A campaign for an increase in Value Added Tax seems to have received official seal when the Vice-President, Yemi Osinbajo, at a public function in Lagos recently, dismissed the current five per cent rate being paid as too low. Consequently, he served notice of an imminent revenue overdrive with the assertion, “We are focused on increasing the taxpayer base in the first instance this year.”
For long, advocates of VAT in the mould of what obtains in developed economies of the West have always targeted at least 10 per cent. But we consider such an upward review at a time of economic hardship as insensitive, and not good enough. VAT, a consumption tax on goods and services, paid by individuals, corporate bodies and government agencies, is one of the revenue streams for the Federal Government. It was first introduced in 1993, and pegged at five per cent when the law was amended by the National Assembly in 2007.
The VP’s recommendation is ominous against the backdrop of the advice from the Managing Director of the International Monetary Fund, Christine Lagarde, to the government to upwardly review VAT when she visited Nigeria in January. She saw it as one of the broad range of domestic strategies, which the country must adopt to weather the economic storm following the precipitous fall in the prices of crude oil at the global market since June 2014. She said, “For example, the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS member-states. So some increase should be considered.”
The argument that Nigeria’s five per cent VAT rate is the lowest in the world is deceptive and provocative, as it is blind to our socio-economic objective conditions that have drained the resources of citizens. Practically all the basic social services are self-provided here. Citizens of ECOWAS member-countries enjoy more electricity than Nigerians. For instance, electricity generation, which is fundamental to wealth creation and general wellbeing of the people, is near-zero in the country.
This fact is underpinned by the World Bank Group 2016 Ease of Doing Business report, which ranked her 182 out of 189 economies. Cost of doing business is also spiralling out of control. Pipe borne water is a luxury beyond the reach of most Nigerians. Private schools have replaced collapsed public ones; good roads are non-existent and functional public health institutions belong to the remote past.
In contrast, South Africa may have 10 per cent VAT, but with a population of 52 million, as against Nigeria’s 170 million, it generates 44,074 megawatts. The same logic applies to Ghana, with its 2,111MW for 23 million people; it has more power than Nigeria. Since March, the country has been plunged into an unprecedented power outage. From 5,074MW, the highest it has ever generated, in February, it dropped to just 1,580.60MW penultimate Wednesday. Even at the best of times, industries and families depend on generators for power, which cost them fortunes to maintain. This is why locally made goods are more expensive than imported ones.
Apparently, the poor taxpayer underwrites the inefficiencies and waste in government. It is the taxpayers’ money the senators splurged on 36 Toyota Land Cruisers V8 series for their obscene luxury at the cost of N36.5 million each, amid the country’s financial meltdown. Governors have since November declared that states cannot afford to pay the N18,000 minimum wage, as 27 states now regularly default in the payment of salaries.
Understandably, government is under pressure to raise funds to finance the deficit of N2.2 trillion in the 2016 budget, with a total expenditure of N6.06 trillion. But this should not be borne by the already overburdened, pauperised Nigerians, some of whom are being owed salary arrears up to 14 months in some states.
Instead of a 100 per cent VAT increase, government should fortify its revenue base by plugging the leakages in the system; improve the collection of existing taxes to wit: income tax, company tax, withholding tax, import and excise duties, stamp duty, property tax, royalties from oil companies, special taxes on luxury items such as private jets, yachts and expensive cars. Above all, there is the overarching need to redouble efforts in recovering funds looted by former public officials.
A revelation by Shell Petroleum Development Company of Nigeria Limited in April that it paid a whopping $42 billion as royalties, taxes and fees to the Federal Government between 2011 and 2015, should provoke public curiosity and an enquiry into how such funds were spent. Nigeria’s receipt was the highest among 24 countries where Shell operates, which includes Malaysia, Norway, Iraq and the Philippines. For the records, Shell is just one out of five oil majors in Nigeria. The country’s problem is basically mismanagement of its resources.
With dwindling personal income, massive job loss in the oil and banking sectors and attenuated business activities across board, any attempt to squeeze more cash out of the already lean pockets of Nigerians now will amount to overkill.
