5 per cent.