The Federal Government may raise the Value Added Tax (VAT) to 7.5 per cent from the current five per cent next year. Former Minister of Finance, Mrs. Zainab Ahmed, disclosed this while speaking at the Bloomberg Emerging and Frontier Forum in London. According to her, the hike has become necessary to shore up declining revenue. Nigerians had opposed earlier plans by government to raise VAT.
The Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler, had then refuted the report that he had proposed a 50 per cent increase in VAT when he appeared before the 8th National Assembly to defend the agency’s 2019 budget. He insisted that his agency recommended an increase in the number of Nigerians and companies paying VAT. However, the revelation by the former Minister of Finance is likely to engender fresh debates on the desirability or otherwise of the hike in VAT.
Our position is that the government should shelve any plan to raise VAT now. We believe that any attempt to hike VAT in spite of mounting opposition will increase the economic hardship in the country. Many Nigerians are already impoverished by some government’s inept policies. The truth is that while wages stagnate, prices of goods and services are on the rise. The purchasing power of most Nigerians has been so much hit that any attempt to increase VAT will be inimical to the economy.
Rather than pull Nigerians out of poverty, certain government policies are dragging them deeper into poverty. Therefore, an increase in VAT at this point in time when many Nigerians are suffering is unacceptable. We enjoin the government to creatively retool the economy and broaden the revenue base without over taxing Nigerians.
One of the ways to do this is to expand the tax net, by ensuring that more Nigerians pay tax, especially the wealthy, many of who are perennial tax dodgers. Making the tax net to get bigger is better than the planned VAT hike. It seems that government’s ideas on revenue generation and growth are often geared to areas of least resistance.
We do not know how far the government has gone with the earlier plan by the FIRS to raise N750 billion from 55,000 millionaire tax debtors. We also do not know what happened to the initiative 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). Nigerians will also want to know how far the government has gone with its decision to impose a luxury tax on private jet owners from which it hoped to raise about N7.9billion annually from an estimated 190 private jet owners.
In other economies, governments realise most of their projected revenues from wealthy individuals and companies. In these climes, tax evasion is considered a criminal offence and offenders are adequately sanctioned. FIRS should aggressively pursue the drive to track millionaire tax debtors and bring them into the tax net instead of hiking VAT.
We are aware that Nigeria’s current six percent tax ratio to the Gross Domestic Product (GDP) is one of the lowest in the world. Currently, 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 taxes are not doing so. Globally, Nigeria is still at the bottom rung of the Ease of Doing Business.
While we agree that the economy may be in dire straits due to government’s declining revenues, Nigerians would like to see what the Federal and State governments are doing with taxpayers’ money. Seeing what government is doing with the taxpayers’ money will encourage many Nigerians to come into the tax net. There is no doubt that tax is the bedrock of any economy, but spending public funds generated through taxes for the betterment of the society makes prompt payment of tax a culture.
Any upward review of VAT, as being contemplated, will not be in the best interest of most Nigerians. It will, among other things, affect the prices of goods and services. It can also lead to inflation.
The latest Consumer Price Index (CPI) put inflation at 11.40 per cent for the month of May. Manufacturing companies are grappling with the issue of multiple taxes. Let the government drop the plan to increase VAT. Instead, FIRS should improve the collection of Company Income Tax (CIT), Petroleum Profits Tax (PPT) and deepen the nation’s tax net.