A new report by Punch has revealed how the proposed Value Added Tax increment will adversely affect Nigerians.
Experts and groups such as the Nigeria Employers’ Consultative
Association have said the recent increase in the Value Added Tax rate
from five per cent to 7.2 per cent will lead to closure of many
businesses.
The Head of Tax and Corporate Advisory Services at
PricewaterhouseCoopers, Taiwo Oyedele, said the new VAT rate would
shrink the GDP growth and disposable income of Nigerians.
The Director-General of NECA, Mr Timothy Olawale, noted that the
timing of the increase in VAT rate was wrong, stressing that the
government ought to support businesses in reducing the alarming
unemployment rate in the country.
Recall that the Minister of Finance, Budget and National Planning,
Zainab Ahmed, on Wednesday announced the VAT rate increase at the end of
the Federal Executive Council meeting.
Olawale, however, argued that the benefits of the recently signed
national minimum wage of N30,000 would be neutralised by the proposed
increase in the VAT, thus further reducing the purchasing power of the
citizens.
“If this new VAT rate is implemented, the purchasing power of
the citizens would have been reduced, sales of goods and services will
reduce and inventories for business will be high and could lead to
closure of businesses that ought to be supported by government in
reducing unemployment rate that is currently alarming.
“Furthermore, the benefits of the recently signed national
minimum wage of N30,000 would be neutralised by the proposed increase in
the VAT, further reducing the purchasing power of the citizens, leading
to increase in prices of goods and services. It will result in upward
movement of the inflation rate, and further contraction of the economy.”
Olawale who was speaking in Abuja noted that the recently released
data of the country’s Gross Domestic Product indicated a contraction in
the past two quarters (Q4 2018, 2.38 per cent; Q1 2019, 2.10 per cent
and Q2 2019 1.94 per cent).
Rather than increase the VAT rate at this point, he said countries
should be formulating fiscal policies to stimulate their economies.
“Therefore, this suggests that at this period of time,
countries should be formulating fiscal measures/policies to stimulate
their economies,” he stated.
Olawale, who said that in the event that the government must
increase VAT rate against the will of the people, it should have been
limited to luxury or ostentatious goods.
He also urged the government to double its efforts at expanding the
tax net, reduce the income gap and improve the economy through more
friendly fiscal policies and promote the ease of doing business in
Nigeria.
Oyedele of the PwC in a statement on Thursday said more people were
likely to evade tax payment as businesses would become less
competitive.
At the current rate of five per cent, the PwC partner explained
that the country’s VAT collection of N1.1tn in 2018 amounted to 0.9 per
cent of the GDP compared to about 3.8 per cent for commonwealth and
ECOWAS countries.
While estimating that the government would earn additional N440bn
annually from the two per cent increase in VAT rate, he said for
Nigerian businesses, it meant a 40 per cent increase in VAT cost.
The tax expert noted that because VAT on capital expenditure was
not allowed as a credit in Nigeria, the cost of real investments would
go up.
On the positive side, Oyedele said, “Additional VAT revenue
will help reduce budget deficits, reduce government debt and fund social
services especially at sub-national level.”
To avoid the negative impact of VAT, he argued that VAT should be
paid according to individuals’ ability as not everyone could afford a
seven per cent VAT rate.
He suggested other palliative measures, saying “exempt or zero
rate essential consumptions like foods, education and primary health
care. The exemption should not be limited to only unprocessed food
items. In other words, a VAT increase should not affect the price of
bread.”
“Create a VAT registration threshold to eliminate VAT
compliance burden for small businesses. Allow businesses to account for
VAT on cash basis rather than on invoice, which creates a cash-flow
problem. Lead by example; ensure that government and all MDAs fully
comply by remitting VAT collected from their contractors. Ensure
transparent reporting and efficient utilisation of the revenue for
public services and infrastructure.”
Reacting to the proposed increase, a former Director-General, the
Securities and Exchange Commission, Dr Suleyman Ndanusa, said it would
affect demand for goods and services.
He said companies would suffer if people did not demand for goods and services because of VAT increase.
“If people do not demand for goods because of more tax burden,
it will affect the companies that produce them. And if the companies
that produce them are not making money, it will obviously affect their
profitability and income,” he said.
Ndanusa, who spoke to the News Agency of Nigeria, also noted that
the timing was wrong, considering the challenges in the economy.
“The timing is quite wrong. At this point in time, our economy
needs to be helped by policies that will ginger more consumption and
more disposable income for the masses. The paradigm for me has to
change. Are we increasing tax just for the purpose of revenue or
managing our fiscal policy taxation for growth? The paradigm has shifted
from revenue-driven taxation to growth-driven taxation,” he said.
He added that government needed to introduce incentives, reduce
interest rates and pump up consumption to help the economy to grow
instead of increasing taxes.
“The approach must be holistic, obviously at a time like this
when there is a seeming recession or coming out of recession. Government
needs to pump up consumption; when you begin to tax expenditure just
for the purpose of revenue, it will further dampen demand and affect
businesses.”
But the President/Chairman of Council, Chartered Institute of
Taxation of Nigeria, Gladys Simplice, described the proposed increase in
VAT as a welcome development, saying she was expecting it to be
increased to 7.5 per cent.
“As an institution, we have always said we should move away
from direct to indirect tax. If VAT is religiously monitored for
payment, we will reap a lot of money from it. Over the years, VAT in
Nigeria has been the lowest in the world,” she said.
Citing the recent signing of the African Continental Free Trade
Agreement, she said the VAT hike would help Nigeria to be more
competitive.
“I believe we are moving in the right direction. The only thing
I am yet to see is proper movement and encouragement in Companies
Income Tax and Personal Income Tax. I would have expected that as we
have increased VAT, the CIT should be lowered and the highest rate for
personal income tax should also be lowered,” Simplice added.
A former Director- General, West African Institute of Financial and
Economic Management, Prof Akpan Ekpo, said the proposed 7.2 per cent “is too high, considering the fact that the economy is just coming out of a recession.”
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