FG, CSOs differ on benefits of proposed 50% VAT increase

The Federal Government and some civil society organisations (CSOs) in the country have continued to differ on the benefits of the proposed 50 per cent rise in the Value Added Tax (VAT) regime in Nigeria.

While some CSOs have backed the government’s plan, others are against it.

The current rate of VAT, which is a consumption tax, is five per cent. However, the Federal Government last Wednesday indicated a plan to raise the rate to 7.5 per cent from next year, representing a 50 per cent increase.

The development has since then pitched some experts and rights groups against the plan as they see it as having very serious negative impact on the economic wellbeing of the citizens because of the expected increase in prices of goods and services in the country.

But the Federal Government has argued that to the contrary, the expected VAT raise would profit the states and local councils and boost economic activities at the level better, because the two lower tiers of governments would be reaping a combined rate of 85 per cent of the revenue while the Federal Government would stay with just 15 per cent, in line with the current revenue sharing formula.

According to Mr. Yunusa Tanko Abdullahi, the Special Adviser on Media to the Minister of Finance and Budget, Mrs. Zainab Shamsuna Ahmed, the additional expected revenue from VAT would assist the states to meet up with the implementation of the new minimum wage at that level.

He gave the background to the development: “Early this year, the Federal Government of Nigeria set up a technical advisory committee comprising competent and leading economists from both the public and private sectors chaired by a renowned economist, Mr. Bismack Rewane.

“The Committee, inaugurated on the 9th of January 2019, was to advise on the implementation of the new minimum wage. It submitted its report on March 21, 2019, in which one key recommendation to the government was the VAT increase, from five per cent to 7.5 per cent. Nigeria VAT rate will still be at about half the African average and amongst the lowest in the world, thus subnational governments get 85 per cent.

“The benefit of an increase in VAT is, therefore, more beneficial to state governments and local councils in the country, many of which are already facing difficult conditions. The proposed increase in VAT is therefore expected to create additional fiscal space.

“The proposed increase is however subject to legislative intervention by the National Assembly who will have to amend the Revenue Act to reflect the proposed increase. The existing VAT Act exempts the basic necessities such as food, medicines, and education, which therefore minimises the impact on the poor and vulnerable segments of the Nigerian society from the burden thereof. It is expected that the exemptions will be maintained in the amendment,” the Federal Government official further reassured.

The Centre for Social Justice (Censoj), a CSO organ championing equitable distribution of Nigeria’s wealth amongst her citizenry, also backs the plan, according to its Lead Director, Mr. Eze Onyekpere, it would boost liquidity in the states.

His words: “Centre for Social Justice (CSJ) welcomes the decision of the Federal Government in the proposal for an increase in VAT from the current rate of five to 7.5 per cent. This will increase available resources for budget implementation and development across the three tiers of government.

“However, the additional revenue to be realised from this increase may not be substantial if the tax authorities do not take concerted and targeted steps to increase the number of natural and artificial persons who will pay the new VAT. The way forward is to ensure that all persons liable to VAT, collect and remit the same to the appropriate authorities.

“While we take note of the arguments about the harsh economic conditions and how the increase will impose hardship on the poor, we note that all Nigerians ought to make sacrifices considering Nigeria’s parlous fiscal condition. Indeed, Nigeria is facing a fiscal crisis which ideally, the leadership should explain to Nigerians instead of the current official attitude that all is well.”

Onyekpere insisted that current hard times call for increased financial transparency and accountability on the part of the government, which manages public resources.

But the Tax Justice and Governance Platform (TJGP) insist that if implemented, it would add to citizens’ pains.

The group made up of civil society organizations advocating for the promotion of a progressive, fair and transparent system in which domestic resources are effectively mobilised through an efficient tax system, utilised for people-oriented development and provision of essential services that benefit majority of citizens, declared that it followed with keen interest, the trend around the Federal Government’s effort to improve revenue mobilisation to fund development in Nigeria. The group advised the government to pay more attention to the collection of already approved taxes and also block leakages by multinationals to pay their appropriate taxes, instead of increasing the VAT.

“We want to state our position for advocacy and campaign which is that government designs and implements policies and programmes that enhance the welfare of the poor and protect disadvantaged groups that constitute much of the Nigerian population and address issues of inequality.

“As has been demanded by many Nigerians and groups, we call on the Federal Government to pay serious attention to widening the tax net rather than increasing the rate which will only place more burden on the few that comply already and still exempt the majority that does not pay taxes,” the group said.  

The group, however, appreciated the Voluntary Assets and Income Declaration Scheme (VAIDS) as an opportunity to increase the tax net, expressing dismay that it has not yielded the optimum result expected. 

The CSOs lamented that “there are still myriads of companies and other taxable entities in Nigeria who are not in the tax net and still not convicted or punished in any way.”

They urged the Federal Government to consider some posers before affirming the policy.

They asked: “Who bears the burden of the tax increment? What main drivers could inform and/or justify the decision for a VAT increment? What are the real issues around VAT: Remittance (collection) or rate? How well has the little been used and what are the assurances that an increase would alleviate economic conditions? What systematic measures have been taken to ensure tax compliance? Are there no other options available to the government to mobilise revenue?”

The CSO’s, therefore, called on the FG to provide additional information and details on the proposed measures for the purposes of public debate and multi-stakeholder input. 

“We expect empirical projections and evidence-based expected outputs that indicate that the tax yield from some of the measures would outweigh any disadvantage and potential negative impact,” they noted.

They also stressed that the measures must ensure that the majority of Nigerians would be the ultimate beneficiaries by reducing the tax incentives granted to multinationals among others.

They advised the Federal Government to “fully implement the BVN policy as a measure of tracking peoples’ tax liabilities especially the high-net-worth individuals in the country who have been accused of not paying taxes at all.”

“We use this forum to call on the Federal Government to again beam its searchlight on illicit financial flows from Nigeria as it represents a source of substantial revenue leakage and loss to the government.

“The platform calls on the Federal Government to improve market information and transparency by implementing the National Tax Policy, promoting the commitment to progressive taxation and taking measures to improve financial transparency while cooperating with regional and international bodies to address the issues of illicit financial flows,” they added.