Against the backdrop of the economic crisis plaguing Nigeria amid falling global oil prices, the Federal Government is considering changes to the nation’s tax regime in a bid to shore up dwindling revenue.
There are indications that the government will increase Value Added Tax, as recently suggested by the International Monetary Fund, whose Managing Director, Ms. Christine Lagarde, visited the country early this month.
Economic and financial experts have, however, said the move to increase VAT would put further pressure on Nigerians, as it would cause increase in the prices of goods and services, among other implications.
VAT is a consumption tax payable on the goods and service consumed by any person, whether government agencies, business organisations or individuals. It is currently levied at the rate of five per cent in the country.
The sharp drop in crude oil revenues, which provide 95 per cent of the country’s foreign earnings, has led to significant depletion of the nation’s foreign reserves.
Oil prices have fallen in the last few days to their lowest levels since 2003, trading about $10 lower than the oil price benchmark of $38 proposed by President Muhammadu Buhari for this year’s budget. Oil prices staged a rebound on Friday, trading around $32 per barrel on Saturday.
The Minister of Finance, Mrs. Kemi Adeosun, has said the Federal Government plans to borrow up to $5bn from multiple sources, including the Eurobond market, to plug its budget deficit.
Buhari had in December presented a total budget size of N6.08tn, with a deficit of N2.22tn to be financed by both domestic and foreign borrowings of N1.84tn.
He put the revenue projection for the year at N3.86tn, adding that over the medium-term, the government expected to increase revenues and reduce overheads, to bring the fiscal deficit down to 1.3 per cent of Gross Domestic Product by 2018.
Vice President Yemi Osinbajo, who said changes to taxation were being considered, told CNBC in a television interview, “We are looking at increasing our tax coverage.
He added, “VAT, for instance — we have been doing just about 20 per cent coverage. We think that just by increasing coverage, we could do much more, and so we could earn more in terms of local resources,” he said.
Increasing VAT from 5 per cent, among the world’s lowest VAT rates, and broadening the tax base were among suggestions put forward by the IMF boss during her visit.
During her visit, Lagarde also said the IMF did not support foreign exchange restrictions.
The Central Bank of Nigeria, whose monetary policy committee will meet on Monday and Tuesday, imposed forex restrictions last year aimed at conserving foreign exchange reserves and there have been calls from investors for these to be eased.
“We know that the central bank will just have to do the right thing at this time. The central bank has told us, and it was announced even in the president’s budget speech, that they intend to take a flexible approach and deploy whatever tools are necessary to ensure that we stay competitive,” Osinbajo had said.
A Professor of Financial Economics at the University of Uyo, Akwa Ibom State, Leo Ukpong, described the move to increase taxes as ill-timed, saying any increase in VAT would lead to declines in consumption and investment in the country.
He said, “It is not that it is bad to increase taxes; what is bad is increasing it at the wrong time. When the economy is going through recession; when we are not producing; when unemployment is high, that is not the time to raise any tax. In fact, the opposite is the case: it is a time you cut taxes so that you can stimulate consumption and investment.
“Increase in VAT is going to destroy the economy more. Consumption of goods and services will drop because you’re taking money away from people, and investment will drop. Overall, it is going to have negative effects on the economy, households and businesses.”
Punch
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