Disputant arose on Thursday against the intention of the federal government to raise Value Added Tax (VAT) from the extant 5 per cent to 7.2 per cent as manufacturers, employers, the Peoples Democratic Party (PDP), among other stakeholders, denied the moves to increase the consumption tax.
The Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI), Nigeria Employers’ Consultative Association (NECA), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) and other private sector operators said raising VAT would have negative impact on the real sector and the economy.
The PDP condemned the planned hike, saying Nigerians cannot bear such burden under the prevailing agonising economic situation.
But amidst the criticisms, President Muhammadu Buhari assured Nigerians that his administration would not inflict more hardship on them, but would rather strive to alleviate their plight by creating a more enabling environment for everyone to thrive.
The Federal Executive Council, rising from its meeting on Wednesday, had approved the bid to raise VAT to 7.2 per cent. However, the increase, according to the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, the implementation of the decision would wait until the extant VAT law is amended.
In separate interviews with THISDAY over the planned hike in VAT, the private sector operators urged the federal government to shelve its proposal to raise VAT by over two per cent.
They also urged the federal government to widen the tax base by including more enterprises in the tax net instead of increasing VAT.
MAN President, Mansur Ahmed, told THISDAY that the current proposal to increase VAT would worsen the current economic hardship Nigerians are experiencing at the moment.
He urged the federal government to pursue the initial plan of the Federal Internal Revenue Service (FIRS) to expand the tax base by ensuring that more Nigerians and corporate entities are made to pay taxes.
“Increasing VAT by nearly 50 per cent would worsen the problem of the high cost of doing business in the country. It will also reduce the effective demand of consumers in purchasing goods and services. This will not augur well with manufacturers who already have more unsold items in their warehouses due to the low purchasing power of Nigerian consumers.
“Therefore, efforts should be directed at expanding the tax base. This effort has not been exhausted,” Ahmed said.
Similarly, the Director-General of the LCCI, Muda Yusuf, told THISDAY that the new proposal would only worsen the businesses environment that is already challenging for investors.
He said: “And knowing the way VAT is operated in this environment, it will not count whether the product is an input for production or not. Because practically everything is subjected to VAT unlike what happens in other climes where VAT is treated purely as a consumption tax.
“So, clearly, this is going to be an additional big burden on businesses, especially because it is difficult to transfer cost to the consumers because of the prevailing weak purchasing power of Nigerian consumers. It affects investors negatively when cost increase and the ability to transfer the additional cost to consumers is weak. So, we are likely to see an erosion of profit margins. And for businesses that are already struggling will begin to declare losses. So, it is going to pose a serious challenge.”
On her part, the National President of NACCIMA, Hajiya Saratu Iya Aliyu, said the country’s economic growth and trajectory had not fully recovered from the 2016 economic recession to withstand such an increase.
According to her, GDP growth rate per quarter has been 1.74 per cent on average – not exceeding 2.4 per cent at its highest point, since the country regained positive economic growth in the second quarter of 2017.
She added that inflation rate is still high, revolving around 11.3 per cent since May 2018 while unemployment rate as at the third quarter of 2018, stood at 23.1 per cent, with an estimated 20.9 million people unemployed.
“With this in mind, the association is of the view that an increase in the current VAT rate will likely have multiple negative effects starting with the initial increase in the final prices of goods and services. There will also likely be an increase in the cost of production; a rise in inflation; an erosion of the purchasing power of the average Nigerian; the reduced competitiveness of Nigerian goods and services in international markets; and a rise in unemployment as the real sector adjusts to rising costs of production,” she stated.
NECA Director-General, Mr Timothy Olawale, had recently said in Abuja that in the event that federal government decided to increase VAT against the will of the people, the increase should be limited to luxury or ostentatious goods only.
He also urged the government to double its efforts at expanding the tax net, reducing the income gap and improving the economy through more friendly fiscal policies and promoting the ease of doing business in Nigeria.
“The federal 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 potential.
“Recently released data of the country’s GDP growth indicated a contraction in the past 2 quarters (Q4, 2018 (2.38 per cent), Q1, 2019 (2.10 per cent), Q2, 2019 (1.94 per cent)) and also International Monetary Fund has recently revised downward its global economic growth forecast to 3.2 per cent due to sluggish in global economy. Therefore, this suggests that at such a period of time, governments should be formulating fiscal measures/policies to stimulate their economies,” he had said.
On his part, the President, Nigerian Association of Small Scale Industrialists (NASSI), Chief Solomon Vongfa, condemned the planned VAT hike, saying instead of seeking how to expand the tax net to over 41 million enterprises, the federal government is planning to increase VAT to 7.2 per cent.
“With the 41 million enterprises in the country, five per cent is quite enough. With the increase, many of our members are about to be sent out of business just as many jobs will also be lost.
“They just increased it without consultation. Now, we are in AfCFTA; how can we compete with the rise in VAT? They will end turning Nigeria into a dumping ground,” he added.
He urged the federal government to rethink the increase, saying that it is not in the interest of small businesses.
“The NASSI wishes to say that the 7.2 per cent VAT increase is not fair to entrepreneurs, rather we expect the government to be more proactive and creative to expand its tax base to capture more companies. A lot of entrepreneurs are out there and not captured in the tax nett,” he said.
According to Chief Executive Officer of Cash Express Bureau de Change Limited, Josephat Madueke, a further increase in VAT would mean higher inflation in the economy because it would be charged on any goods being imported into the country.
“Whereas people see it as making revenue available to the government, it will increase inflation. I don’t see anything otherwise. This move will virtually impose a tax of more than 42.2 per cent on businesses. How? Company Income Tax is 35 per cent. Add the proposed tax and you will get the figure. There are other taxes on business I do not remember now. That is why it will be nothing but inflation.
“Bear in mind that we are an import-dependent economy. So, we will be soaking ourselves with inflation. If we are an export-oriented economy, these costs will be taken outside our economy. But that is not so with us; therefore, all the cost will remain within the Nigerian economy. These taxes do not promote production. Neither are they incentives to manufacturing,” Madueke said.
He also urged the government to be fair in its implementation by resisting to grant waivers to any enterprise or person.
Also reacting to the planned increment, the PDP, in a statement by its National Publicity Secretary, Kola Ologbondiyan, described the decision as anti-people, suppressive and further confirmation that the Buhari administration is exploitative, inconsiderate and insensitive to the sufferings of Nigerians.
It said the decision to increase VAT was in bad faith and could not be justified under any guise.
“President Buhari ought to be aware that an increase in VAT will worsen our decrepit economy and put more pressure on families and businesses as it will result in an increase in costs of goods and services that have a direct bearing on the welfare of the people.
“Our party charges the Buhari presidency not to further punish Nigerians by imposing harsh tax regime to make up for its crass incompetence and lack of capacity to effectively harness and manage our resources to create wealth for the benefit of the people,” the party said.
The PDP urged the National Assembly to protect Nigerians and save the nation from collapse by rejecting the proposed hike.
Buhari: We Won’t Inflict More Hardship on Nigerians
Meanwhile, Buhari yesterday said his administration would not inflict more hardships on Nigerians but would rather strive to alleviate their plight and create a more enabling environment for everyone to thrive.
A statement by a presidential spokesman, Mallam Garba Shehu, said the president made the pledge while responding to a plea by a Trade Union Congress (TUC) delegation, led by its President, Quadri Olaleye, that the president should resist the temptation to further hike fuel price.
According to him, the president reasoned with the group that instead of hiking fuel price, it will be better to eliminate corruption in the oil sector, assuring TUC leaders that more hardship will not be unleashed on Nigerians.
“On fuel prices, I agree with you on the need to eliminate corruption and inefficiencies in the sector. I want to assure you that as an administration, we have no intention of inflicting any additional hardship on Nigerians,’’ the president said.
The president also said the federal government remained committed to the implementation of the new national minimum wage, pointing out that Wednesday’s inaugural Federal Executive Council (FEC) meeting dwelt mainly on the Medium-Term Expenditure Framework (MTEF), which he said included issues of the new minimum wage.
The statement also said Buhari told the TUC delegation what his administration did in its first term, which he said helped Nigeria to exit recession.
“During our first term, we secured the nation’s territorial integrity and continue to protect the lives and properties of our citizens. We introduced various economic stimulus packages that support businesses and traders at all levels, promoted backwards integration programmes, especially in the agricultural sector to enhance our food security while creating jobs.
“We embarked on the most ambitious infrastructure development and rehabilitation projects this country has seen in decades. We also introduced the largest Social Investment Programme in Sub-Saharan Africa.
“Although these programmes and many more successfully lifted Nigeria out of recession, the full impact is yet to be felt. In the next four years, we shall sustain this momentum and by the grace of God, lifting millions of Nigerians out of poverty,’’ the statement quoted the president as saying.
It said Buhari promised that his administration would work hard to improve the livelihood of Nigerians, adding that most of the inherited challenges were avoidable if previous governments had shown commitments to infrastructure development and human capacity building.
The statement added that the TUC president, in his remarks, urged the federal government to pay more attention to the welfare of Nigerians by deliberately avoiding fuel price hike and promptly implementing the new national minimum wage, which he said had been delayed by negotiations on consequential adjustments.