■ It’ll bring more sufferings to our workers –NLC
■ It’ll boomerang on economy –OPS
■ As FG earns N3.67trn from VAT in 4 years
Bimbola Oyesola (Lagos) and Uche Usim (Abuja)
When
President Muhammadu Buhari recently urged Nigerians to fasten their
belt in readiness for a bumpy ride in his second tenure, grappling with
the concomitant effects of a 35-50 per cent review of the Value Added
Tax (VAT), in an economy that is still nursing the aches of recession,
was never envisaged.It was the Minister of Budget and National
Planning, Udoma Udo Udoma and the Executive Chairman, Federal Inland
Revenue Service (FIRS), Mr Tunde Fowler that dropped the bombshell last
week when they appeared before the Senate Committee on Finance.The
proposal, which increases VAT from the current five per cent to either
6.75 per cent (35%) or 7.25 per cent (50%) according to them, is to
enable the Federal Government pay the newly-approved N30,000 minimum
wage. Their proposal has elicited divergent reactions from the organized
private sector, the labour unions and economic experts.According
to the Director-General of the National Bureau of Statistics, Yemi
Kale, Nigeria earned N3.67 trillion from VAT between 2015 and 2018. The
breakdown shows that N767 billion was collected in 2015; N828 billion in
2016; N972 billion in 2017 and N1.1 trillion in 2018. In 2018, total
tax collected stood at a record breaking N5.3 trillion without recourse
to hiking any class of tax.Workers and Nigerians in general have
vehemently condemned the decision to increase VAT, as there are
insufficient infrastructure and social services to show for taxes
collected in the country. From bad roads, epileptic power supply to lack
of good public medical services, Nigerians have had to endure these
blights or seek alternative arrangements at their own expenses, despite
paying taxes.Although the FIRS chairman has quickly denied plans
to increase VAT following public outrage, economic experts doubt the
sincerity of the government to truly jettison the plan because there
seems to be no clear-cut alternative arrangement to pool funds to pay
the new minimum wage; other than increasing the tax rates or resorting
to borrowing.Already the euphoria among workers over the passage
of the N30,000 minimum wage by the Senate last week may have been
muffled by the proposal for the Federal Government to increase VAT to
enable it implement the new wage.The news has angered the
Organised Labour and the Organised Private Sector (OPS), who warned of
the dire consequences that may result from the action should the
government go ahead with it.The Organised Labour sees it as
insincerity on the part of the government to pay the new wage by using
VAT as a trump card, pointing out that the hike in VAT would further
impoverish the workers as they would have to pay more for goods and
services without a commensurable income.Therefore, labour has
vowed to resist the implementation of the proposal, while members of the
OPS warned that it would further compound the problem of the fragile
economy.The Nigeria Labour Congress (NLC) pointed out that the
increase in VAT would be counter-productive, arguing that the proposed
new wage is quite minimal to have warranted any tax increase.The
Vice President of the NLC, Comrade Peters Adeyemi, warned that
government should not contemplate increasing VAT or else it would meet
with the wrath of the workers.Adeyemi, who said no sensible
labour leader would support the government plan warned that it is
something that should not happen as it would rubbish the gesture of the
minimum wage.“Government cannot increase VAT, this is because
it is the workers that will suffer and what is the percentage increase
on the wage anyway compared to the inflation in the country. Government
should not contemplate it at all,” he said.Sharing the same view
with the NLC, the Trade Union Congress (TUC) said that it would not
support the government plan to increase VAT to pay the new wage as it
has no bearing with workers’ demands.The President of TUC,
Bobboi Bala Kaigama, said that the government should rather put on its
caps and think of other ways of raising funds for the payment of the new
minimum wage of N30,000.“Less than 50 per cent of the corporate
organisations are paying tax. FIRS should go out and tax the rich and
ensure that all are paying tax.“VAT is all about everybody, OPS
just have to collect and pay to government, which doesn’t add more to
them. People bearing the brunt are the lower class, which are the
workers.“We believe that all companies, most especially those
who are not captured presently should be put in the tax net to pay
appropriately. Mind you, this minimum wage we are talking about only
involves workers in the public sector, as private sector are already
paying more. So, we wondered why government is making so much noise
about payment.“Right now, we don’t want to doubt government
sincerity, we will wait for the National Assembly to harmonise the bill,
the president to sign it into law, after that if there is any delay in
payment, when we get to that river, we will cross it,” he said.The
United Labour Congress (ULC) President, Joe Ajaero also warned that the
government cannot use the VAT excuse to implement the new minimum wage
as it was never raised nor given as a condition at the Tripartite
Committee where the new wage of N30,000 was recommended.He
reasoned that as workers would not be exempted from paying the proposed
increased VAT, it would amount to giving them the money with a right
hand and taking it back with the left through VAT.“It will also
be detrimental to the employers, which would be double payments, paying
workers increased salary and paying government exorbitant amount in VAT.
It is not going to augur well for the workers and neither the economy”,
he said.The President of the Association of Senior Staff of
Banks Insurance and Financial Institutions (ASSBIFI), Comrade Oyinkan
Olasanoye, also expressed that there was no correlation between
implementing the new minimum wage and the proposed increase in VAT.She
stated that government must have been planning the VAT increase and now
hiding under the new minimum wage to carry out its plan.“Increasing
the VAT should not and must never be condition to implement the new
wage. The only thing we can deduce from this is that government doesn’t
want to pay the new wage and now using the VAT as an excuse”, she said.Organised Private Sector
For the members of the Organised Private Sector (OPS) said that the move would put more burden on businesses in the country.
The
Manufacturers Association of Nigeria (MAN) said that the recent
proposal by the Federal Ministry of Finance to hike VAT rate was not
manufacturing friendly as the proposed VAT increase appears not to have
taken into cognizance the prevailing times and the ongoing government
efforts to re-invigorate the economy.The Director General of
MAN, Segun Ajayi-Kadir, recalled that the recommendation was
ventilated through pronouncement and commentary made on the floor of the
Senate by key officials of the government while defending the
Medium-Term Expenditure Framework (MTEF).He, however, noted that
although the commentary has been denied in a signed statement by Wahab
Gbadamosi, Director Communication and Servicom as published in some
national dallies, MAN still believes that as plausible as the
recommendation to increase VAT may look, implementing it at this time
would boomerang because the timing is inappropriate, especially at a
time when the minimum wage of N30,000 was just agreed upon.According
to the Director General, this could send a wrong signal that the
government is not sensitive to the plight of the low- and middle-income
earners, who are clearly in the majority, stating that it would be a
typical case of government simply taking back what was given with the
right hand through the national minimum wage with the left hand through
increase in VAT.On the economic implications, Ajayi-Kadir
explained that in terms of misery index rating, low per capita income,
heavily lopsided income distribution pattern, the Nigerian economy will
be in a more vulnerable state if VAT is increased.“No
controversy, the burden of the tax would be shifted to the Nigerian
consumers that are already struggling, the economy would certainly
experience demand crunch, inventory of unsold items would soar,
profitability of manufacturing concerns would be negatively impacted,
many factories will witness serious downturn or wind down operations.“This
would also worsen the already high unemployment position of the country
which is above 23 per cent as Nigerians currently employed by
manufacturing concerns and other businesses may join the reserved army
of unemployed and further bloat the unemployment rate in the country,”
he said.Also, the Director General of Lagos Chamber of Commerce
and Industry (LCCI), Muda Yusuf, said that such plan would not be good
for business as investors presently are operating in a very difficult
environment with high cost of production.“This is coupled with the fact that the purchasing power of consumers has further been worsened”, he said.
According to Yusuf, the entrepreneurs operating at the Medium and Small Scale levels may not be able to survive the onslaught.
In
the same vein, the Director General of Nigeria Employers Consultative
Association (NECA), Mr Timothy Olawale, lamented that multiple taxation
is already killing businesses in the country, adding that increasing the
VAT would amount to compounding the problem of the OPS members.“Businesses
in Nigeria are encumbered with the payment of over 55 different taxes
at the three levels of government. The incidence of double taxation,
particularly consumption tax, has assumed a very dangerous dimension. We
expect the government to rein in through an appropriate statutory or
policy declaration.“Government should not make mistakes of
generating revenue through tax increase. We know that government will
want to meet up with its revenue requirement. If you increase tax, it
will increase cost of goods and services and it is the consumers that
will suffer for it. You don’t make people poorer by adding to their
burden. So government must be very careful when it says that it want to
generate more revenue internally.“Rather than increase the tax, I
think what government should do is to widen the tax gap between the
rich and the poor or average Nigerian. Some companies and well-to-do
individuals are not paying tax. Government should also focus on
luxurious goods, most especially foreign goods that we can do away with.
But government should not tax those goods that has direct effect on
the common man,” he suggested.However, the NECA Director General
promised that all members of the organized private sector would
implement the new N30,000 minimum wage.“There is no reason all
members of the organized private sector should not be able to pay
N30,000 minimum wage. This is because they (Organised Private sector)
all agreed after due consultation”, he said.He noted that over
70 per cent of the OPS members are already paying way above N30,000 as
minimum wage, adding that the consequential impact is very minimal, if
not nil, because it is supposed to affect the chain or review, where the
benchmark is below N30,000.Looking at other options open to pay
the new minimum wage, finance analysts ruled out the borrowing option
on grounds that Nigeria’s current debt profile stands at over N22.7
trillion, saying adding to that staggering figure would likely box the
country into a debt trap.“The country is broke. Where else will
government get money to run the country other than raising taxes? That
is the only way to raise money to pay the N30,000 minimum wage even it
is coming with scathing consequences. We’ve not expanded our tax base
well enough.“So, we’re broke and that’s the truth. For every 100
kobo Nigeria makes, 68 kobo is used in paying back our loans. Should we
then borrow more?“All the real revenue we generate, 68 per cent
of it goes into loan repayment”, an Economic Analyst and Coordinator,
Centre for Social Justice, Mr Eze Onyekpere, told Sunday Sun.Commenting
on the development, Nigeria’s first Professor of Capital Market and
Head, Banking & Finance department, Nasarawa State University Keffi,
Prof Uche Uwaleke told Sunday Sun that the idea of increasing VAT to
fund the new minimum wage remains a counter-productive move.According
to him, past experience has shown that a new minimum wage will not
necessarily lead to higher inflation as being suggested in some
quarters.He buttressed his assertion with a 2011 scenario, when
the wage floor was increased from N7,500 to N18,000 and average
inflation rate actually dropped from 13.7 per cent the previous year to
10.8 per cent.Uwaleke said if a new minimum wage can only be
implemented by increasing taxes, then it simply amounts to digging a
hole to fill a new one; as the associated hike in the cost of goods and
services will erode the purchasing power of any increase in wages.“There
is no doubt that the current VAT rate of five per cent is among the
least in the world. However, it is equally true that many countries with
a higher VAT rate have lower corporation tax. Ghana, for example, has a
higher VAT rate of 12.5 per cent, but a lower Company Income Tax (CIT)
of 25 per cent compared to Nigeria’s 30 per cent. Ditto for Egypt with a
lower CIT of 24 per cent. “Therefore, any increase in VAT can be
productive only if it is part of a broad fiscal strategy of rebalancing
the tax mix in favour of consumption tax which will entail also lowering
the company income tax.“Doing otherwise in an economy that is
grappling with double-digit inflation, weak growth and high unemployment
rate will cause more distortions and jeopardize government’s efforts at
revamping the economy”, Uwaleke explained.He added that various
reports by the National Bureau of Statistics have shown that inflation
in the country is driven more by cost-push factors than demand-pull
against the backdrop of weak aggregate demand.“Therefore, if
the VAT rate is increased without a corresponding reduction in CIT, it
will further increase the cost of goods and services and worsen
inflationary pressure.“The CBN will be compelled to further
tighten monetary policy resulting in high cost of funds for businesses.
Many firms, especially those producing items with elastic demand, will
experience reduced sales as they may not be able to easily transfer it
to their customers. “This will lead to inventory accumulation, low
capacity utilization, lower profits and downsizing of workers thereby
complicating the unemployment challenge in the country. Moreover,
reduced profits for companies quoted on the stock exchange will bring
about reduced investments by these firms and depressed stock prices. In
fact, an increase in VAT will lead to an increase in the cost of
transactions in the capital market making it less attractive to
investors”, he noted.Rather than hike VAT, the don urged the
government to address the perennial systemic challenge of low and
inefficient tax collection.According to him, a good number of taxpayers who are supposed to be remitting VAT to the government do not do so.
While
throwing his weight behind the new minimum wage without recourse to
borrowing, he implored the government to devise means of improving the
collection efficiency as well as widening the tax base as many eligible
taxpayers are still outside the tax net.Data from the Finance Ministry indicates that Nigeria with a population of over 180 million people has 120 million adults.
Out
of that figure, only 10 million Nigerians were paying taxes as at 2015.
The number has grown to 14 million today, a figure that is still a far
cry from about 60 million adults that are taxable.The Ministry
has also identified over 80,000 high net worth Nigerians that are either
outside the tax net or paying inappropriate taxes.More so, data
from Ministry of Industry, Trade and Investment shows there are 37.7
million Micro Medium and Small Enterprises (MSMEs) in Nigeria as at
2016.Out of that figure, which has grown to about N40 million in
2019, the Central Bank of Nigeria (CBN) has captured 17.5 million of
them in its National Collateral Registry (NCR).However, experts
say most of the players in the MSME space do not pay the right taxes.
This is aside the fact that the bulk of them do not pay taxes at all
because they are in the informal sector (unregistered) and operating in
the hinterlands where tax officials cannot easily access.A
Chartered Accountant, Ifeanyi Martins Onubah has urged the government to
go after this category of tax evaders, while working assiduously at
broadening the tax base in the formal sector.“We are talking
about 40 million MSMEs. Why can’t the government work hard and identify
them and levy them at flat rate? I mean those retailers selling various
wares in the open section of the markets, along the streets and all
that. They do not have shops. They sell daily. You can levy them N200
monthly flat rate. Multiply that by say 20 million of them. That’s N4
billion monthly. It is something we’re losing currently on a
conservative estimate by not capturing them at all,” he said.Jaye
Gaskiya, the Convener, Take Back Nigeria Movement picked holes in
government’s argument that VAT in Nigeria is the lowest compared to
other African nations.“Saying VAT in Nigeria is the lowest isn’t
the issue. The fact is that we have a struggling and recovering economy
and Nigerians have low disposable income. That needs to be addressed.“States
have to work out how to raise their IGR. Let them invest in productive
ventures and from there boost their revenue generation”, he said.The
Head of Tax and Corporate Advisory Services at PwC Nigeria, Mr. Taiwo
Oyedele, lamented that governments sometimes have a lazy approach to
tackling problems without caring to know the impact on the citizenry.Oyedele
said increasing VAT to enable government pay the N30,000 minimum wage
in face of unemployment, fragile economic growth and low purchasing
would be counter-productive. He maintained that, if the government is
compelled to increase the minimum wage, then it should be looking at
ways of improving efficiency and productivity.The tax expert
warned that increasing VAT could lead to a decline in collection rate
because the majority of the people that are meant to be paying the
current VAT rate are not even paying, adding that a further hike will
discourage them further.On how to arrive at a sustainable model
of paying the minimum wage, Oyedele advocated streamlining of job roles
and a performance measurement framework across all MDAs appraisal model
that would help shrink job roles.
Source:- Sunnewsonline
Share your thoughts