Can VAT increase lead to ‘Yellow Vests’ protest?

BY TOPE AKINYODE

Nigerian workers always posit that “their take-home pay does not take them home”. Such is the tale of the Nigerian worker – who lives miserly because he earns poorly. The Federal Government of Nigeria has now remarkably increased workers’ minimum wage.

The government has hinted that it will increase Value Added Tax (VAT) to fund the new wage. This suggests that government has no sufficient funding for national expenses which spurs certain necessary logical inquires: Given that citizens pay taxes to fund public utility, then, what exactly gulps government’s spending? Has Nigeria maximized revenue potentials and why so, if not? Also, should VAT increase?

Some countries have revenue problem, some others, have spending problem only. Nigeria has both. Additionally, Nigeria undergoes another third problem of a dangerously accelerating debt profile. Public debt accrues to N24.4trillion, presently. In three years only, external debt soared by $11.77bn at a percentile rate of 114.05 while over 50% of Nigeria’s revenue goes to debt servicing.
The reality of a nation having to badly survive on borrowed money speaks volume of an ailing economy.

For a stretched epoch, the dominant source of Nigeria’s revenue has been the crude oil. Once, the country accrued significant revenue through agriculture but the crude oil soon displaced it. Inescapably, need arose to diversify income due to the volatility of oil prices globally.

Government implemented tax laws and tax reform policies intermittently. VAT was introduced, FIRS launched electronic tax remittance system, recently, government established the Voluntary Assets and Income Declaration Scheme (VAIDS) through which it purposed to generate USD1 billion by waiving criminal prosecution and other penalties for taxpayers who willingly report undeclared income.

Despite the reforms, nothing really has changed. Tax remittance is yet enmeshed in long-drawn-out procedures, tax laws and tax policies are disjointed and cumbersome, there is low tax education as a result, also; multiplicity of taxes and ultimately, revenue is yet low.

VAT is charged at 5% presently; a rate which government has argued is low. But given Nigeria’s economic condition, there are no justifications to increase the rate. According to Steve Hanke, Nigeria ranks sixth most miserable country in the world, world poverty clock says more than 91 million Nigerians, close to half of the country’s population, live in extreme poverty and every one minute, six Nigerians become poor. VAT is tax charged on the purchase price of a commodity. With VAT increase, prices of goods and services are bound to soar and such decision would be ill-intended and detrimental.

The therapy to the dwindling Nigerian economy is for the country to urgently refashion itself to become a competitive producing economy. Any nation must solve three basic life problems; what to produce, how to produce and for whom to produce. Need for goods and services cannot end. Nations which meet these needs acquire economic strength. During the period of oil boom, Nigeria garnered massive wealth, because it met the oil demand, even though in crude form.

Notably, industrialization fuels production because earth-moving vessels will outdo easily, cheaply and quickly too, what a hundred people will do manually. To gain technical know-how into the workings of complex machines and to be able to build new ones, human capital is essential. This is why qualitative education is non-negotiable for Nigerians. Education should be accessible for all and schooling curriculum should tilt towards technical and technological brainstorming. That way, Nigeria’s vast population would become its fortune.

Taxation can even turn in more. Strategic coalesce of the numerous tax categories would enhance simplified tax procedures and tax education. The law should also fully have a free course against tax evaders.

Much as Nigeria needs revenue boosting, the country needs to be circumspect with spending; and this is a problem with both government and citizens. Enough of depleting foreign reserve by importing $18 million toothpicks yearly or $400 million tomato pastes or ridiculously continuing to import Pizza from the UK. The country has to drop the inglorious notoriety of running an expensive government at the expense of a meteoric debt profile.

There is a limit to which any government anywhere in the world may forge ahead with an adverse policy under the guise that implementing such policy is in the best interest of the people. When President Macron of France declared that a climatic policy would inform fuel tax increase, the president’s popularity quickly declined, citizens finding the tax policy unfavorable. In no time, rowdy crowd wearing Yellow Vets littered France in protest.

Raising VAT to fund wage increase is mixed blessing and whether yellow vests or a yellow card; it will elicit a thumbs down from the Nigerian masses that are already bearing the brunt of economic hardship and need rescue.

Akinyode, a transactional lawyer, is based in Lagos. Contact him via [email protected]