Barely five months after the federal government assured Nigerians that it will not increase Value Added Tax and corporate taxes, plans seem to have been concluded to increase VAT from five per cent to 10 per cent.
It would be recalled that the Minister of National Planning, Udoma Udo Udoma, said this to newsmen after the National Economic Council (NEC) meeting presided over by Vice President Yemi Osinbajo, towards the end of January this year.
He said: “We do not intend to increase VAT rate at the moment but increase collection rate from 20 per cent. We will also not raise the corporate tax because we do not want to impose additional burden on Nigerians.
“Government’s position is however that those who make money and have not been paying taxes should pay. We expect at least 20 per cent increase in tax collection rate which is conservative in terms of our revenue projection.”
The Federal Government seems to have heeded the advice of the International Monetary Fund (IMF) on the need to increase VAT. The IMF recently reiterated its advice to the federal government to increase the VAT rate gradually.
The Managing Director of the Fund, Christine Lagarde, had in January, during her visit to Nigeria, urged the government to increase the VAT rate.
“The current VAT rate is among the lowest in the world and well below the rates in other ECOWAS members, so some increase should be considered,” she said.
Vice President Osinbajo revealed that the current five per cent VAT rate in the country is very low, adding that the federal government would increase the tax payer base this year.
He disclosed this in Lagos in a keynote address at the 1st National Forum on the Economy organised by Vintage Press Limited, publishers of The Nation newspapers.
He said: “To move the nation forward, we must move beyond oil. The reality is that while oil accounts for 14.4 per cent of our Gross Domestic Product, it continues to be the source of 90 per cent of official foreign exchange earnings; and prior to this year, up to 76 per cent of government revenues.
“In order to move forward, we must reduce the current dependence of the federal and state governments on the ritual sharing of revenues from oil. Doing so requires broader and genuine efforts at the diversification of our economic structures in terms of drivers of economic activities. The foundation for a strong economy requires that we have appropriate fiscal policies.”
Thus non-oil sources, comprising mainly Company Income Tax, VAT, and Customs and Excise duties are expected to contribute about N1.5 trillion, which is more than oil-related revenue estimated at about N820 billion.
The decision to increase VAT has no doubt generated reactions from experts and knocks from service providers and other businesses. While some experts lament that the VAT increase will further increase the
burden on the already burdened masses, there is no gainsaying the fact that the dollar rate has led to an increases in the prices of many products in the market. Thus increase in VAT may inadvertently lead to increase in the price of products and services.
Economic experts are of the opinion that the fact that Nigeria operates a consumer economy makes it easy for prices of goods and services to increase because of the depreciation of the naira.
Recent reports also suggest that the persistent shortage in fuel supply and the harsh economic climate have led to an average of 50 per cent hike in the prices of consumer goods.
According to the Chairman, Ikeja Shop Owners Association, Mr. John Okonkwo, the fuel crisis has resulted in between 100 per cent and 200 per cent increase in transport costs.
“Before the fuel crisis, we spent N1,000 on transportation to bring goods from the depots to the city markets; but now, the transport fare has risen to N3,000,” he said.
Also, the President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, said the fuel crisis is affecting the logistics of manufacturing firms and that some workers were reporting late for work, while others were paying more on transportation.
Economic Confidential gathered that about 90 per cent of Nigerians would suffer greatly as a result of inflation, which is already approaching 13 per cent, if VAT is increased on goods and services that most people consume. There are fears that the inflation rate may go up to 19 per cent or more if VAT is indiscriminately imposed Thus the increment in VAT may not be coming at a good time as even the Nigeria Communications Commission (NCC) have expressed worry that the telecom service providers are suffering untold hardship as a result of imposition of taxes and levies.
NCC’s Executive Vice Chairman, Prof. Umaru Garba Danbatta, said apart from the taxes and levies, the service providers are further burdened with regulations that restrict right of way to deploy or expand services.
He said: “The result is that even when the service providers are willing to make services available, we as members of government at various levels and communities, put bottlenecks on their way.”
Sometime around 2012, an NCC official, Okechukwu Itanyi, warned against what he described as “spurious taxes and levies” which portend grave dangers for the telecommunication sector.
He listed some of these taxes thus; On Airtel alone, these included Bauchi State’s N755 million ($4.2 million) for branding and advertising, Imo State’s N262.4 million pest control charge and Delta State’s N276 million ecological tariff.
More so, destruction of telecom equipment has become a regular occurrence as all telecom operators in Nigeria have stories to tell in this particular regard and in most cases, base stations are the prime target.
Also, multiple regulation and taxation are causing great setback for the industry. It is still the norm that before an operator could set up a cell site, it has to secure approvals from various government agencies and departments under the federal government, state government and local government; each of these approvals has fees attached which the operators must pay before taking any action on the site.
While the telecommunications are struggling to cope with the difficult time, the President of the Shippers Association, Lagos State, Mr. Jonathan Nicol, has also voiced out the experience of importers and exporters in the face of high charges. Nicol explained that shippers are almost grounded due to the fact that the cost of doing business which, according to him, has not changed.
He noted that some vessel operators preferred to discharge at the nearest port of Cotonou due to the double payment of handling fees to Standards Organisation of Nigeria (SON).
He said: “Demurrage charges have not changed. As a matter of fact, it is (demurrage) getting out of hand in some terminals because of ‘frivolous’ queries raised on Pre-Arrival Assessment Report (PAAR).
“We as shippers have spoken. We await immediate action of the Federal Government to make the maritime industry normal. We are operating in an abnormal environment at the moment.”
VAT, as a consumption tax payable on goods and services consumed by individuals, government agencies and business organisations, has continued to become a serious issue as the federal government has been advised not to be indiscriminate in the application of any increment in VAT to avoid bringing further misery on the vast majority of the population.
Experts said although Nigeria’s VAT is actually low at five per cent compared the United Kingdom whose VAT rate remains 20 per cent since 2011, but it is pertinent to know that that some goods and services are subject to VAT at a reduced rate of five per cent (such as domestic fuel) or 0% (such as most food and children’s clothing), while others are exempt from VAT or outside the system altogether.
Thus, a selective approach can be adopted to increase VAT without causing economic harm to the masses to raise revenue to improve the welfare of the vast majority of Nigerians.
Analysts have further suggested that the federal government can identify areas that will not directly affect the vast majority of the people for the application of any VAT increment.
VAT increase on luxury items consumed by affluent people would not hurt the majority of the citizens. Overseas air tickets and hotel accommodation are some of the areas government can earn more VAT revenue from without causing hardship for the masses.
To discourage frivolous foreign trips, for instance, experts have suggested VAT of between 10 per cent and 15 per cent on foreign air tickets. On hotel accommodation, there are suggestions that any hotel above two-star should attract up to 10 per cent VAT.
