FG’s new ‘revenue at all cost’ drive will hurt economy – Analysts
With the commencement of the implementation of the revised Value Added Tax (VAT) at 7.5 percent at the weekend, the Federal Government has given a new impetus to its recent non-oil revenue generation drive in recent times.
Apparently, the Federal Government has not left anyone in doubt about its determination to substantially reduce budget deficits by exploring revenue opportunities in the non-oil sector to improve the capital budgets performance and by so doing make the Nigerian economic space more conducive to entrepreneurship and improved welfare of the citizenry.
For instance, apart from the increased VAT rate, the fiscal authorities have mulled the idea of introducing telecom tax, toll gate fees, e-commerce tax, hike in vehicle import tariffs, removal of fuel subsidy and lately embarked on legislative steps to update provisions of major tax legislations amongst sundry options being explored to raise additional revenue to meet growing expenditure demands..
Specifically, the most broadscoped in the legislative initiatives was the Finance Bill 2019 which President Muhammadu Buhari signed into law on January 13, 2020. The Act seeks to amend seven extant fiscal laws, namely the Customs and Excise Tariff Tax Act, the Petroleum Profit Tax Act, the Company Income Tax Act (CITA), the Personal Income Tax Act (PITA), the Value Added Tax (VAT) Act, the Stamp Duty Act and the Capital Gains Tax (CGT) Act in order to enhance their revenue generation potential for the country.
While many analysts have identified many positive intentions of the government in enacting the Finance Act, they also believe that aggressive pursuit of revenue without taking due cognizance of the macroeconomic constraints facing businesses and consumers (income earners) will invariably hurt the economy and reverse its recent slow growth trajectory after a depressive era.
Speaking to Daily Trust on the fiscal steps by the government and implications for revenue growth, a tax consultant and seasoned tax administrator, Mr. Mark Dike, noted that tax administration could be likened to chicken and egg relationship, noting that “it is sad that over the years, millions of ordinary taxpayers have not been enjoying the benefits of tax compliance while the so called wealthy Nigerians avoid taxes and yet enjoy all the benefits associated with tax payment.
Dike, a former President of the Chartered Institute of Taxation (CITN), who recalled the various policy measures undertaken by successive administrations to raise revenue through taxation, lamented that with just a little over 200 billionaires paying taxes while several thousand others default, the preponderance of generated revenue from taxes was being used to finance the wealthy in the society without taking care of the basic needs of the citizenry.
The tax expert said: “There is no gainsaying the fact that taxes, especially nonoil taxes, are key to Nigeria’s sustainable development. It is like the chicken and egg story. Without taxes, there can be no development. But the problem we have is, those who pay taxes don’t enjoy the benefits here. What you have is a situation where the wealthy, or what I call ‘flight by night wealthy people” that don’t pay taxes are the ones enjoying the benefits through contract awards and patronages in one form or the other that are not adding value to the economy.
“We have amended the various tax laws and applicable tax rates on personal income and those of enterprises, yet the effects of such measures are being hardly felt today. So, if government wants to be fair to taxpayers, it should ensure that additional revenues being raked in from these taxes are committed to projects that will bear directly on the well-being of ordinary Nigerians”, Dike advised.
Citing the experiences in the Niger Delta region to justify his viewpoints, the tax expert canvassed tax justice as a fiscal imperative for government in that tax “induces demand by citizens for accountability, performance and fairness from government.”
Speaking on the position of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), the Director General, Ambassador Ayoola Olukanni, while commending the two arms of government on the swift passage of the 2020 budget, noted that the budget deficit continued to rise just as foreign debt had been estimated to increase by 64 percent based on the 2019 budget in the 2020 fiscal year.
The industrialist, who quoted figures of the estimated variances in the 2019 and 2020 budget deficits, capital budget provisions vis-a- vis recurrent expenditures and the debt stock, expressed the association’s position that the GDP growth projection of 2.93% was highly “optimistic” but achievable.
On the fiscal measures to improve non-oil revenue, Ambassador Olukanni said the organized Private Sectpr (OPS) group appreciated government’s recognition that the performance of Value Added Tax is dependent on the level of economic activity, adding that as such, the group wishes to re-emphasize its position “that government’s policy focus should be on increasing the level of economic activity as a way to generate revenue from taxes.”
According to him, NACCIMA notes that “the government has adopted a oil price benchmark of US$57 per barrel, a daily oil production estimate of 2.18 mbpd and an exchange rate of N305 per US dollar for 2020, warning that this statement appears at odds with Nigeria’s current crude oil output at 1.69 million barrels per day and contradicts the position of the
Minister of State for Petroleum Resources which assures the Organization of the Petroleum Exporting Countries (OPEC) of Nigeria’s commitment to comply with OPEC’s new production quota of 1.774million barrels per day.
In his concluding remarks, the former Nigerian diplomat, maintained NACCIMA believed “that expanding the tax net, implementing tax reform, and ensuring robust tax administration while promoting and facilitating productive economic activity will contribute greatly to increasing government revenues with less negative impact on the economy”.
Speaking on the tax measures, the immediate past chairman, the Nigerian Association of Small and Medium Entrepreneurs, (NASME), Lagos Chapter, Mr. Solomon Aderoju, said that though SMEs with less than N25 million annual turnover threshold were exempted from VAT payment, they will still be affected indirectly, as some of their major raw materials may be sourced from big suppliers who are subjected to payment of new VAT rate.
According to him, the only way out for SMEs is to source their raw materials and other input from other similar SMEs, which may not be possible at all times. Aderoju stressed that doubtlessly, the increase in all taxes will have negative effect on the economy. There will be increase in the cost of production, rate of inflation, among others.
The SME entrepreneur advised that “as part of fiscal measures to mitigate the effect of tax burden on SMEs nationwide, government should resolve the issue of infrastructure deficit, improve the ease of doing business, create new industrial and capacity building skills development centres and promote the marketability of locally produced goods.”