Experts fault IMF’s recommendation to raise VAT by 100 percent

 

Knocks have trailed the recent recommendation by the International Monetary Fund (IMF) to the Federal Government, urging the government to raise Value Added Tax (VAT) from 7.5 percent to 15 percent despite the harsh economic realities Nigerians face.

Economic analysts have frowned at the recommendation, stating that it is wrong to have such a policy when most businesses and citizens are battling multidimensional poverty and economic misery.

DAILY POST learnt that the IMF had recommended to the Federal Government several reforms for much-needed fiscal space for economic growth.

The Fund advised the authorities to adopt tax policy reforms by adjusting tax rates to levels comparable to the average in the Economic Community of West African States (ECOWAS) as compliance improves.

“This includes further increasing the VAT rate to 15 percent by 2027 in steps while streamlining numerous VAT exemptions based on systematic reviews, increasing excise rates on alcoholic and tobacco products while broadening the base, and rationalizing tax incentives by streamlining tax expenditures based on comprehensive periodic reviews,” it said.

Also, the Fund urged the Federal Government to step up the implementation of tax administration reforms and welcomed the steady performance of the tax automation system (TaxPro Max).

It recommended further stepping up efforts to expand coverage under a well-designed roadmap and strengthen taxpayer segmentation centring on the Large Taxpayer Offices (LTOs).

“In the medium-term, the authorities should develop a compliance improvement programme and comprehensive customs modernisation programme, improve the effectiveness of the State Internal Revenue Service’s administration of the Pay-As-You-Earn (PAYE) system, and strengthen inter-agency coordination and data sharing,” the IMF stated.

Reacting to the IMF recommendations, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf faulted such a move considering the present economic conditions of the country, calling instead for attention on critical challenges such as Forex and energy deficits.

Muda, who doubled as the former Director-General, Lagos Chamber of Commerce and Industry, said IMF’s recommendation is impossible due to the country’s economic realities.

He listed the problems of foreign exchange, lack of loans and enabling a working environment for businesses to strive.

“This is not possible due to the current situation in the country.

“Because if we increase VAT this time, it will worsen the poverty situation. And it’s also going to further complicate business challenges, particularly the Small and Medium Enterprises (MSEs).

“So, at this time, we need to sort out some other more fundamental economic issues like the Forex issue.

“I know there is an issue about Forex. Let’s sort out our energy issue.

“If we’re able to deal with at least those two, we can now be talking about reviewing VAT, and if we are going to check it, it is not to take it up by 100%.

“But as for timing, I don’t think it’s appropriate to put an unnecessary burden on both the citizens and Businesses.”

Also, a Professor of Management and Accounting at Lead City University, Ibadan, Godwin Oyedokun, said IMF’s recommendation would spell doom for Nigerian citizens.

He disclosed that the recommendation would mean the government is taxing poverty because most Nigerians are poor.

Instead, the University Don said the government should look for means to bring more citizens into its tax net.

“The issue of IMF recommendation is not new to Nigeria. The international community’s advice is something we should take seriously, but that doesn’t mean we should accept the advice.

“As a professor and Economist, to the extent of my public affairs knowledge, increasing VAT from 7.5% to 15% in this current Nigeria situation means taxing poverty.

“Because people don’t have money and you still want to tax them, you are taxing poverty.

“I would suggest that those charged with tax collection, FIRS, should look for a way to capture other people, not in the tax net”. If 10% of Nigerians are paying tax, only this category would still pay the tax increment.

“Increasing the tax by close to 100% will reduce the disposable income of citizens, and increasing the tax rate in a period of inflation or recession is not ideal. Government should stop wastage by doing so the 7.5% tax increase could be gotten without necessarily imposing it on existing taxpayers”, he said.

Similarly, the Deputy National President of the Nigerian Association of Small Medium Enterprises (NASME), Prince Ajisefinni, said it is not the right time to venture into such economic policy.

Ajisefinni argued that the country’s economy is in terrible shape.

“The IMF recommendation to Nigeria is good, but the Federal government shouldn’t implement such at this period of hike inflation,” he said.

Recall that last week, the National Bureau of Statistics, NBS, Multidimensional Poverty Index report stated that 133 million Nigerians live in misery; this is when Nigeria’s inflation jumped from 20.77% to 21.34%.