Organised Private Sector Opposes VAT Increase, Says It's Harmful to The Economy

 

The Nigeria’s Organised Private Sector (OPS), comprising mainly the Manufacturers Association of Nigeria (MAN), Nigeria Employers’ Consultative Association (NECA) and Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), has advised the

federal government against any increase  in Value Added Tax (VAT), saying doing so would truncate the  macroeconomic stability in the  country  and other  government’s policy objectives.

The Minister for Budget and National Planning, Udoma Udo Udoma, and the Executive Chairman of the Federal Inland Revenue Service (FIRS), Babatunde Fowler, had hinted during an interactive session with the National Assembly on March 19, 2019, that VAT rate was likely to go up to enable government fund the new monthly minimum wage of N30,000 approved by the National Assembly.

FIRS last Wednesday clarified that the intention was to increase compliance rate and not tax rates, but stated that Nigerians should be ready for a VAT rate increase by the end of 2019, meaning  an increase of about 50 per cent  will raise the current standard VAT rate of 5 percent to 7.5 per cent.

But the OPS said despite rebuttal of the  report of planned increment of VAT by 50 per cent to meet up payment of the newly proposed minimum wage, they felt it was good to make its positions clear to the government on the consumer tax and its consequences.

The Director General of MAN, Segun Ajayi-Kadir, told THISDAY that such proposed increase “is not manufacturing-friendly and the proposed VAT increase appears not to have taken into cognizance the prevailing times and the ongoing government efforts to re-invigorate the economy.”

Ajayi-Kadir said MAN “as a strategic stakeholder in the Nigeria’s development agenda, appreciates the need for government to generate more revenue to fund its developmental initiatives amid declining revenue from crude oil. However, government should thread with caution in the drive for improved revenue for the following reasons-the economy-which just recently exited recession with the fragile growth rate of less than 2 per cent  recorded in 2018, and should be delicately managed and the precarious macroeconomic condition of the country which requires palliatives that would improve investment and not higher tax burden.”

 He cited the prevailing high lending rate, double digit inflation, low per capita income, high unemployment rate and a low 1.91 per cent growth rate amid 2.6 per cent  population growth rate that are already cumulatively limiting competitiveness could be further worsened.

Ajayi-Kadir said; “Any increase at this time would not be in sync with the

standard practice that expects the administration and implementation of VAT to be effected in a manner that distortion and possible adverse effect on the economy are minimised or avoided.

“An increased VAT will spur spontaneous increase in inflation rate occasioned by increased prices of goods and services.

The obvious resultant effects of implementing an increased VAT on the

manufacturing sector include lower purchasing power of consumers, sharp reduction in consumption, drop in sales, decrease in production capacity, lower government revenue, increase in unemployment and stifled economic growth.”

 MAN also warned the government against “unfair comparison of VAT rate in Nigeria and other countries in Africa, saying macroeconomic dynamics and the level of competitiveness in these countries are not the same with that of Nigeria.

 “It is important to state that on economic front, Nigeria should ideally be compared with the emerging economies and not just any country in Africa.   Comparative economic policies should be predicated on what obtains in this economic frontier. Therefore, an ideal tax policy should be such that takes into cognizance the status of the economy. An ideal VAT policy for Nigeria should take into account the current profiles of Nigeria’s Per Capita Income (PCI), National Minimum Wage (NMW); and Global Competitiveness.”

Director-General of NECA, Timothy Olawale, said: “The review of VAT as being proposed was not the only option opened to government to fund the new National Minimum Wage. Beside, the planned increase would erode the gains of minimum wage for low earners, and further weaken their purchasing power, among others.”

 The NECA boss lamented that the planned increase of VAT would have far reaching implications for manufacturers and businesses which   are already saddled with several challenges such as infrastructural decay, power among others.

 

Olawale also opined that “government does not have to increase VAT in order to enable it pay minimum wage. However, in the event that government must increase VAT against the will of the people, it should be limited to luxury or ostentatious goods only.”

The Director-General of the Lagos Chamber of Commerce and Industry

(LCCI), Muda Yusuf, said: “An upward review of the VAT at this time will hurt businesses, the economy and citizens.

Many businesses are currently grappling with high production and operating cost which has made sustainability difficult for many enterprises. There is also pressure of costs driven by high interest rate, huge logistics cost, high energy cost, and high regulatory compliance costs.”

According to Yussuf, “Businesses often have difficulties in passing these additional costs to customers because of the weak purchasing power by many of the citizens.  We had advocated that rather than increase tax rates, the government should broaden the tax base by bringing into the tax net numerous persons and enterprises that are not tax compliant.”

The NECA boss aligned with the recommendation of the Chairman of

FIRS, Mr. Babatunde Fowler, that there should be more individual and corporate entities captured in the tax net paying VAT.

 Olawale also advocated that government should “reduce its recurrent expenditure, cost of governance, widen the tax net in its bid to generate more revenue and ensure effective collection of taxes from non-compliant citizens or defaulters.”