By Chinweoke Akoma
Reactions have continued to trail the new Value Added Tax (VAT) rate of 7.5 per cent which arguably took effect immediately the Finance Bill 2019 was signed into law by President Muhammadu Buhari last week.
Although, the Minister of Finance, Budget and National Planning, Zainab Ahmed, contradicted the Accountant General of the Federation, Ahmed Idris, on the effective date for the implementation of the new 7.5 per cent rate for the Value Added Tax (VAT) in the country.
The major highlights of the law are the review of the VAT rate from 5 per cent to 7.5; the reform of domestic tax laws to align with global best practices (such as taxes of digital business and e-commerce) and introduction of tax incentives for investments in infrastructure and capital markets. Sunday Vanguard sought the views of Martin Onovo, a former presidential aspirant and Head, Policy Positions, Movement for Fundamental Change, on the controversial increase in VAT rate as well as rising national debt. Excerpts:
What is your take on the increase in the Value Added Tax (VAT) rate to 7.5 per cent and the Finance Act 2019 which has just been signed into law by President Muhammadu Buhari?
The official reason for the increase in VAT rate is to increase tax revenue for government at the various tiers in Nigeria. This is too simplistic an assumption and inappropriate as it could actually result to less tax revenue for government at the various tiers if sales drop significantly due to the general increase in prices.
The associated inflation will surely result to increased poverty, crime and all other undesirable consequences of macro-economic instability which Nigeria has been suffering from since this government took over power and wrecked the Nigerian economy. Usually, increase in corporate taxes result to decrease in both profits and investments of companies, thereby stifling economic growth. In that way, unemployment may also increase as companies may choose to cut personnel as a way to maintain their profitability levels.
This government has shown unprecedented wastefulness, incompetence and massive corruption in the conduct of its activities. If the government had taken a few strategic policy actions to increase productivity, it would be sure of increased tax revenue from increased economic productivity and higher GDP.
As things are, with this increased VAT rate, the costs seem to clearly surpass any possible marginal benefit which confirms that the decision is unwise and incompetent as has become characteristic of this government. The costs include increasing inflation, unemployment, poverty and crime. This increase in the VAT rate surely represents another incompetent policy decision of this government that has catastrophically failed Nigerians. Such incompetent decisions taken in the last four years are clearly responsible for the poor performance of the Nigerian economy since the regime took over power.
Are you not worried about the country’s rising national debt?
A debt trap is a situation where an entity is unable to pay its debt. The reckless and unpatriotic borrowing of this government led by Buhari has landed our country in a large debt trap that we could have easily avoided. It will be extremely difficult to extricate our country from this debt trap now. Currently, we are borrowing to pay our debts and so our national debt burden is rising rapidly towards a debt crisis.
The Buhari-led government must be held responsible for this awful situation. Total national debt as of June, 2015 was about N12.1 trillion. As of December, 2019, however, it had grown to about N26 trillion. This represents a growth of 117 percent in 54 months.
Similarly, our Federal Government debt obligations budget has grown from N0.943 trillion in the 2015 budget to N2.75 trillion in the 2020 budget. This represents a growth of nearly 200 percent in debt obligations budget in a short period of just 5 years. This confirms the ruination of the Nigerian economy that we predicted publicly in 2016. The false claim that the borrowed sums would be used for infrastructural development has been exposed as no new refinery or dam or seaport or power station has been completed since 2016.
In the desperation of the Buhari government to further salvage the Nigerian economy, it recently obtained the approval of the rubber-stamp Senate of the Federal Republic of Nigeria to borrow additional tens of billions of US dollars.
Unfortunately for us, this unpleasant debt situation is further aggravated by this obsession for reckless and unpatriotic borrowing.
Unless there is a miracle, Nigeria will surely land in a debt crisis by 2023.