After an initial hint of a possible hike in the Value Added Tax (VAT) earlier in the year, the Federal Government appears to be plodding on with last week’s Federal Executive Council’s approval of a review of the rate from five to 7.2 percent.
Briefing journalists at the end of the Federal Executive Council (FEC) meeting last week, Minister of Finance, Zainab Ahmed, stated that the “council has agreed that we start the process towards the increase of the VAT rate. We are proposing and council has agreed to increase the VAT rate from five per cent to 7.2 per cent”.
We must admit that the proposal has been on the drawing board for a while. Notably, the immediate past Minister of Budget and National Planning, Senator Udo Udoma, and Chairman of the Federal Inland Revenue Service (FIRS), Babatunde Fowler, actually made the case at their appearance before the Senate Committee on Finance to explain the details of the 2019-2021 Medium-Term Expenditure Framework and Fiscal Strategy Paper, in March.
The FIRS chair was quoted as telling the committee then: “By the end of this year, we should be ready for an increase in VAT. A lot of Nigerians travel to Ghana and other West African countries and they can see that theirs is much higher. They pay when they go on those trips. We should be ready for an increase on VAT.”
Among the reasons the duo gave was the need to fund the new national minimum wage. Last week, the finance minister echoed the same argument: the need to boost the revenue accruable to state governments, more so now that “the states need additional revenue to be able to meet the obligations of the minimum wage.”
We agree that the states and local governments need all the funds that they can get, not just because of the additional burden from the review of the minimum wage but also to enable them deliver on critical infrastructure. And VAT is after all, easy to collect and perhaps less disruptive in administration when compared with other taxes. Moreover the last review was done by the administration of President Olusegun Obasanjo in 2007. Even then, that exercise, which saw the rate hiked from five to 10 percent, was later cancelled by the succeeding administration of the late President Umaru Yar’Adua in the face of strident opposition by labour.
These are ordinarily compelling arguments. Unfortunately, Nigerians, most of whom are already done in by the excruciating poverty, declining real incomes and governments’ pathetic records of service delivery are unlikely to be persuaded on the need to shoulder any additional burden under any guise, particularly at this time. Considering that real incomes have actually been falling over time, with government unable to tame the inflationary pressure, Nigerians would be right to oppose a measure designed to further burden them.
Yes, the government needs funds to deliver on its promises. But then, it is simply not about asking citizens to pay more taxes when all they see at all levels of governments are demonstrable wastes and corruption. Simply put: governments haven’t done enough to curb wastes and corruption not to talk of trimming the albatrosses that the bureaucracies have become. That done, the case for a VAT hike would be easier.
We urge the Federal Government to tread carefully. At this time, the economy will be better served with policies designed to boost, rather than constrict, consumption. Policies designed to assist states to boost their tax collection capabilities should be topmost on the agenda of the Federal Government now; just as a VAT hike is akin to toeing a line of least resistance.
