Nigeria: Outrage As Senate Approves 50% VAT Hike

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Value Added Tax - VAT
22 November 2019

Business owners and financial experts have condemned yesterday's passage of the Finance Bill which seeks to amend seven Acts of the National Assembly relating to taxes payable in the country.

The bill specifically seeks to hike the Value-Added Tax from five percent to 7.5 percent.

The Federal Executive Council had in September this year approved an increase in VAT and sent a bill to the National Assembly for consideration. President Muhammadu Buhari later on October 14 sent the bill to the legislature.

The bill was passed yesterday after a clause-by-clause consideration of the report of the Committee on Finance.

The chairman of the committee, Senator Olamilekan Adeola, said the bill specifically sought to amend Nigeria's tax provisions and make them more responsive to the tax policies of the Federal Government, among other things.

He added that the amendment and the passage of the bill would enhance the implementation and effectiveness of government's tax policies.

He said the initiative was to reform the tax system, adding that the proposed modifications to the fiscal rules around taxation were clearly aimed at creating an enabling business environment to minimize the tax burden for Micro, Small and Medium Enterprises.

Senate Minority Leader Abaribe Enyinnya and Senator Gabriel Suswan rejected the VAT increase, saying it would bring hardship to Nigerians.

Senate President Ahmad Lawan said the bill's passage was not partisan, but purely intended to streamline the tax system in Nigeria and get revenue for government to provide services and infrastructure to the citizens.

But industrialists and experts rejected the idea of a possible increase in the rate VAT, saying it will add to the hardship of Nigerians.

The Director General of Manufacturers Association of Nigeria( MAN), Segun Ajayi-Kadiri argued that the increase is ill-timed.

He said whilst it is ostensibly aimed at increasing the revenue portfolio of government, it will impose significant burden on the private sector and on the average Nigerian.

He also said the effect on market operations, especially the informal sector, will also be high.

Similarly, the Director General of Lagos Chamber of Commerce and Industries (LCCI), Muda Yusuf said that the upward review of the VAT at this time will hurt businesses, the economy and citizens.

According to him, many businesses are currently grappling with high production and operating cost which has made sustainability difficult for many enterprises. He noted that there is also pressure of costs driven by high interest rate, huge logistics cost, high energy cost, and high regulatory compliance costs.

To ensure fiscal sustainability of the government, he stressed that it is important to address issues of the cost of governance; stating that the recurrent expenditure of government is too high while cost of governance is humongous.

He therefore said there is need to prune both overheads and personnel costs; adding that the reform of the oil and gas sector would also boost revenue through the attraction of new investments.

The Abuja Chamber of Commerce and Industry (ACCI) rejected the idea, saying that already Nigerians were paying enough.

"Nigerians, particularly those engaging in SMEs activities are already overburdened with tax. It will further make doing business in Nigeria harsher and also increase the cost of production and services," the ACCI said.

An economist, Dr. Chijioke Ekechukwu, told Daily Trust that what the FIRS needed was not to increase taxes.

Dr. Ekechukwu, who is a former Director General of the Abuja Chamber of Commerce and Industry (ACCI), sad if VAT were increased, the inflation rate would jump again.

The Executive Director of the Civil Society Legislative Advocacy Centre (CISLAC), Auwal Musa Rafsanjani, said VAT increase was not fair because the wages and salaries in Nigeria are not reasonable to keep decent living.

"In a situation where social services are not working, life and living conditions will get worse and poverty will be increased," he told Daily Trust.

A Shoemaker and CEO of Shoespeed Interglobal Services Limited, based in Lagos, Abiodun Folawiyo, said in developed countries like Italy where SMEs have electricity, good roads, access to funding and more, people do not mind when government charges exorbitant taxes because entrepreneurs know what they will do with it.

"But in Nigeria, the money they collect from us, you hear that someone stole N30 billion. So, the tax they collect is not being translated to good use to provide infrastructure. There is no efforts by government to fix infrastructure in the country that will translate into reducing the Ease of Doing Business," he said.

Similarly, another entrepreneur, Mrs Ekaette Umoh said government has no basis for increasing tax when it has not improved on infrastructure to create enabling environment for SMEs.

The CEO of Dolphin Restaurant and Catering Services Chef Nneka Agbo said the consumers are going to feel the impact of the tax more.

A Senior Economist with SPM Professionals, Mr Paul Alaje, said many SMEs will close shops as a result of this increment.

Group Managing Director, Afrinvest West Africa Limited, Ike Chioke, said what the country needs to move forward is not the increase in VAT but a concerted efforts at reducing cost of governance.

Chioke said, "Even if the 7.5 per cent VAT proposed increment is approved by the National Assembly, the amount will be immaterial. We need to reduce cost of governance or we must increase revenue."

He argued the need to improve on the performance in key sectors of the economy in addition to a general adjustment in its structural forms.

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