Proposed Increment in VAT by the Nigerian Government is Unacceptable

Adedoyin Shittu
20% Complete
 29-Mar-2019

Nigerian workers under the umbrella of the Nigeria Labour Congress (NLC), went on an indefinite warning strike on Thursday September 26th, 2018 to press their demand for an increment of the National Minimum wage from 18,000 Naira to 56,000 Naira. This was later brought down to 30,000 Naira.

This proposal was initially rejected based on the excuse that Nigeria does not have the capacity and resources to increase minimum wage even after the five years period of review have elapsed. 

On the 9th of January, 2019 , President Muhammadu Buhari inaugurated a technical committee to assist the government in finding ways of implementing a new national minimum wage without disrupting the nation’s development plans. This committee was headed by Bismark Rewane, the MD/CEO of Financial Derivatives.

The president tasked the committee with the duty of identifying new revenue sources, as well as areas of existing expenditure from where some savings could be made in order to fund the wage increase without adversely impacting the nation’s development goals as set out in the Economic Recovery and Growth Plan.

After a long wait, the federal government decided to increase the minimum wage from 18,000 naira to 30,000 and signed the increment into law.

According to a published story in the Daily Post; The Secretary to the Government of the Federation, Boss Mustapha, he disclosed that the federal government has made provisions for implementation of the 30,000 New Minimum wage. Boss Mustapha explained that the government has made adequate arrangement in the 2019 Appropriation Bill, to cater for the new wage. He stated this while addressing some reporters in Abuja.

He also added that the government was committed to the implementation of the new minimum wage. He was quoted to have said “Whatever comes out of it, I can tell you that this President has sufficient capital in terms of his integrity to own up whatever the Nigerian people decide”.

Following up the approval of N30,000 as minimum wage by the National Assembly, the Minister of Budget and National Planning, Senator Udo Udoma; and the Chairman of the federal Inland Revenue Service, Mr. Babatunde Fowler, had said the federal government was considering an upward review of the Value Added Tax by 50 %.

According to the duo, Company Income Tax, Corporate Income Tax, and Petroleum Profit Tax will also be increased. These were disclosed when Minister of Budget and National Planning, Udoma Udo Udoma, and Executive Chairman, federal Inland Revenue Service, FIRS, Babatunde Fowler, appeared before the Senate Committee on Finance for an interactive session over 2019 to 2021 Medium Term Expenditure Framework and Fiscal Strategy Paper, MTEF/ FSP.

According to them, the tax increases were inevitable because the new national minimum wage will further increase the size of the 2019 budget already in deficit.

The federal government is currently charging five per cent vat on all products in the country and an increment will jack up the vat to be between 35 per cent (6.75%) and 50 per cent (7.25%) from the initial 5%.

This made the happiness received from the news of approval of a new minimum wage for the Nigerian workers to be short lived. Nigerian workers are already one of the poorest paid in the world and most Nigerian workers are low and middle income earners. 

This move by the federal government is not only fraudulent but wicked, “a move to rob Peter in order to pay Paul” and most state government would be comfortable with VAT hike because they have insisted to be incapable of paying the new minimum wage.

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How much is 30,000 Naira as compared to the exorbitant money Nigerian leaders go home with every month in the name of allowances and wages? This is “wickedness in high places” and it seems the Nigerian government are not ready to serve but to be served.

 

Research has shown that an average Nigerian legislators’ pay is more than 50 times Nigeria’s GDP per capita. In a country where millions are living on less than two dollars daily, even the FIRS and the Minister of Budget and Planning, Udoma Udoma earn more than the United States President. Yet they could not come up with an idea that will relieve the Nigerian workers, instead they are trying to impoverish Nigerians further.

 

What is VAT and Who Will Pay VAT

Value Added Tax (VAT) is the money paid by the citizens of a country as tithe to the government for any goods bought or services rendered to the citizen. The money is paid back to the government to make everything work well for the citizens of the country.

This means that an increment in VAT will increase what is paid on top of consumer goods and the purchasing power of every individual irrespective of your wages will decrease.

In a country like the UK that depend solely on tax, the government provide steady electricity for its citizens, good roads, superb health care, world class education, clean water and security for its citizen. The citizens are happy to pay the government for a job well done. However Nigeria is a different ball game.

It is quite unfortunate that the federal government is trying to increase the burden of the Nigerian people without making any sacrifice on their own part. How much are the lawmakers paying for tax? Why is it difficult for Nigerian lawmakers to submit tax payment slip before seeking political position?

Why can’t the committee come up with a plan to reduce the cost of governance?  Or close down or merge some redundant government Ministries, Departments and Agencies that are replicas of one another thereby saving the government from unnecessary expenditures as stipulated by the term.

This only shows the ineptitude of the Nigerian government to levy Nigerians to pay few workers instead tax should be channeled into National development.

 

Effect of VAT increment to the Nigerian citizens and the Nigerian Economy

Over the years, this present administration have increased tarrif on electricity, jerked custom and excise duties tarrif, ensured importers have problems accessing dollars, tried to increase tariff on data and communication and increased pump price from 87 Naira to 143 Naira. While all these were done, there was no cut to the cost of governance, yet Nigerians have not seen any benefit. Now they are proposing to jack up VAT on consumer goods to pay workers knowing that about 20.9 million youths are unemployed and underemployed as reported by the National Bureau of Statistics.

Presently Nigeria has a high poverty rate and unemployment rate, it was ranked the “Poverty capital of the World”, overtaking India. Increasing VAT in a country where income is distributed unequally will only widen the gap between the poor and the rich and also impoverish more Nigerians.

There will also be stoke-up inflationary pressure in the economy, from the fruit seller to the  driver who drives the danfo bus, no one will be left out. Prices of goods and services will jerk up even those that do not need VAT payment will see the need to increase the price of their goods and this will in turn reduce the purchasing power of Nigerians and increase hardship.

Also Nigeria is also manufacturing unfriendly, a nation that cannot boast of a steady power supply which is the engine for industries, yet wants to be paid for inadequacies is a sham. Increasing VAT will negatively impact the profitability of industries that have managed to stay afloat the Nigeria harsh manufacturing. This might even put more industries out of production map or cause retrenchment of workers when they can meet up to the tax burden.

Many have condemned this move by the federal government and has termed in as insensitive to the plight of the Nigerian people.

Segun Ajayi-Kadir, the Manufacturers Association of Nigeria Director General added, “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. The Nigerian economy will be in a more vulnerable state if VAT is increased”.

He further appeal to the government to widen the tax net rather than increase the rate in order to meet the growing need for more revenue to address the development objective of the country.

Also the national leader of the All Progressives Congress (APC), Bola Ahmed Tinubu, has advised the Nigerian Government against the planned to increase the Value Added Tax (VAT). He warned that such decision was capable of worsening the nation’s economy.

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Instead of misusing the statement, “we are serving the Nigerian People” while adding to the burden of the Nigerian people, policy makers and the Nigerian government as a whole should look for ways to liberate Nigerians from poverty. They should look for ways to check the population that is running out of control, increase literacy level among the Nigerian citizens, provide steady power supply, encourage industrialisation by making the Nigeria environment investment friendly and increase the nation’s advancement in science and technology to promote employment opportunities.

They can only achieve this if they can look inward and try to expand their tax net as suggested by many notable Nigerians. Many opulence Nigerians and Nigerian businessmen evade tax or pay less to nothing and they get away with it. This should be criminalised like what happens in other nations. Tax should also be pay as you earn, if you earn small, you pay small and if you earn big, you pay big.

They can also cut down the cost of governance  and make political offices unattractive to people seeking appointment to serve themselves. Also they can scrap redundant ministries. With this poverty will be checked in the land and there will be equity.

The government in particular if interested in the welfare of its citizens and committed to bringing its people out of extreme poverty, increment of tax to fund minimum wage is not even an idea to be entertained.

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