Long after the Federal Government mulled the idea of increasing the Value Added Tax (VAT) rate, the Minister of Finance, Hajia Zainab Ahmed, announced on September 11 that the Federal Inland Revenue Service (FIRS) will be increasing VAT from 5% to 7.5% by the year 2020.
At a chat with the National Assembly in March, the FIRS chief, Babatunde Fowler, suggested that the VAT rate in Nigeria is one of the lowest in the world with a Tax-GDP ratio of 4.5%. He also hinted that the new minimum wage which the FG was negotiating with the labour unions would most likely be funded with more revenue generated by the government through a VAT hike.
Now that the Federal Executive Council (FEC) has approved the increase in VAT rate, all that is left before Nigerians start paying the new 7.5% on all service exchange transactions in the country is for the National Assembly to repeal the VAT Act of 2004 enabling the current 5% and update it with the one bearing the proposed 7.5%.
Nigerians from different quarters have since teamed up in criticizing the idea as one intended to impoverish Nigerians the more. Some experts have even opined that the proposed hike will kill businesses the more. Renowned lawyer and human rights activist, Femi Falana (SAN) in a socialist stance meant to protect the interest the interest of low-earning citizens whom the new tax policy may adversely affect, has also joined others in condemning the move by the Federal Government (FG).
While the FG has always condemned the low tax-GDP ratio in Nigeria, Nigerians on the other hand are likewise critical of any increase in the tax rate for their own sake. Many Nigerians may have forged an isolationist tendency over years as they struggle to experience any dividend of democracy which the government is supposed to deliver to them. If there is no consensus reached on this, there will hardly be compliance. The worst case scenario may leave many wanting to avoid anything which will make them pay VAT.
But critics of the move may be overreacting about the proposed tax hike after all. Since the current administration of President Muhammadu Buhari assumed power, there is an attendant glut in the revenue being generated by government since the crash in crude oil prices which Nigeria derives a huge chunk of its revenues from. Admittedly, the government has not been doing enough to be creative about increasing revenue through non-oil and non-tax sources, but this should not also be a reason for citizens to shy away from paying proper taxes where necessary.
The crux of the problem here is that a lot of Nigerians are not happy with the government prying their hands open for any funds whatsoever as long as the provisioning of basic amenities and needs are not initially addressed.
The government may, therefore, need to live up to the status expected of advanced economies in the world where taxes are treated with less levity before they can boldly demand for tax reforms too. And for Nigerians, in fact, to expect the government to step up to full accountability, they must also ensure that they are faithful to their duty as citizens not to cheat the government of the revenue due it through taxes.
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