Experts warn against another VAT increase

EFrom XPERTS have warned the government against increasing value- added tax ( VAT) in a desperate move to increase public revenue.

The Fiscal Policy and Tax Reform Committee led by Taiwo Oyedele, in its 2024 National Tax Policy ( NTP) proposal submitted to the government, proposed among other things, an increase in VAT to generate more revenue.

Earlier in March this year, an international business research firm, Economist Intelligence Unit ( EIU), in its Country Report, predicted that the federal government could raise the VAT to 15 per cent from the current 7.5 per cent to enable it to fund its fiscal deficit and debt service obligations.

This comes as Nigeria is currently weighed down by a high debt burden amounting to N97.34 trillion and is expected to rise to over N107.38 trillion by the end of 2024 following the approval of fresh borrowings.

The country is also facing a heavy debt service obligation, which the International Monetary Fund ( IMF) says is gulping 56 per cent of Nigeria's tax revenue.

However, some economists believe that the VAT Increase could be an additional burden on investors and businesses already grappling with the challenge of multiple taxation and impact adversely on profit margins, investment growth, consumer purchasing power and competitiveness.

Professor Godwin Oyedokun of Lead City University said raising the VAT is a complex issue with both potential benefits and drawbacks, especially considering the current inflationary environment.

He said: "Though a higher VAT rate would generate more tax revenue for the government which could be used to fund social programmes, infrastructure development and other public services are likely to pass on the increased VAT costs to consumers through higher prices, potentially fueling inflation.

“This would disproportionately hurt low- income earners who spend a larger portion of their income on necessities.”

He said that rather than increasing the rate, the government could focus on improving VAT collection efficiency to capture a larger share of the existing tax base.

"The government can also expand the range of goods and services subject to VAT. That could generate additional revenue without necessarily increasing the rate," he said, adding that the government could identify areas where spending can be reduced, freeing up resources for essential services.