Choice Editorial

FG should desist from planned increase of VAT

Recently, the Federal Government through the Minister of Budget and National Planning, Udoma Udo Udoma announced that Plans are underway by the Federal Government to increase Value Added Tax, VAT, by up to 50 per cent (from current 5 per cent to 7.5 per cent).

This move according to experts would stoke-up inflationary pressure on the economy. The move is coming as a measure to raise funds for the implementation of the new minimum wage passed into law by the National Assembly. Also to be increased, according to the government officials, are Company Income Tax, CIT, and Petroleum Profit Tax, PPT. These were disclosed, when the minister 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.

They hinted that the tax increases were inevitable, arguing that the new national minimum wage will further increase the size of the 2019 budget already in deficit, Fowler particularly told the Senator John Enoh (APC, Cross River Central) led Committee on Finance that the proposed payable VAT by Nigerians based on the increment would be between 35 per cent (6.75 per cent) and 50 per cent (7.25 per cent). The FIRS boss, who noted that the set goal of the revenue generating agency was to achieve N8 trillion revenue target this year, of which N3 trillion is expected from VAT, just as he puts total tax revenue for 2018 at N5.3 trillion; N4.03 trillion in 2017; and N3.31 trillion in 2016.

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Value added tax or VAT is an indirect tax, which is imposed on goods and services at each stage of production, starting from raw materials to final product. VAT is levied on the value additions at different stages of production. VAT is widely applied in the European countries. However, now a number of countries across the globe have adopted this tax system.

According to investpodia, VAT was first introduced in France as ‘taxe sur la valeur ajoutee’ or ‘TVA.’ In 1954, the French economist, Maurice Laure, the joint director of the French tax authority, the Direction generale des impost, initiated the concept of VAT, which came into effect on April 10, 1954. Initially introduced for large businesses of France, with the passage of time, VAT was employed for all business sectors of the country. In France, value added tax is considered to be one of the major sources of state finance.

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Value added tax, also known as goods and services tax or GST proves to be beneficial for the government. Through implementation of this tax system, government can raise revenues invisibly, where the tax is not shown on the bill paid by the buyer. VAT is different from sales tax in various aspects. While sales tax is to be paid on the total value of the goods and services, VAT is levied on every exchange of the product, so that consumers do not have to carry the total cost of tax.

More than 160 countries around the world use value-added taxation. In as much as it raises government revenues without punishing success or wealth, as income taxes do, and it is simpler and more standardized than a traditional sales tax, with fewer compliance issues. Critics charge that a VAT is essentially a regressive tax that places an increased economic strain on lower-income taxpayers, and also adds bureaucratic burdens for businesses.

Value-added taxation is based on a taxpayer’s consumption rather than their income. In contrast to a progressive income tax, which levies greater taxes on higher-level earners, VAT applies equally to every purchase.

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We therefore call on the Federal Government to as a matter of urgency have a rethink on the planned increase of Value Added Tax in the country. Already, the gap between the rich and poor is widening every day and the general feel that the government of the day is insensitive to the plight of the people will only exasperate with this unpopular and anti-people move. Government should rather come up with policies that will attract more investors to the economy and encourage both local and foreign direct investment in the country. We cannot afford to keep losing investments in the country going by the harsh taxation already in existence in the country as well as the mounting pressure to the economy occasioned by the increasing unemployment among the teeming young population in the country.

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