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Despite past and present opposition to the proposed plan by the Federal Government to increase the Value Added Tax(VAT), the Federal Executive Council (FEC) last Wednesday approved 7.2 percent new VAT rate, from the current five per cent. The Minister of Finance, Budget and National Planning, Zainab Ahmed, announced the hike after the FEC meeting. The Finance Minister however indicated that the VAT Act will have to be amended by the National Assembly for the new rate to take effect.
Nonetheless, the proposed hike, which the Federal Government has been planning to introduce for almost a year now, has been generating mixed reactions among Nigerians on its possible effects on living standard and the economy.
Already, organised Labour, comprising the Nigeria Labour Congress (NLC) and the Nigeria Employers’ Consultative Association (NECA) are two of the many vocal voices that have opposed the proposed plan to increase VAT. They said the move would neutralise the newly approved but yet-to-be implemented N30,000 national minimum wage and erode whatever purchasing power the country’s new minimum wage may bring. They also cautioned against the timing of the proposed plan. They have therefore advised the Federal Government to drop the plan and rather explore other avenues of generating revenues, such as expanding the nation’s tax net and getting people and corporate organisations to pay tax and not to overtax vulnerable Nigerians and those that are already in the tax net. There is also the fear that the proposed hike will affect sales of goods and services and spike the inventories for businesses in the country, a situation that could lead to closure of many businesses.
We urge the government to heed the calls and shelve the plan. In its desperate move to raise more revenue, government is bound to inflict more hardship on Nigerians, contrary to recent assurance by President Muhammadu Buhari that his administration would not do so. Government’s calculation is that it expects to rake in at least N2trillion through VAT next year.
The amount represents about 21 per cent of the proposed N9.7trillion of the 2020 budget that would be sent to the National Assembly soon. And to do this at the expense of the well-being of the poor masses will be counter production particularly its effects on purchasing power, through the possible inflationary pressure in the market.
Our position remains unequivocal, that government should shelve any plans to raise VAT. Early this year, a leading member of the ruling All Progressives Congress (APC), Asiwaju Ahmed Tinubu, reechoed the concern of most Nigerians and advised the Federal Government to drop the idea, saying the current economic situation of the country, as it affects the vast majority of Nigerians, makes such a plan inexpedient at this time. We maintain that if goverment insists on going ahead to effect the increase in spite of the mounting opposition, it will not only increase the economic hardship in country, but this could also lead to unintended consequences . Many Nigerians are already impoverished as a result of some government’s policies.
The fact remains that while wages and salaries of most Nigerians remain stagnant, prices of goods and services are on the rise. The purchasing power of many have been so much hit that any attempt to increase the VAT above the present five per cent will be inimical to both the citizens and the economy in spite of the expectation of huge revenues in government’s coffers.
It is unfortunate that rather than pull Nigerians out of poverty, certain government policies are dragging them deeper into it. In other words, a hike in the VAT at this time when unemployment, poverty and other sectors of the economy are in negative territory, is unacceptable. Government’s agencies have not been transparent in their revenue generation drive. For instance, the FIRS is yet to let the public know how far it has gone with its earlier plan to raise N750billion from 55,000 millionaire tax debtors. Neither have Nigerians been informed about the agency’s plans to woo owners of undeclared foreign assets with a promise of amnesty and permanent waiver of criminal prosecution through the Voluntary Offshore Assets Regularisation Scheme (VOARS). Indeed, Nigerians are eager to know its earlier plan to impose a luxury tax on private jet owners in the country from which it said it hoped to raise about N7.9billion annually. There are estimated 190 private jet owners in the country, according to government statistics.
In other economies, governments realise the bulk of their projected revenues from wealthy individuals and companies. In those countries, tax evasion is considered a criminal offence and offenders are seriously punished, with hefty fines and imprisonment of officials found to have aided and abetted such crimes. In Nigeria, the wealthy are among the chronic debtors and tax dodgers as the debts owed to the Assets Management Corporation of Nigeria (AMCON) have shown. We are aware that Nigeria’s current six per cent tax ratio to our Gross Domestic Product (GDP) is one of the lowest in the world, and Nigeria is ranked 124 out of 138 countries on global competitiveness index. This means that a large percentage of those who ought to be paying tax are not doing so. It appears that raising VAT has become the line of least resistance. It shows government’s lack of creativity in exploring other means of broadening the revenue base of the country.
While we agree that the economy is wobbling and revenue falling below projection, government has not shown transparency in what it has done with taxpayers’ money. Cost of governance remains very high as a result of humongous amounts paid to politicians. There is no doubt that tax is the bedrock of any economy, but spending public funds generated through taxes for the good of the people makes prompt payment of tax a culture, not product of coercion.
Overall, the Federal Government should listen to the stream of calls that the proposed new VAT rate be dropped. The timing is not right, and the present economic realities in the country make it problematic. We urge the National Assembly to reject the proposed plan.
