Testing the Waters for Possible VAT Hike

As federal government continues to contemplate ways to cover its increasing recurrent expenditure, the effect of tax burden on the citizens must be considered, writes Obinna Chima. The federal government recently gauged the willingness of citizens to accept an increase in Value Added Tax (VAT) in its quest to shore up its revenue. Even though it appeared that the government has since backtracked following strong opposition to the move, proponents of the initiative insists that with the country’s swelling debt service and its low revenue generating profile, a VAT hike should be implemented.

Minister of Finance, Mrs. Zainab Ahmed, had early this year, and said the government was considering tough measures to achieve higher revenue. Ahmed, who revealed that the government was planning to introduce higher VAT and excise duties, only for carbonated drinks produced in Nigeria, for which the producers were not paying excise duties, stressed that the government needed to do more to achieve higher revenue. “Peer comparison on our ability to convert Gross Domestic Product (GDP) to revenue for capital and social investment key drivers of sustainable economic growth -show that we have a lot to do to catch up. “Nigeria must mobilize significant resources to invest in human capital development and critical infrastructure. “Indeed, some reforms will be tough, but it must be done if we will look at the facts and be frank to ourselves. Given the low revenue to GDP ratio (currently at about seven per cent), we must pursue optimal revenue generation,” she had explained. But it was Minister for Budget and National Planning, Udoma Udo Udoma and the Executive Chairman of the FIRS, Babatunde Fowler, who during an interactive session with the National Assembly, disclosed the intention of the federal government to raise the VAT rate up, to enable government fund the new minimum wage of N30,000. However, the FIRS subsequently clarified that the intention was to increase compliance rate and not tax rates, even though the agency advised Nigerians to be ready for a VAT rate increase by the end of this year. Afterwards, the pronouncement by the government officials attract debate. While some believe that in order to boost government’s revenue, there is need for a comprehensive reform of Nigeria’s tax system, which should include a hike in the VAT, some argue that expanding the tax net is the way to go. According to those who were against the move, a hike in VAT would worsen the poverty situation in the country. Potentially, an increase of about 50 per cent would raise the current standard VAT rate of five per cent to 7.5 per cent. The average VAT collection in the past six years is about N900 billion. The revenue is shared 15 per cent to the federal government, 50 per cent to states and 35 per cent local governments net of four per cent cost of collection to FIRS. The federal government had in January this year unveiled a Strategic Revenue Growth Initiative (SRGI) for sustainable revenue generation in various sectors of the economy, part of which was to increase the VAT. Ahmed, had said the implementation of the initiative would significantly boost the federal government revenue outlook in the months and years ahead. According to the minister, Nigeria’s low revenue generation capabilities had been an enduring challenge to past and present governments.


Source: This Day Live