Oil crisis: Why VAT increase may prove too dangerous for Nigeria
24 November 2014
Posted by: Author: Venture-Africa
Due to the impact of falling oil prices on Nigeria’s revenue, the government is once again mulling an increase on the country’s 5 percent Value Added Tax rate.
The outcome of National Economic Council (NEC) meeting held yesterday was a directive by the council to the Federal Ministry of Finance, Federal Inland Revenue Service, Joint Tax Board and the Office of the Attorney General of the Federation to commence the process of amending the Value Added Tax (VAT) Act with emphasis on the review (upward) of the VAT rate.
This is not the first time the Nigerian government has moved to increase VAT; last year, a proposal to raise VAT to 10 percent was met with stiff opposition by the public and criticism by some analysts. Because VAT is tax paid by the buyer of goods and services, an increment of the tax will directly lead to a rise in the purchase price of such commodities.
Nigerians, many argue, cannot afford such rise in prices given that they already struggle with inflated prices against their low disposable incomes. Over 30 percent of Nigeria’s 170 million people live below $2 a day.
Although denying that an increase in VAT was imminent, Nigeria’s Finance Minister, Ngozi Okonjo Iweala, told Reuters news agency yesterday that the country has the lowest VAT in the world at 5 percent. Her point of view is not new and has been contested by tax experts.
VAT increase will be counter-productive – expert – http://t.co/BOBEwa47pic.twitter.com/eAZOTYCL— Reporters365 (@Reporters365) January 18, 2013
Last year, an official of the West African Union of Tax Institutes, Chuckwuemeka Eze, told the News Agency of Nigeria that although Nigeria had the lowest VAT rate in West Africa, it also allows a multiple tax system unlike other countries, especially in West Africa. "Nigerians pay levies which are much higher than the normal taxes those in other ECOWAS communities pay. We pay levies, charges, rates and fees. All these are taxes”.
Eze also points to the harm an increase in VAT could have on the flow of investments as well as small and medium enterprises (SMEs). He advocated that the Nigerian government has to reduce the Company Income Tax from 30 to 20 per cent if it must increase VAT (to 10 percent). "If government increases VAT without reducing the company income tax, it will discourage investment and create more challenges for small and medium enterprises that drive the economy,” he said.
With Nigerians already feeling over-taxed, there are popular calls on the Nigerian government to work more on the inefficiencies in tax remission. Okonjo Iweala told Reuters the government is working to plug the tax loopholes in the country.
Thus, rather than planning a VAT hike, the Nigerian government would be better off cutting public financial excesses than causing any further hurt welfare of the people.
This article first appeared on ventures-africa.com.