Uche Usim, Abuja
Despite national outrage that greeted Federal Government’s plan to review the Value Added Tax (VAT) from the current five percent to between 35-50 percent, the International Monetary Fund (IMF) has firmly supported the hike but advised it takes a staggered approach.
According to the IMF, the first VAT hike should be 2.5 percent in the medium term, adding that with the nation’s population growing at a rapid rate, growth per capital will be less than zero percent.
The IMF also urged the federal government to end fuel subsidies and create a credible timeline to recapitalize weak banks in the country.
At the conclusion of the IMF Executive Board 19 Article IV Consultation with Nigeria, the global financial institution also called on the Central Bank of Nigeria (CBN) to stop its direct intervention in the foreign exchange market.
“They welcomed the authorities’ tax reform plan to increase non-oil revenue, including through tax policy and administration measures,” IMF directors said via a statement.
“They stressed the importance of strengthening domestic revenue mobilization, including through additional excises, a comprehensive VAT reform, and elimination of tax incentives.
“Directors highlighted the importance of shifting the expenditure mix toward priority areas. They welcomed, in this context, the significant increase in public investment but underlined the need for greater investment efficiency.
“They also recommended increasing funding for health and education. They noted that phasing out implicit fuel subsidies while strengthening social safety nets to mitigate the impact on the most vulnerable would help reduce the poverty gap and free up additional fiscal space.”