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VAT increment: Economic experts recommend tax net expansion

Some economic analysts on Friday expressed concern about the Federal Government’s increase in Value Added Tax (VAT) from five per cent to 7.2 per cent, saying government should preferably widen the tax net.

The analysts condemned the increment in separate interviews with the News Agency of Nigeria (NAN) in Lagos.

They noted that the timing was wrong, pointing out that that the government should not have introduced such increment particularly at a time when Nigeria was experiencing economic challenges.

NAN reports that the Minister of Finance, Budget and National Planning, Hajiya Zainab Ahmed, had disclosed the government’s move when briefing State House correspondents on the outcome of the Federal Executive Council (FEC) meeting on Wednesday.

The minister noted that the VAT Act would have to be amended by the National Assembly first before the increase comes into effect.

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Reacting to the development, the President of Manufacturers Association of Nigeria (MAN), Mr Mansur Ahmed, said that government was supposed to have widened the tax net instead of increasing VAT.

He noted that the government should fashion out measures to restructure and strengthen the taxation system, such that more people would pay tax.

The MAN boss said that more than 50 per cent of the taxable population bracket was not paying taxes in Nigeria.

According to him, the increment will induce inflation and reduce demand for goods and services in the country, as the purchasing power of Nigerians was already low.

“We do understand that government wants to generate more revenue, to enable it to fund implementation of the national budget and the new minimum wage structure.

“Increasing the VAT is not the best option to actualise the objective. Let there be more enlightenment on taxation, so that taxpayers will be encouraged to continue to pay taxes, while the tax evaders will be captured into the tax net.

“Hence, expanding the tax net, implementing tax reform, and ensuring robust tax administration are useful alternative strategies to increase government revenues with less negative impact on the economy,” Ahmed said.

The National President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Hajiya Saratu Aliyu, said the VAT increment would reduce competitiveness of Nigerian goods and services in the international markets.

She said the increment would also bring about increase in the cost of production and a rise in unemployment, as the real sector would adjust to rising costs of production.

According to her, the country’s economic growth and trajectory has not fully recovered from the 2016 economic recession.

“Gross Domestic Product (GDP) growth rate per quarter has been 1.74 per cent on average, since the country regained positive economic growth in the second quarter of 2017.

“Inflation Rate is still high, revolving around 11.3 per cent since May 2018. Double-digit inflation is still driven by high food prices.

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“The unemployment rate as at the third quarter of 2018 stood at 23.1 per cent, an estimated 20.9 million people are unemployed. With these in mind about the Nigerian economy, certainly, increasing VAT is not advisable now,’’ Aliyu said.

The Founder, Independent Shareholders Association of Nigeria (ISAN), Mr Sunny Nwosu, urged government to have further consultation on the issue of VAT increment with relevant stakeholders in the economy, including members of the National Assembly.

Nwosu noted that any initiative that reduced the real income of the average Nigerian, even when the minimum wage had been raised, would lead to a future demand for increase in wages.

Reacting to the FEC approval of N10.07 trillion 2020 budget proposal, the economic pundits said there was need for government to first come up with a breakdown of the budget.

They, however, urged the government to intensity efforts to increase allocation for capital expenditure and reduce recurrent expenditure, to create more economic activities in the country. (NAN)