Nigeria: Proposed VAT Increase to Raise Consumer Prices, Inflation

The Nigerian Senate

Nigerians may have to brace for the tough times declared by President Muhammadu Buhari, following the Federal Government's proposed increase of Value Added Tax (VAT) by between 35 and 50 per cent.

If the Senate approves the proposal, VAT will rise from the current five per cent to between 6.75 and 7.25 per cent, with implications for prices of goods and services, which are expected to rise, spiking inflation and depressing consumer spending.

Already, operators in the organised private sector are worried that the proposed increase, expected to come into effect before the end of the year, will further affect the economy that has been described as struggling, even as firms are exploring measures to transfer costs to consumers.

With the review of excise duties on alcoholic beverages and carbonated drinks for instance, many manufacturers are struggling to pass on the cost to consumers who are already seeking cheaper alternatives.

Indeed, the latest inflation figures by the National Bureau of Statistics (NBS) show that the Consumer Price Index decreased to 11.31 per cent (year-on-year) in February from 11.37 per cent recorded in January, while on a month-on-month basis, the headline index decreased to 0.73 per cent by 0.01 per cent points from 0.74 per cent recorded in January.

The chairman of Federal Inland Revenue Service (FIRS), Babatunde Fowler, dropped the hint when he appeared alongside other top officials in the Federal Ministry of Finance before the Senate Committee on Finance in Abuja, to give details of the 2019-2021 Medium Term Expenditure Framework and Fiscal Strategy Paper.

According to him, the impending VAT increase is one of the areas being looked at by FIRS to meet its 2019 revenue generation target of N8 trillion. Fowler argued that Nigeria has the lowest VAT compared to neighbouring countries.He said: "By the end of this year, we should be ready for increase in VAT. A lot of Nigerians travel to Ghana and other West African countries and they can see that theirs is much higher. And they pay when they go for those trips. We should be ready for an increase in VAT.

"I can certainly see an increase in VAT of at least 35 per cent to 50 per cent this year, based on our enforcement activities. There certainly will be an increase in Company Income Tax (CIT) and also on Petroleum Profit Tax (PPT)."Reacting to the development, the Manufacturers Association of Nigeria (MAN) described the move as one that would compound the economic woes of the nation.

The MAN Director General Segun Kadir said the association has always kicked against increment in VAT, noting that while it understands government's need to raise revenue, other avenues should be explored.The Director General of the Lagos Chamber of Commerce and Industry (LCCI) Muda Yusuf also noted that times were hard for businesses and this was not the best period for an increase in VAT.

"Many businesses are struggling to remain afloat and these businesses are expected to raise jobs. Rather than increase rates, government ought to broaden the tax net. The increment will increase prices, spike inflation, reduce profit margins for businesses as not many businesses can transfer this cost to consumers as consumers are already resisting hike in prices," he said.

Meanwhile, the Senate yesterday passed the new minimum wage bill, which pegged the salary for the lowest category of workers in Nigeria at N30,000.It called for a review of the Revenue Sharing Formula (RSF), a move state governments say would give them greater financial power to implement the new wage.

The upper legislative chamber further concluded debate on the general principles of the N8.83trillion 2019 budget proposals and referred the same to its committee on appropriation.It directed the committee to submit a report on the budget bill for final approval by the Senate within two weeks and urged all ministries and government agencies to show up at the National Assembly to defend the proposed budget for their agencies.

The organised labour welcomed the approval, urging Buhari to ensure immediate assent to the bill.The Deputy Secretary General of the United Labour Congress (ULC), Chris Onyeka, told The Guardian: "We commend the upper chamber for keeping to its promise by approving the bill. What we expect is for Mr. President to give a presidential assent to the wage bill. Nigerian workers have suffered so much. We expect him to sign the bill as quick as possible, even before the end of this week, so we'll know he has us at heart."

The Nigeria Labour Congress (NLC), through its acting president, Amechi Asugwuni, also lauded the move and challenged state governments to brace up for the new reality, even as it implored the president to give speedy assent to the bill.While giving kudos to the Senate, the Oyo State chairman of Trade Union Congress (TUC), Emmanuel Ogundiran, however prayed that the new wage would be sustainable.

See What Everyone is Watching

More From: Guardian

Don't Miss

AllAfrica publishes around 600 reports a day from more than 150 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.