Controversy over 7.2 per cent VAT rate - THE NATION
MIXED reactions on Thursday trailed the 7.2 per cent Value Added Tax (VAT) proposed by the Federal Executive Council (FEC).
The Chartered Institute of Taxation of Nigeria (CITN) lauded the increase, saying it was long overdue.
According to the institute, the proposal will help government to realise its developmental objectives.
But, the Manufacturing Association of Nigeria (MAN) faulted the timing, saying it is inappropriate.
The association said the step will spur spontaneous increase in price of goods and services.
However, the President of the Chartered Institute of Taxation of Nigeria (CITN), Dame Olajumoke Simplice, defended the new rate, urging the government to sustain it.
Speaking on Thursday with The Nation, she said despite the increase, Nigeria’s VAT is still one of the lowest in the world, adding that the new rate should be pegged at 7.5 per cent or 10 per cent.
Noting that the last VAT review was 25 years ago, she said Nigeria has the lowest VAT rate in the ECOWAS sub-region.
According to the CITN boss, the VAT review should take place every five years, stressing that it should be tax on consumption.
She said: “VAT is a tax on consumption and is only paid when you consume goods or pay for services. Nigeria’s decision to raise VAT is good for its trade relations with other countries. Besides, VAT is very easy to collect and should be utilized for development of the economy.”
Simplice said government should also be held accountable for the funds from the VAT are spent. In her view, the funds should be judiciously used for developmental projects.
Acknowledging that the new VAT rate will increase prices of goods, she said manufacturers will pass the effects to consumers.
Simplice advised tax payers to form pressure groups to monitor tax revenue spending and ensure accountability on the part of government.
The International Monetary Fund (IMF) has consistently advised Nigeria to raise its VAT and channel the funds to developmental projects and budget funding.
At the conclusion of the IMF 2018 Article IV Consultation with Nigeria , its Executive Board emphasized the need for a growth-friendly fiscal adjustment, which front-loads the non-oil revenue mobilisation and rationalises current expenditure to reduce the ratio of interest payments to revenue to a more sustainable level and create space for priority social and infrastructure spending.
The board said: “In addition to ongoing efforts to improve tax administration, directors underlined the need for more ambitious tax policy measures, including reforming the value added tax (VAT), increasing excises, and rationalising tax incentives.
Speaking on tax reforms at the Fiscal Monitor Session of the event, IMF Assistant Director, Fiscal Affairs Department, Cathy Pattillo, said tax reform in Nigeria was important.
She said IMF’s main recommendation for Nigeria is the need for a comprehensive tax reform that would sustainably increase non-oil revenue.
Pattillo added: “The reason why that is needed is that Nigeria has one of the lowest ratios of non-oil revenue to Gross Domestic Product (GDP) at around 3.4 per cent in the world. And the total tax revenue to GDP at six per cent is also very low compared to peers”.
She said that the interest to tax ratio is low, adding that the funds realised should be spent on important developmental projects, including infrastructure and human capital. She also advised Nigeria increase excise taxes, and begin aggressive streamlining of tax incentives and exemptions.
MAN said although, government should generate more revenue to fund its developmental initiatives, owing to declining revenue from oil, the timing was inappropriate because the minimum wage of N30, 000 has just been agreed upon.
MAN Director-General Segun Ajayi-Kadir said in a statement that the increase could send a wrong signal that the government was not sensitive to the plight of the low- and middle-income earners, who are in the majority.
He also said it was a case of government taking back what was given with the right hand through the National Minimum Wage with the left hand through the increase in VAT.
Ajayi-Kadir said the economy had just recently exited recession, with the fragile growth rate of less than two per cent recorded in 2018, which should be delicately managed.
He said Nigeria’s precarious macro-economic condition required palliatives that would improve investment and not higher tax burden.
Ajayi-Kadir said: “The prevailing high lending rate, double digit inflation, low per capita income, high unemployment rate and a low 1.91 per cent growth rate amidst 2.6 per cent population growth rate that are already cumulatively limiting competitiveness could be further worsened.”
The DG also said the burden of the VAT increase will be shifted to consumers that are already struggling, adding that the economy will experience demand crunch, while inventory of unsold items would soar.
He said the profitability of manufacturing concerns will be negatively impacted, while many factories will witness serious downturn or wind down operations.
Ajayi-Kadir added: “This will also worsen the already high unemployment position of the country, which is above 23 per cent, as Nigerians currently employed by manufacturing concerns and other businesses may join the reserved army of unemployed and further bloat the unemployment rate in the country.”
He advised the government to widen the tax net rather than increase the rate to meet the growing need for more revenue to address the development objective of the country.
Ajayi-Kadir added: “There is also the need to harmonize taxes/levies/fees payable by businesses in the country so as to attract more investment that would translate to higher productivity and more tax revenue for the government in the medium and long term,” it counseled.
Rejecting the new rate, the People’s Democratic Party (PDP) in a statement by its spokesman Kola Ologbondiyan, said Nigerians cannot bear the burden of the increase, given the prevailing agonising economic situation.
Describing the move as anti-people and suppressive, the party said it has confirmed that government is “extremely exploitative, inconsiderate and absolutely insensitive” to the suffering of Nigerians.
The party maintained that the decision was in bad faith and cannot be justified under any guise.
PDP said: “Indeed, only an administration that does not have the mandate of the people can seek to adopt such oppressive stance against its citizens.
”President Buhari ought to be aware that an increase in VAT will worsen our decrepit economy and put more pressure on families and business as it will result in increase in costs of goods and services that have direct bearing on the welfare of the people.
”Our party charges the Buhari Presidency not to further punish Nigerians by imposing harsh tax regime to make up for its crass incompetence and lack of capacity to effectively harness and manage our resources to create wealth for the benefit of the people.
PDP urged the National Assembly to protect Nigerians and save the nation from collapse by rejecting “this injurious decision” by taken by the government.
Amid the controversy, the Senate Committee on Finance has said it will invite the Minister of Finance and the Chairman of the Federal Inland Revenue Service (FIRS) to shed light on the reasons for the proposed increase.
Reacting to the announcement by the Minister of Finance, Hajia Zainab Ahmed, after a Federal Executive Council Meeting yesterday, Senator Solomon Adeola, (APC, Lagos West), Chairman of the Senate Committee on Finance, said that the proposed increase has generated mixed reactions among Nigerians because of its likely effects on living standard and the economy.
He said: ”We are glad that the Minister of Finance indicated that the VAT Act will have to be amended for the increase to take effect. But we are concerned about the current economic situation of the country as it affects the generality of the people.” Senator Adeola stated.
He stated that the interaction with the two key officials of the Federal Government will form part of the basis for possible amendments of the VAT Act and to assuage any sentiments against the proposed VAT increase if eventually the Act is amended.