- VAT Increase Would Do More Harm To Private Sector – NECA
- Experts, Investors Weigh Gains, Losses, Fears Ahead Take Off
- Demand Counter Measures, Palliatives To Protect Businesses, Poor Nigerians
The Federal Government’s aggressive pursuit of increased non-oil revenue to cushion huge budget deficit, will certainly gain further traction beginning from February 1.At least, there is a projection of more than N500b additional inflows from the new rate at 7.5 percent.
The government’s persistent fiscal shortfall, arising from uncertainty shrouding the country’s major earner – crude oil – has remained not just a yearly routine, but also an excuse for serial budget failures. With hopes of increased revenue in 2020 now on the upswing, especially with the signing into law of the Finance Bill 2019, the attention is particular on the Value Added Tax (VAT) that was hiked to 7.5 percent, from five percent.
Notwithstanding the “rowdy” herald of the new finance plan ahead of the kick-off this Saturday, there certainly would be interesting figures in the Federation Accounts and government would be smiling to the banks for fat cheques at the end of February. For stakeholders, it is not all about the revenue inflow, but what happens to consumers- the masses, whose standard of living has been subjected to new struggle by the increment, via cost of goods and services. Certainly, there would be continued agitation against over-taxing the citizenry without corresponding evidence of adequate utilisation.
Besides, beyond the pains, Nigerians are raising issues with the management of the country’s resources, alleging that there is no clear-cut accountability process and transparency. The Nigeria Employers’ Consultative Association (NECA) is, however, quick to warn the Federal Government against seeing the private sector as a “cash cow” in its drive to raise revenue, stating that the new VAT policy portends more than mere revenue boost for government.
NECA argued that VAT’s increment to 7.5 per cent would do more harm to the already burdened private sector, and further impoverish the citizens that President Muhammadu Buhari promised to take out of poverty. The Director-General of NECA, Dr. Timothy Olawale, said even though the President meant well for the country, it is the common man that will definitely be at the receiving end of the increase that he okayed.
According to him, even if businesses are taxed more through likely illegal levies and rates outside the provisions of the law, they will naturally pass the cost to their customers whose purchasing power is already at the lowest ebb. He also called on Nigerians to ensure compliance with the increment as it is now a law, maintaining that NECA is only concerned with the implications of the increase on businesses and the purchasing powers of the masses.
While proposing a way out for the country, Olawale noted that what needed to be done by government is an aggressive taxpayers’ enlightenment and expansion of the tax net to capture more citizens, noting that less than 40 per cent of Nigerians were tax compliant. He charged government to put mechanisms in place to eliminate leakages, as a large chunk of the Internally Generated Revenue (IGR) realised end up in private pockets. He added that cutting down on the cost of governance should also be ensured, insisting that retinue of aides kept at prohibitive cost was needless.
For Ucha Wagbo, an economist, beyond the quest to expand fiscal regime and the business of revenue mobilisation for national development, VAT increment would be another period of putting to test, the country’s level of compliance with the non-negotiable social contract, as inequality takes new heights, while poverty level gets global reckoning.
“Government should be ready to open its books without grandstanding for the public to see. This is not a time for blanket provisions, but openly itemised projects and costs. Nigerians will be interested in knowing what their ‘sweat’ is spent on,” he said.
The Partner/Head of Tax and Corporate Advisory Services at PwC Nigeria, Taiwo Oyedele, recalled that the positive side of the development for government is the additional revenue, which on the other side leaves the citizens with more difficulties, unless palliatives are quickly scripted. Stressing the need for government not to just go taxing Nigerians, he recalled that the fundamental principle of taxation is that people should pay according to their abilities, which presently is questionable.
“To limit the impact of the increment as it takes off this week, government should implement counter measures and palliatives to protect businesses and the poor. It should also ensure transparent reporting and efficient utilisation of the revenue for public services and infrastructure to act as palliatives and catalyst for growth. Above all, government should lead by example, ensuring that all its Ministries, Departments and Agencies (MDAs) fully comply.
“In a recent national survey conducted by the Nigerian Economic Summit Group, about two in every three adults do not trust government with their taxes, hence about 83 per cent of individuals and nearly 70 per cent of businesses do not consider tax evasion as wrong,” he said.
Oyedele continued: “Government at all levels must urgently start taking steps to address fiscal transparency issues in order to build the much needed trust in the system.”
According to the 2017 Audit Report on the Federation Accounts, 160 agencies of government defaulted in the submission of audited accounts for 2016; 265 agencies defaulted in submission of audited accounts for 2017, while 11 agencies have never submitted any financial statements since inception. The implication of the foregoing is that the incidence of defaults, instead of decreasing, is increasing and a pattern that indicates that every available fund may be subject to probable frittering.
A development consultant and public affairs analyst, Jide Ojo, had told The Guardian at commencement of Stamp Duty policy that remittances of the deducted values would be crucial, yet today, there are billions of naira alleged to be un-remitted, according to the Audit Report of the Federation Accounts.
“Today, stamp duty deductions are more of tales and ‘wait and see.’ Transparent and accountable mechanisms must therefore, be in place, so that the public is duly informed about income from the new VAT and what it is being used for,” he said. The Lead Director of Centre for Social Justice, Eze Onyekpere, said there are weaknesses and lapses in the management of public funds, which may also befall inflows from the VAT hike.
Citing the 2017 Audit Report on the Federation Accounts, he recalled that the key findings ranged from irregular expenditures to failure to surrender surplus revenues to the treasury, all running into billions of naira, a development that threatens the VAT scheme.
“Also notable was the continuing failures in the implementation of International Public Sector Accounting Standards (IPSAS). Overall, the findings were indicative of significant weaknesses in expenditure control, accounting, financial reporting and in the completeness and accuracy of the consolidated financial statements. Responses to audit queries did not improve in the year under consideration.
“So, it’s not just about taxing Nigerians, or increasing VAT, but accounting for the proceeds through meticulous remittances and transparent spending. But I also think that Nigerians might wake up now to ask about the proceeds of their tax since they will be paying under a difficult situation,” he said. For analysts at Afrinvest Securities Limited, in addition to existing taxes, companies would bear increased costs of compliance and lower patronage as consumers react negatively to new taxes.
The analysts, who explained that the increased VAT will conservatively bring in additional N545.1b to government’s revenue pool, added that, “the recent raft of aggressive initiatives to boost tax collection is motivated by government’s unsustainable fiscal position. This is becoming increasingly fragile in the face of large spending on subsidies and weaker for longer oil prices, as well as production.
“However, we believe the strategies to boost revenues should be better coordinated and should be part of a comprehensive reform package that harmonises taxes, widens the tax net, reins in recurrent spending, reduce costs of compliance and eliminates spending on petrol subsidies. “We believe that government’s approach towards taxes could affect economic growth and dampen the investment climate, with negative implications for tax collections,” the analysts noted in the company’s Weekly Market Update.
The Director-General of Lagos Chambers of Commerce and Industry, Muda Yusuf, said beside the controversial VAT hike, the newly passed law has a number of favourable provisions for Small and Medium Enterprises (SMEs).He, however, added that the VAT rate increase will impact adversely on businesses from cost pressures perspective.
“Margins would be affected, depending on the extent to which additional costs could be passed to consumers. The worry is that we are already operating in a high cost environment. We also have the worry about the provision on minimum tax, and had argued against this provision. It is inappropriate to compel loss-making companies to pay tax, no matter how little. This amounts to erosion of capital,” Lawal said. He continued: “The impact on government revenue will be positive, especially for states and local governments. Their fiscal position will be enhanced. States and local governments are the major beneficiaries of this VAT plan,” he said.
The Head of Research, FSL Securities, Victor Chiazor, said the new law, beside the VAT controversy will set the tone for the country’s fiscal policy this year. According to him, the law covers quite a number of critical areas, especially the aspect of increasing government revenues through VAT, pointing out that the increase is expected to reduce consumer disposable income, which may slightly affect the consumers’ ability to invest in the capital market.
“We would not like to classify the bill into strength and weakness, but we must point out that it sets the tone for fiscal policy, which is good for investors and covers critical areas like increasing government revenue through VAT.
“Another positive from this bill is also the increase in Stamp Duty charge limit from N50 on every N1, 000 to N50 on every N10, 000. I believe this will improve the CBN objective of a cash-less economy.
“Other areas like the capital income tax categorisation, is also expected to aid economic activities. For me, most of the targets set in the finance law are quite achievable, but we must show transparency. Indeed, the increase in VAT is expected to reduce consumer disposable income in one end, which may slightly affect the consumers’ ability to invest in the capital market.
“However, we expect the increase in government revenue, which should arise from the increase in VAT and improved tax collections to enhance government spending and spur economic activities,” he said.
The Chief Research Officer of Investdata Consulting Limited, Ambrose Omodion, said the signing of the Finance Bill 2019 has automatically kicked off the implementation of the new tax regime, including VAT, which is expected to enhance government’s expenditure as the highest spender. “The finance law is all about government’s move to boost its revenue to finance the 2020 budget, and reduce the widening and persistent deficit. With this, the disbursement and implementation of 2020 budget early will have a positive influence on the stock market and the economy at large,” he said.
Source: The Guardian