VAT Increase: The cheapest revenue alternative to fund increased wage bill?

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A major issue of economic importance that attracted our attention this week is the news about the federal government decision to increase the current Value Added Tax (VAT 5%) to a range of 6.25 – 7.5% before the end of the year, alongside Company Income Tax (CIT) and Petroleum Profit Tax (PPT) to fund the estimated increase in government wage bills due to the increase in minimum wage to ₦30,000.

To us, this development is coming not as a surprise as we have hinted in our earlier report on January 26, 2019, that the increased financial burden associated with the implementation of the new national minimum wage will cripple many states if their IGR and FAAC allocation do not increase significantly. Apparently, the government cannot significantly influence its crude oil proceeds (a major component of FAAC allocation) but can influence its tax earnings to a large extent both at state and federal level. Hence, we resolve then that tax revenue may likely be stimulated if the new minimum wage will be successfully implemented.

VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur

Our position then was based on an analysis which shows that 31 out of the 36 states as at 2017 cannot fund their monthly recurrent expenditure (of which labour wage is the majority) successfully from IGR without FAAC allocation. Bearing this in mind, we then recommend that of the four major ways through which the new wage regime can be sustainably managed – taking more domestic or foreign loans, downsizing of labour force, removal of fuel subsidy payment to free up capital and increased tax revenue; government should consider exploring the non-debt options of increasing tax revenue and/ removing subsidy payment.

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VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur

Why we think tax increase and/subsidy removal is less detrimental

Although we are quite aware of the numerous potential downsides associated with each of the four options that can be considered to fund the increase in the government wage bill, our position in support of increasing taxation and/subsidy removal as against borrowing/downsizing is predicated on two reasons.

First, Nigeria’s current debt profile (FG and State) at ₦22.70 trillion is significantly high that the government cannot afford to go on a borrowing spree to fund recurrent spending. According to data compiled from the Central Bank of Nigeria (CBN) and Debt Management Office (DMO) from 2011 when the last national minimum wage was reviewed, Nigeria’s nominal GDP grew at an average rate of 10.6% annually from ₦63.34 trillion to ₦127.76 trillion in 2018, while debt profile grew faster at an average rate of 20.4% due to increased borrowings; many of which was channelled to recurrent expenditure. Hence, our view that taking more loans to fund the increased wage bill (a recurrent expenditure) will bloat the proportion of the national budget that goes into debt servicing annually.

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Secondly, any attempt by the FG, states or private sector operators to downsize their the labour force will have a far worse ripple effect on the economy given the current high unemployment rate of 23.1% (20.9 million people) and the estimated 87 million people currently living in extreme poverty in Nigeria (World Poverty Clock).

On the other hand, increasing VAT will impact the cost structure of producers, and this is expected to be passed down to final consumers in form of higher cost of goods and services (high inflation at sight). However, we believe this will have a less detrimental effect on the citizenry compared to the option of mass downsizing of labour and borrowing. To a large extent, the removal of fuel subsidy will have nearly the same impact on the economy just as the proposed VAT increase.

Thus, with Nigeria’s current VAT rate (5%) relatively lower compared to Sub-Saharan peers of South Africa (15%), Cote d’ Ivory (18%), Kenya (16%) and Ghana (12.5%), we believe the impact of the VAT increase will be less disturbing relative to downsizing of labour and debt option. However, we recommend that government should fast track its effort at improving key infrastructure (such as road and electricity) and business environment to mitigate the over bearing effect of the VAT increase when implemented.

 

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Credits: GTI Capital

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VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur

Emerging Stronger with Adaptable HR: Alight Solutions’ State of HR Transformation...

SINGAPORE - Media OutReach - 12 May 2021 - After releasing three insightful editions, we are delighted to bring to you the fourth edition of the Alight Solutions' State of HR Transformation Study in partnership with People Matters.


VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur


The study, which was launched during the People Matters TechHR SEA, is themed around Emerging Stronger and sheds light on how some organisations are ahead of the curve in emerging stronger. A key finding was the positive sentiment that organisations in Asia have for the coming 12 months. Amongst them, adaptable organisations have reported that they are 1.5 times more likely to see positive growth in revenues and profits. The HR function has certainly proved its mettle in this case and shown how well it can manage disruption and guide organisations to emerge stronger.

Last year, Alight brought forward the construct of Adaptable HR as a guide to navigating the increasingly uncertain business and talent landscape in the midst of the biggest crisis faced. Exploring the anchors of adaptability in HR functions, Alight has consistently observed that HR Operating Model (interchangeably referred to as HR Service Delivery or Business Model) plays an important role in driving confidence on execution and productivity. When complemented with the right HR technology strategy, the results are amplified further.

Talking about this year's study, Vikrant Khanna (Sr. Director and Advisory Lead at Alight Solutions), exclaimed, "We are delighted to see how Adaptable HR function led organisations are recovering from the impact of the pandemic. While there is still quite a bit of uncertainty in the environment, the construct of Adaptable HR acts as a lighthouse for organisations to emerge stronger."

This year, as we continue to face new challenges and uncertainties posed by the pandemic, Alight found that organisations with Adaptable HR are emerging stronger to:


VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur


Lead in being digital: Adaptable HR report twenty times the NPS on technology satisfaction as compared to market averages. This is due to the digital success enabled by leveraging HR Technology to complement the HR Operating Model. In addition, 50% of Adaptable HR have advanced along their adoption journey of robotics and cognitive technologies to drive efficiencies and improved experience for employees.

Enable shifts in the way we work: Adaptable HR functions are three times more likely to be proactive in driving institutional change, new ways of working, and adoption of work technologies. In fact, Adaptable HR functions report the use of up to 5 forms of work technologies. Factors that enabled quick adoption include investment priorities and the right efforts in helping adoption through investments in manager/ leader enablement.

Reimagine HR: Adaptable HR functions are three times more likely to succeed in delivering closer partnership with the business through their operating model and capabilities. The specific capabilities demanded in Adaptable HR functions are what sets them apart and enables the organisation to be agile by design.

Shape and deliver value: Adaptable HR functions are almost three times more confident in their HR strategy and execution. This foundation and investment priorities enables them to be better equipped to address complexities and more proactive in responding to changes.

VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur


The world of work too has undergone drastic transformation in these times. Adaptable HR functions have proven that HR is truly at the forefront of shaping and delivering value to stakeholders, enabling us to adopt new ways of working, and enable digital success. Throughout this report, observations were shared in terms of how Adaptable HR organisations have paved ways for new co-creations and solutions for people and organisations to emerge stronger.

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It is an accumulation of all individual behaviour changes and the larger organisation change which leads to business success. It is no surprise that organisations with Adaptable HR functions are 1.5 times more likely to have favourable growth in revenues and profit before tax in the coming 12 months.

Shaswat Kumar (Vice President and Asia Leader, Alight Solutions) shares, "This year's findings demonstrate that Adaptable HR function led organisations are likely to succeed in their change agenda. This will enable organisations, not only to compete better, but also to deliver the right value to its constituents and shareholders."

Certainly, the future belongs to organisations that are able to continue their journey of Adaptable HR, lead transformation and emerge stronger!

The State of HR Transformation 2021, is the fourth edition of the Alight Solutions' flagship study on this subject. The study data was captured between Jan 2021 and Apr 2021 through an online survey. The insights combine data captured via a survey that saw participation from over 1,700 respondents (which were filtered down to 1,022 based on completeness and accuracy of responses), and observations of Alight Solutions in the space of HR Transformation.


About Alight Solutions

With an unwavering belief that a company's success starts with its people, Alight Solutions is a leading cloud-based provider of integrated digital human capital and business solutions. Leveraging proprietary AI and data analytics, Alight optimises business process as a service (BPaaS) to deliver superior outcomes for employees and employers across a comprehensive portfolio of services. Alight allows employees to enrich their health, wealth and work while enabling global organisations to achieve a high-performance culture. Alight's 15,000 dedicated colleagues serve more than 30 million employees and family members.


We deliver next level transformation at alight.com


Click here to download the exclusive report now. Let's emerge stronger together!

VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur
- Advertisement -
spot_imgspot_img

Latest News

Emerging Stronger with Adaptable HR: Alight Solutions’ State of HR Transformation Study 2021

SINGAPORE - Media OutReach - 12 May 2021 - After releasing three insightful editions, we are delighted to bring to you the fourth edition of the Alight Solutions' State of HR Transformation Study in partnership with People Matters.


VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur


The study, which was launched during the People Matters TechHR SEA, is themed around Emerging Stronger and sheds light on how some organisations are ahead of the curve in emerging stronger. A key finding was the positive sentiment that organisations in Asia have for the coming 12 months. Amongst them, adaptable organisations have reported that they are 1.5 times more likely to see positive growth in revenues and profits. The HR function has certainly proved its mettle in this case and shown how well it can manage disruption and guide organisations to emerge stronger.

Last year, Alight brought forward the construct of Adaptable HR as a guide to navigating the increasingly uncertain business and talent landscape in the midst of the biggest crisis faced. Exploring the anchors of adaptability in HR functions, Alight has consistently observed that HR Operating Model (interchangeably referred to as HR Service Delivery or Business Model) plays an important role in driving confidence on execution and productivity. When complemented with the right HR technology strategy, the results are amplified further.

Talking about this year's study, Vikrant Khanna (Sr. Director and Advisory Lead at Alight Solutions), exclaimed, "We are delighted to see how Adaptable HR function led organisations are recovering from the impact of the pandemic. While there is still quite a bit of uncertainty in the environment, the construct of Adaptable HR acts as a lighthouse for organisations to emerge stronger."

This year, as we continue to face new challenges and uncertainties posed by the pandemic, Alight found that organisations with Adaptable HR are emerging stronger to:


VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur


Lead in being digital: Adaptable HR report twenty times the NPS on technology satisfaction as compared to market averages. This is due to the digital success enabled by leveraging HR Technology to complement the HR Operating Model. In addition, 50% of Adaptable HR have advanced along their adoption journey of robotics and cognitive technologies to drive efficiencies and improved experience for employees.

Enable shifts in the way we work: Adaptable HR functions are three times more likely to be proactive in driving institutional change, new ways of working, and adoption of work technologies. In fact, Adaptable HR functions report the use of up to 5 forms of work technologies. Factors that enabled quick adoption include investment priorities and the right efforts in helping adoption through investments in manager/ leader enablement.

Reimagine HR: Adaptable HR functions are three times more likely to succeed in delivering closer partnership with the business through their operating model and capabilities. The specific capabilities demanded in Adaptable HR functions are what sets them apart and enables the organisation to be agile by design.

Shape and deliver value: Adaptable HR functions are almost three times more confident in their HR strategy and execution. This foundation and investment priorities enables them to be better equipped to address complexities and more proactive in responding to changes.

VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur


The world of work too has undergone drastic transformation in these times. Adaptable HR functions have proven that HR is truly at the forefront of shaping and delivering value to stakeholders, enabling us to adopt new ways of working, and enable digital success. Throughout this report, observations were shared in terms of how Adaptable HR organisations have paved ways for new co-creations and solutions for people and organisations to emerge stronger.

It is an accumulation of all individual behaviour changes and the larger organisation change which leads to business success. It is no surprise that organisations with Adaptable HR functions are 1.5 times more likely to have favourable growth in revenues and profit before tax in the coming 12 months.

Shaswat Kumar (Vice President and Asia Leader, Alight Solutions) shares, "This year's findings demonstrate that Adaptable HR function led organisations are likely to succeed in their change agenda. This will enable organisations, not only to compete better, but also to deliver the right value to its constituents and shareholders."

Certainly, the future belongs to organisations that are able to continue their journey of Adaptable HR, lead transformation and emerge stronger!

The State of HR Transformation 2021, is the fourth edition of the Alight Solutions' flagship study on this subject. The study data was captured between Jan 2021 and Apr 2021 through an online survey. The insights combine data captured via a survey that saw participation from over 1,700 respondents (which were filtered down to 1,022 based on completeness and accuracy of responses), and observations of Alight Solutions in the space of HR Transformation.


About Alight Solutions

With an unwavering belief that a company's success starts with its people, Alight Solutions is a leading cloud-based provider of integrated digital human capital and business solutions. Leveraging proprietary AI and data analytics, Alight optimises business process as a service (BPaaS) to deliver superior outcomes for employees and employers across a comprehensive portfolio of services. Alight allows employees to enrich their health, wealth and work while enabling global organisations to achieve a high-performance culture. Alight's 15,000 dedicated colleagues serve more than 30 million employees and family members.


We deliver next level transformation at alight.com


Click here to download the exclusive report now. Let's emerge stronger together!

VAT Increase: The cheapest revenue alternative to fund increased wage bill? - Brand Spur
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