The Minister of Finance, Budget and National planning, Dr Zainab Ahmed earlier in the month announced the Federal Government’s plan to increase Value Added Tax (VAT) from 5% to 7.5%.

The Onitsha Chamber of Commerce, Industry, Mines and Agriculture sees the policy as a right policy but wrongly timed and therefore urge the Federal Government to suspend the planned VAT rate increase.

We acknowledge that Nigeria’s current 5% VAT rate is among the lowest in the world, an increase to 7.5%, if effectively managed, shall yield estimated additional national revenue of #500bn annually. This will surely help to reduce Budget deficit, fund Social services and result in reduction in Government borrowings. To this extent, the announced policy plan is a good one.

However, the timing leaves very much to be desired, at this time when a higher percentage of Nigerians are living below the poverty line, with very low disposable income, and are struggling to feed their families. Nigeria emerged from Recession in the second quarter of 2017 and is still recovering. The 2018 fourth quarter GDP growth rate was celebrated at 2.38%. Based on this rate, 2019 growth rate was projected at 3.01% but in reality, 2019 GDP growth rate was 2.10% in the first quarter and contracted by 0.16% to 1.94% in the second quarter. These point to economic gloom. Additional to them are the economically stressful happenings in the country – the ban on granting of foreign exchange for importation of all food items, the devastating insecurity nation-wide and the incessant farmers-herders clashes. With all these, increasing VAT rate now will be adding to the burden of Nigerians, which President Buhari promised not to add to. It will also make realization of the projected 2019 GDP growth of 3.01% a complete mirage.

Economic hardship on Nigerians will be heightened as the additional 2.5% increase on VAT rate will prompt increase in real cost of investments leading to high cost of goods and services thereby causing the 6-month low inflation rate achieved so far to ascent again.

Furthermore, according to the National Bureau of Statistics, employment rate in the country stood at 23.1% for unemployment, 20.1% for underemployment and 55.4% for Youth unemployment as at third quarter of 2018 and till date, there has been no improvement on it. The expected rise in the cost of goods and services arising from VAT rate increase will reduce the purchasing power of the average Nigerian, thereby lowering demand rate for goods and services. When this happens, the producers will encounter reduced sales, unsolicited inventory will increase, with less or no business profit. At this point, businesses may begin to shut and more jobs will be lost.

Our suggestions are that the government should rather prevail on the Tax authorities to enforce in good manner, full compliance of the existing Tax policies on taxable businesses and individuals in the country. Record shows that there is high tax evasion in this country due to lack of trust on the government. If all the taxable businesses and individuals in this nation should pay their taxes in compliance with already existing tax policy, enough revenue shall be generated to facilitate the country’s fiscal functions.

Secondly, the government should ensure transparency and efficient utilization of the nation’s revenue for public services and infrastructural development. Government offices and MDAs should be made to render proper /prompt remittance of VAT collected from Contractors and Vendors. The revelation of the Auditor-General of the Federation as published in the Guardian Newspaper of August 19, 2019, shows that some Government agencies and MDAs are guilty of Tax remittance default and that is one of the causes of Tax Apathy in the country.

Furthermore, with a daunting Consumer confidence index, which slipped from 4.8 Index points in first quarter of 2019 to 1.2 Index points in second quarter of 2019, the government should rather introduce robust economic policies that will promote consumption and increase disposable personal income of the citizenry.

We strongly recommend downward review of cost of governance, salaries and allowances of most political office holders in other to reduce the yearly FGN Budget Recurrent expenditure.

If the government must in line with her Fiscal Consolidation Strategy, effect the VAT rate increase, the National Assembly should while working on the ACT, ensure that there is proper VAT listing threshold to avoid VAT compliance lumber on small businesses. It should be captured in a way that only ostentatious and luxury goods will be affected. Goods and services pertaining to Food, Education and Healthcare which impact directly on the poor and vulnerable citizens should be exempted.

Leave a Comment