Don't Miss


Home   >   Taxation   >   Finance experts disagree with RMAFC on tax increase

Finance experts disagree with RMAFC on tax increase

By on July 18, 2016

Stakeholders, including a renowned economist, Mr. Bismarck Rewane, have disagreed with the Revenue Mobilisation Allocation and Fiscal Commission on its call on the Federal Government to increase Value Added Tax rate to between 7.5 per cent and 10 per cent.

They said the government should rather focus more on boosting tax collection in its bid to shore up revenue.

VAT is a consumption tax payable on goods and services consumed by any person, whether government agencies, business organisations or individuals. It is currently levied at the rate of five per cent in the country.

The International Monetary Fund recently advised the Federal Government to increase VAT rate gradually. Its Managing Director, Christine Lagarde, who visited the country in January, had urged the government to raise the tax.

But Rewane, who is the Chief Executive Officer of Financial Derivatives Limited, in a telephone interview with SUNDAY PUNCH, described the RMAFC’s call for VAT rate hike as a suggestion that might yield no viable result.

He said, “The rate of VAT and the collection rate are two different things. It is revenue collection that is low and not the rate. The rate of tax compliance is low in Nigeria and, if anything, your compliance increases as your rate reduces.

“It is how much that is collected as percentage of total revenue, not the tax rate that is the problem. Even if you increase the tax rate to 100 per cent and you don’t collect it, you will get nothing.”

Rewane said raising tax rate was not necessarily the way to go in a bid to increase government’s revenue.

He said, “Increasing the collection is more important than VAT rate; if you lower the rate, you will collect more because people’s compliance is higher, the lower the rate.”

The Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, said, “I don’t think the time is ripe for that kind of review because the pressure on business and even on the citizens at this time is excessive; it is almost unbearable. You can see the level of unemployment. You can see the challenges businesses are facing with exchange rate depreciation and high energy cost.

“Consumer spending is declining. Cost of production is going up. So, I don’t think it is expedient at this time. There may be some merits in it theoretically. But in the current social and economic context, I don’t think the time is ripe for it.”

Yusuf said the cost of transportation had gone up on the back of the recent hike in fuel prices.

The LCCI DG said, “Unless they want to reduce some other taxes such as Pay As You Earn and corporate tax and then raise VAT; maybe that can fly. When they say they are comparing with other countries, do
you know the kinds of
public transportation they have in those countries? They have public hospitals and schools that are functioning.

“Increasing the VAT rate will affect everybody across board. Things are so bad now. Already, there is a lot of consumer resistance. Consumer spending is dropping. Cost of production is increasing. It is double jeopardy.”

He said the government should concentrate more on the efficiency of tax administration for now, adding that efficiency could bring about improvement.

The Chairman, Trade Union Congress, Rivers State chapter, Mr. Chika Onuegbu, said the idea of increasing VAT rate was completely unacceptable.

“We are even saying the five per cent is too high. The RMAFC is not doing its job properly. If it is doing its job properly, it would not allow states to have uncountable number of aids, being paid so much.

“Is the commission not concerned that the ease-of-doing business in Nigeria is very low and that a lot of companies are relocating to Ghana and other neighbouring countries?”

The Chairman, RMAFC, Mr. Shettima Gana, had on Thursday said at a national revenue retreat that the increase in VAT rate would help the government improve the country’s revenue base.

Gana lamented that Nigeria’s current VAT rate of five per cent was one of the lowest in the world.

Backing his argument with statistics, the RMAFC boss said South Africa currently had a VAT rate of 14 per cent, while Togo, Senegal, Guinea and Chad, all charged 18 per cent as VAT on goods and services and Niger Republic, 19 per cent.

Gana said, “Current tax rates, charges and fines should be reviewed upward. One of such rates is the VAT rate. In fact, Nigeria’s VAT rate is known to be among the lowest in the world.

“An upward review from the current five per cent to between 7.5 per cent and 10 per cent is, therefore, recommended to increase its yield.”

 

[Punch]