- What the country needs now are realistic solutions
As challenging as the post-Covid-19 national economic outlook appears, what is not lacking is the surfeit of ideas on how to get the economy up and running. One such was the call by the Lagos Chamber of Commerce and Industry (LCCI) on the Federal Government to suspend the implementation of the 50% Value Added Tax (VAT).
The VAT increase, meant to help the government achieve its revenue projections for the 2020 budget, forms part of the tax reforms included in the 2019 Finance Act, and took effect on February 1.
LCCI also proposed tax breaks and concessions for investors; it wants taxes for health sector investors in particular, suspended. Ditto for investors in agriculture and agro-processing, aviation and hospitality sectors, for at least one year.
In all, the body called on the government to set a post-pandemic rescue plan for the economy.
We see the call as not only reasonable but flowing from a premise that is as flawless as it is irresistible. Here, the argument is that the government at this time should take a step back from measures that in the end would impose additional burden on the citizens; moreover, that the private sector, being currently badly hit, not only deserves every respite considering its expected role as a critical partner in the post-Covid-19 recovery efforts, but that the nature of the unexpected developments have rendered the increase most inauspicious.
In summary – it raises the question of whether a country whose infrastructure is not only parlous but one dubbed the poverty capital of the world can justifiably hike consumption tax at this difficult time.
The other side of the argument is no less compelling. First is the dire implication at a time oil prices have not only plummeted to less than $30 a barrel as against the $57 projected in the 2020 Federal Government budget; and this is a budget that already anticipated a deficit of N2.18 trillion ($6 billion).
To compound this is the absence of the strategic buffer to tide the economy even through the short-term, hence the desperate measures being contemplated across the board. Now, we know that the 2.5 percent on the existing rate didn’t even come easy.
Here, it is worth recalling that the Obasanjo administration actually hiked the rate to 10 percent on the eve of its departure only for the succeeding Yar’Adua government to reverse the hike. And that the current hike is actually coming some 13 years after.
Moreover, it is also a well-known fact that the average VAT rate across the West African sub-region is 18%. Ghana, for instance, charges a VAT rate of 15%. When this is added to the consumption tax of 2.5% dubbed the National Health Insurance Levy, the consumption tax payable comes to 17.5%.
This newspaper harbours no illusions that the government would need a hefty war chest, both to ease the pains occasioned by the Covid-19 pandemic, and to finance the critical investments that must necessarily be made as soon as the current fog clears.
Unfortunately, while the LCCI appears to share with the government the broad premise that the latter will somehow need to undertake massive spending to turn things around, their recommended panacea appears to fly in the face of the unenviable dilemma which the government has found itself, particularly in the situation that its borrowing plans have not only come under heavy criticism but also at a time its lines of revenue continue to narrow with each passing day.
We urge the LCCI and such similar bodies not just to show greater sensitivity to the current dilemma facing the government, but to be more forthcoming on realistic solutions.
As it is, the time for the all-too familiar ‘pressure group’ antics is long past; what is at stake at this time is the nation’s survival. Again, we urge LCCI to seek active collaboration with the Economic Sustainability Committee headed by Vice President Yemi Osinbajo to see how the economy can be repositioned for the greater good of all.
