IMF ON TAX IN NIGERIA: Expand tax net rather than tax rate, MAN, LCCI, other stakeholders tell FG
Manufacturers Association of Nigeria, MAN, Lagos Chamber of Commerce & Industry, LCCI, and other stakeholders in the private sector have called on the Federal Government to expand tax net and jettison any advice to increase Value Added Tax, VAT, stressing that Nigeria’s fragile economy would not be favourable for increase in tax rate.
The call came in reaction to the International Monetary Fund, IMF’s advice to the federal government to urgently review the country’s tax policies, with emphasis on taxing the richest three percent of the country’s population, widening the tax base and increasing compliance on VAT.
Increase in VAT will not be a right move at this period—MAN DG
Speaking to Vanguard on the IMF recommendations the Director General, MAN, Mr Segun Ajayi-Kadir, stated: “No business likes taxes because it can add to their costs and eat into their profits. Also it should not be at a time of fragile economic growth. Already businesses are providing for themselves many of the services which should be provided from taxes already paid; power, water, roads etc. Increase in VAT will not be a right move at this period.
Widening the tax net will impact considerably on revenue – LCCI
Speaking on the issue, LCCI, in an official mail to Vanguard said: “It would be insensitive to contemplate an increase in VAT rate at this time. There are political, economic and social considerations which make it a difficult policy option at this time.
“Admittedly, we have a major revenue challenge as a country, which is why the debt stock has been increasing and the sustainability of public debt is becoming a major cause for concern. This is what informed the IMF proposition for an increase in VAT rate. But our policy options need proper sequencing.
“First, there is a need to muster the political will to compel revenue generating MDAs (Ministerial Departments and Agencies) to correctly remit to the federation account what is due to government. It is important to scale up accountability in these MDAs. “Secondly, widening the tax net will impact considerably on the revenue, as there are many high net worth individuals outside the tax net. Curbing tax evasion would help to bridge the revenue gaps at all levels of government.
“The humongous amount being committed to petroleum subsidy needs to be revisited urgently. The petroleum industry bill needs to be urgently considered to put an end to the huge revenue loss in the oil and gas sector on account of ‘under-recovery’.
These are options that should be considered before any contemplation of an increase in tax rate. Already, investors in the formal sector are reeling under a heavy burden of taxation.”
Reacting as well, Tola Odukoya, Managing Director/CEO, FSL Asset Management, said though taxation is a way for the government to increase its revenue, but increasing value added tax, VAT, is not the way to go as it would put more burden on Nigerians.
He said that rather than increasing tax rate, the federal government should expand its tax net to cover those who are presently outside the net.
He said: “I am an advocate of tax because taxation to me, ideally, is how government should fund its activities. I am not averse to Nigerians or Nigeria corporates paying their taxes as and at when due but the challenge and problem I see with the International Monetary Fund, IMF’s advice is that they are putting unnecessary burden on everybody.
“If you increase VAT by 100 percent, the cost of some commodities that are essentially available to both the rich and poor will increase as a result of increase in VAT. So, rather than increasing VAT, I think that what the federal government should do, which of course the Federal Inland revenue Service, FIRS, is already doing, is to put more effort into expanding the tax net instead of the tax rate.
“I think that rather than concentrating on increasing the tax rate, we should have more of an increase in the tax net to cover those who are not within the tax net already because I am of the view that a substantial number of people are outside the tax net.”
Increase in VAT will create more burden—- Insurance executive
Managing Director of Alpha Choice Insurance Brokers, Mr. Sunny Adeda, said that increasing VAT from five to ten percent will create more burden for the people.
Adeda stated: “Increasing VAT from five percent to ten percent will add more burden to the people. What government should do is to increase the dragnet of tax payers because if they get more people to pay tax, it will be better than increasing VAT.
“To increase VAT is to put more burden on the people. Government should rather increase the number of people who pay tax than increase the rate because by increasing VAT rate, government will heap more burden on the final consumers. Such move could lead to increases in prices of goods and services, so it will be better to increase the number of people that pay tax.
“There is no need to increase VAT. It should remain at five percent while government can put modalities in place to expand the tax dragnet. There are so many tax evaders in the country, so what government should do is just to encourage and persuade people to pay and most importantly utilize the tax revenue properly.”
It is not right time to increase VAT –– FSL Securities
The Head of Research & Investment, FSL Securities Limited, Mr. Victor Chiazor, said: “Given that the government has been aggressive in growing its revenue base outside oil, if this increase is implemented it would boost government revenue and help reduce the budget deficit and also reduce the need for the government to borrow more.
However, we all know that consumer disposable income is weak at the moment and putting further pressure on it by increasing the VAT will reduce the purchasing power of the consumer and further reduce economic activities which would negatively affect growth. I believe the government may eventually increase the VAT but I do not believe this is the right time.”
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