Bimbola Oyesola, Uche Usim, Adewale Sanyaolu and Chiwendu Obienyi
Nigerians may have to brace up for more difficult times as the Federal Government has announced plans to hike Value Added Tax (VAT) to enable it fund the N30,000 new minimum wage approved by the Senate yesterday.
Minister of Budget and National Planning, Senator Udo Udoma and the Chairman of the Federal Inland Revenue Service (FIRS) Mr. Babatunde Fowler, disclosed this when they appeared before the Senate Committee on Finance, yesterday.
Fowler said the proposed payable VAT by Nigerians based on the increment from the current five per cent would actually be between 35 per cent (6.75%) and 50 per cent (7.25%)
“By the end of this year, we should be ready for an increase in VAT. A lot of Nigerians travel to Ghana and other West African countries and they can see that theirs is much higher. They pay when they go for those trips. We should be ready for an increase on VAT.
“I can certainly see an increase in VAT of at least 35 per cent to 50 per cent this year based on our enforcement activities. There certainly will be an increase in Company Income Tax and also on Petroleum Profit Tax,” Fowler said
Fowler said the agency had increased VAT collection by 25 per cent in the last three years, but lamented that many of the firms that are collecting VAT are not remitting it.
“It would be recalled that as a result of agitations from the unions that the President set up a tripartite committee to look at the Minimum Wage.
“Every five years, it is supposed to be reviewed. It has not been reviewed even though there is no doubt that for both the Federal Government and states; it is a tough time to review wages. But the N18,000 is really too low and it is difficult for people to live on N18,000.
The president supported a revision but it is important that as we are revising (the Minimum Wage), and we will make sure that it can be funded. That is why we set up the Bismark Rewane Technical Committee. We will be coming to you. There may be some changes may be in VAT and other things. But we will be coming to you in order to make sure that we can fund the Minimum Wage,’’ Udoma said.
But reacting on the proposed VAT hike, Managing Director and Chief Executive Officer (CEO) of Financial Derivatives Limited, Mr. Bismark Rewane, said the comments by the duo of Udoma and Fowler remained their opinions.
Rewane said not until a white paper on the N30,000 minimum wage all submissions on the workable framework towards the implementation of the minimum wage still remains in the realm of speculations.
‘‘I cannot comment on a report that has not been submitted. But I think that is just the opinion of the Minister. Not until the report is out and a white paper issues, nobody can say this is the direction VAT review will take.” He, however pointed out that Nigeria’s tax to GDP ratio is very low, adding that for now, he does not know which tax the country would be more efficient in collecting; admitting that discussions around Nigeria’s tax system must be looked at closely.
For his part, Head of Tax and Corporate Advisory Services at PwC Nigeria, Mr. Taiwo Oyedele, lamented that governments sometimes have a lazy approach to tackling problems without caring to know the impact on the citizenry.
Oyedele said increasing VAT to enable government pay the N30,000 minimum wage in face of unemployment, fragile economic growth and low purchasing would be counterproductive. He maintained that, if government is compelled to increase the minimum wage, then it should be looking at ways of improving efficiency and productivity.
The tax expert warned that increasing VAT could lead to a decline in collection rate because majority of the people that are meant to be paying the current VAT rate are not even paying, adding that a further hike will discourage them further.
‘‘We currently have a five percent VAT rate that majority of the people that are supposed to be paying are not paying. When you now increase it, you would have succeeded in making the business environment less competitive for the people doing the right thing.
The people, who are doing the wrong thing by not paying, even have more incentives not to even pay. This overall is not even good for the economy.
On how to arrive at a sustainable model of paying the minimum wage, Oyedele advocated for a streamlining of job roles and a performance measurement framework across all MDAs appraisal model that would help shrink job roles.
Also speaking, Director General of Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said such plan would not be good for business, as investors presently are operating in a very difficult environment with high cost of production.
“This is coupled with the fact that the purchasing power of consumers has further been worsened”, he lamented.
“The unfortunate thing about VAT in Nigeria is that it goes on all services right from the ports where the raw materials come in to all the processing levels, unlike in other economies where VAT is on the final production.
For the Director General of Nigeria Employers Consultative Association (NECA), Mr. Timothy Olawale, multiple taxation is already killing businesses in the country, even as he warned that increasing VAT would amount to compounding the problem of the Organised Private Sector.
“Businesses in Nigeria are encumbered with the payment of over 55 different taxes at the three levels of government. The incidence of double taxation, particularly consumption tax, has assumed a very dangerous dimension. We expect the government to rein this in through an appropriate statutory policy declaration.’’
But according to the CEO, Highcap Securities, David Adonri, the proposed increase in VAT if implemented in the capital market will increase the cost of transactions on the domestic bourse and this will be a dis-incentive to Nigerians who are investing in the capital market.