The proposed increase in Value Added Tax (VAT) from 5% to 7.2% by the federal government has drawn sharp criticism from Nigerians.
A financial expert and Managing Director of Cyber1 Systems Network International, Mr Momoh Aliyu, said the increment will negatively affect the cost of living in the country.
NAN reports that the Federal Executive Council (FEC) on Wednesday approved the increment.
VAT is a consumption tax placed on a product; and whenever value is added at each stage of the supply chain, from production to the point of sale, it could negatively affect the users who were made to pay more for such products.
Aliyu noted that such increase could also cause a drastic reduction in consumption, thus reducing investments and business expansions.
According to him, VAT is usually shared among three tiers of government, and if the federal government is increasing it to pay salary, then, that would be unfortunate and inimical to economic growth.
“Vat in general perspective in Nigeria is shared with four per cent net to FIRS, 50 per cent to states, 35 per cent to Local Governments and 15 per cent to the Federal Government.
“With this development, only few states like Lagos, Kano, Rivers and FCT will have the impact positively, as they will have huge chunk of the money because they contribute 85 per cent of the VAT revenue in the country.
“The question now becomes, what is the fate of the economic impact of other 32 states in Nigeria which, by virtue of increment of VAT, will be affected.
“The solution to tax and VAT in Nigeria is tax netting. All the country needed to do is to create a better administrative know how that will increase tax netting.
“We currently have serious problem with compliance at five per cent; what do you think will happen to an increment?” he queried.
Another financial expert, Mr Akinsanya Niyi, also faulted the increment, adding that its timing is wrong.
Niyi said the time for the increment was wrong, owing to the economic situation and the high rate of unemployment in the country.
“An increase in VAT means a reduction in specific goods, which may lead to an increase in consumption of food items that are exempted. Increase in VAT has significant influence on consumer’s lifestyle.
“Increase in VAT reduces the purchasing power of consumers, especially when the incomes remain the same.
“This may lead to a shift in goods consumed to a lesser quality,” Niyi said.
In a similar vein the Nigeria Employers’ Consultative Association (NECA) on has faulted the timing of the announced increment.
Mr Timothy Olawale, NECA’s Director General said that the benefits of the recently signed National Minimum Wage of N30,000 would be neutralised by the proposed increase in the VAT.
While announcing the increase at a press briefing with State House correspondent in Abuja at the end of the FEC meeting on Wednesday, Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed said consultations were in process over when the new rate would apply.
Olawale said the increment would further reduce the purchasing power of the citizens, lead to increase in prices of goods and services, increase inflation rate, and further contraction of the economy.
According to him, recently released data of the country’s GDP growth indicated a contraction in Q4, 2018 (2.38 per cent), Q1, 2019 (2.10 per cent) and Q2, 2019 (1.94 per cent).
“Also, International Monetary Fund has recently revised downward its global economic growth forecast to 3.2% due to sluggish in global economy.
“Therefore, this suggests, that at such period of time, economies should be formulating fiscal measures/policies to stimulate their economies, ” Olawale said in a statement.
Olawale said that, since the purchasing power of the citizens would have been reduced, sales of goods and services would reduce and inventories for business would be high.
He said: “This can lead to closure of businesses that ought to be supported by government in reducing unemployment rate that is currently alarming. ”
The DG 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.
“The government should bring up machinery in order to further increase the tax bracket, widen the tax net as the country is presently achieving less than 10 per cent of its VAT potentials,” Olawale said.
