Nigeria search for new revenues to finance its planned new minimum wage may have adverse effects on the country economic, considering the fact that Value-Added Tax (VAT) hike will reduce the purchasing power of the citizens, leading to increase in prices of goods and services.
Additional revenue from the tax hike will result in upward movement of the inflation rate, and further contraction of the economy.” .
Tax expert noted that because VAT on capital expenditure was not allowed as a credit in Nigeria, the cost of real investments would go up.
On the positive side, “Additional VAT revenue will help reduce budget deficits, reduce government debt and fund social services especially at sub-national level.”
But to avoid the negative impact , VAT should be paid according to individuals’ ability as not everyone could afford a seven per cent VAT rate.
It is advisable for government to double its efforts begin discussions on medium- to longer-term efforts toward fiscal rehabilitation at expanding the tax net, reduce the income gap and improve the economy through more friendly fiscal policies and promote the ease of doing business in Nigeria.
Rather than increase the VAT rate at this point, Nigeria should formulate fiscal policies to stimulate economies.
If government must increase VAT rate against the will of the people, it should have been limited to luxury or ostentatious goods.
Recent released data of the Nigeria’s Gross Domestic Product indicated a contraction in the past two quarters (Q4 2018, 2.38 per cent; Q1 2019, 2.10 per cent and Q2 2019 1.94 per cent).
If people do not demand for goods because of more tax burden, it will affect the companies that produce them. And if the companies that produce them are not making money, it will obviously affect their profitability and income,
Nigeria economy needs to be helped by policies that will ginger more consumption and more disposable income for the masses. The paradigm has to change. Are we increasing tax just for the purpose of revenue or managing our fiscal policy taxation for growth? The paradigm has shifted from revenue-driven taxation to growth-driven taxation,” .
The approach must be holistic, obviously at a time like this when there is a seeming recession or coming out of recession. Government needs to pump up consumption; when you begin to tax expenditure just for the purpose of revenue, it will further dampen demand and affect businesses.”
A Value-Added Tax (VAT) hike would be a no-win proposition for Nigeria because it slow economic growth and destroy jobs . 7 percent VAT would cause the Consumer Price Index to jump by 5 percent, because it may not be in right direction for proper movement and encouragement in Companies Income Tax and Personal Income Tax.