Should FG increase VAT?

The Federal Executive Council (FEC) meeting presided over by President Muhammadu Buhari last week approved a proposed increase of Value Added Tax (VAT) from 5 percent to 7.5 percent. The Minister of Finance, Budget and National Planning, Zainab Ahmed, said the FG retains only 15 percent of the VAT while 85 percent was for the states and local governments. Here is what a few Nigerians have to say about the decision.

Geoffrey Ogbonnaya, 33, Financial Service Provider, Jos

The increase of VAT from 5% to 7.5% by the FEC will be a huge burden on Nigerians and by extension the economy. It is ill-timed given the per capita income of Nigerians as well as GDP to growth rate of the country.
The government should concentrate on policies that will stimulate economic activities, line increased property tax, and should also give license to states to tap natural resources and amend land use act in order to make land ownership a viable business. This should have been better.

Steve Aluko, 50, Director North Central Zone, Civil Liberty Organization, Jos

First of all, the timing of the VAT increment is inappropriate considering the level of poverty and unemployment in the country. Besides, there is already the problem of multiple taxation which is currently overwhelming the masses. If the government is thinking of raising revenue with this VAT hike, there are other avenues it should have looked into.
The truth is that this VAT hike will reduce the capacity of people to invest and also save money. It will also lead to inflation and put the government in bad light. And if it is not properly managed, it can incite the public against the government.

Christopher Akin, 35, IT Expert, Abuja

It’s simply a display of our government’s lack of creativity in generating revenue. It’s a temporary solution that will not have any significant impact because the 5 percent presently being collected has not been properly utilized. What’s the guarantee that 7.5 percent will not go down the same way?

The most painful is that the effect of this increase will impact mostly on ordinary Nigerians, who are the consumers. This is a show of government’s insensitivity.

Phillipa Uchechukwu Edo, 49, Advertising Practitioner, Jos

Business owners have been crying out for a very long time on multiple taxation, and here comes another. We cannot help but increase the prices of our good or services in order to meet up with our overhead cost/salary payment and other costs of production.

So, if this VAT is implemented, the masses should expect that business owners will charge them more for any service rendered or goods purchased, because they must have paid a higher tax to the government than it used to be.

And let us tell ourselves the truth, this will certainly lead to inflation. The government might think that they want to generate more revenue from business owners, but what they fail to realize is that it is the masses that will bear the brunt.

Lawrence Akande, Banker, Lagos

I want to look at the issue from two perspectives. Firstly, for a government that wants to provide infrastructures and other palliative measures for the citizens without enough resources, then, VAT seems to be a smart move.

On the downside, I do not think it’s a plus for an administration that has been perceived to have increased the sufferings of the citizens due to general rise in the prices of goods and services, though there was 0.06percent decrease in inflation as at August.

But the big question is: why should the sacrifice always be made by the citizens when the cost of governance has not been reviewed downward?

Attah Awulu, 45, Insurance Practitioner, Lagos

I am in support of the VAT increase given our current realities of infrastructure deficit and dwindling revenue. For example, the 2018 budget had a revenue projection of N7.16trn while N 3.9trn was realized and the shortfall will have to be raised through borrowing, which is not the best option, given that in the same 2018 budget, a provision of N2.1trillion was made for debt servicing.

We need to fund critical infrastructures, healthcare, education on a grand scale and given the dwindling and unstable earnings from oil, oil contributed 59% of our earnings in 2018, an increase in the rate applied for VAT is inevitable.

Be that as it may, a need for drastic reduction in the recurrent leg of our national and states budgets is inevitable. We also need to widen the tax net; going cup in hand to borrow at the drop of the hat is not in our best interest on the long run. VAT contributed just 3.3% of our revenue for 2018, but with the increase and effective collection, its contributions would be scaled up considerably.

Isaac Akogwu, 40, Accountant, Port Harcourt

VAT is a consumption tax on supply of goods and services with an in-built credit mechanism. The burden of the tax is borne by the final consumer. Under the VAT Act, any item or service not specifically exempted is liable to the tax.

In view of the proposed hike of VAT, the cost of living would definitely increase thereby further affecting the purchasing power of the average Nigerian. This is particularly relevant given that as a nation, we just got out of recession and government should be more focused on putting in place measures to boost aggregate demand. The proposed increase in VAT would no doubt be at variance with such a noble objective as there are no known boosts in the critical real sectors of the economy.

It would also have a multiplier effect on the productive sectors of the economy since the cost of doing business will increase. This increase would be passed on to the average consumer, and where this is not possible, there might be a ‘scaling down’ of production. This too has its adverse effects including likely reduction in workforce and decreasing GDP in the economy in the long run.

Adewale Aderemi, Legal practitioner, Lagos

The proposed increment of VAT from 5percent to 7.5 percent is wrongly timed as the economy is still in a recovery state. Government ought to be supporting businesses in reducing high unemployment rate in the country.

There is no doubt implementation of the proposed VAT will shrink the GDP growth and disposable income of the citizens.

The implementation will also make nonsense of the anticipated benefits of the N30,000 minimum wage. It will drastically reduce the purchasing power of Nigerians and lower the standard of living.

In addition to the above, inventories for businesses will be high and could lead to closure.

Government should rather concern itself with formulating policies capable of stimulating the economy as opposed to increasing VAT rate.