Facts About Value Added Tax (VAT) Increase

The problem with the VAT increase, like many of President Buhari’s policies, is the timing of the announcement. You cannot greet your supporters with tax increase on the day of your tribunal victory. It is insensitive to a level approaching contempt.

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President Muhammadu Buhari of Nigeria

Apart from that, the VAT increase is a direct reaction to the new minimum wage. The Federal Government and most especially our States, do not have the money to pay the new minimum wage. When you increase the minimum wage by 67%, you expect measures such as this from the government.

Our States are the biggest beneficiaries of the VAT increment. 50% of the total VAT accrued is divided among our 36 States, 35% goes to the Local Governments, leaving the FG with only 15%. Looking at how the States manage LG funds, it is safe to assume that 85% (50% + 35%) of VAT goes to state governors.

You see, Nigeria has low income taxes and at the same time a very weak enforcement mechanism because an overwhelming portion of the economy operates informally. This leads to a wide spectrum of Nigerian income owners outside the tax net.

The debate over taxation is like the egg and hen debate. The government needs taxes to be able to provide basic services and invest in infrastructure to create jobs and opportunities.

The citizens on the other hand, need to see some level of development to convince them that paying taxes reap some collective benefits. Which one should come first is at the heart of the public policy debate.

Looking at how public officials mismanage the little resources around, Nigerians are not convinced that any taxes paid will not suffer the fate of other revenues, to be stolen or mismanaged by corrupt and incompetent public officials without any consequences.

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Unfortunately, this non-tax-paying orientation is responsible for our I-don’t-give-a-damn attitude. Paying taxes confer some sense of collective ownership and create an active citizenry.

Imagine paying 30 – 50 of your monthly salary on taxes, you will work to ensure you get the best services from the government. We don’t have the I-am-a-taxpayer mentality here and the unwavering expectations of service quality and availability that comes with it.

I hear a lot of noise behind the ban on foreign rice. The truth is, our country cannot progress without some form of economic nationalism and protectionism.

We have seen how the Trump administration is banning Huawei to protect US telcos, and how it employs tariffs to protect US farmers and manufacturers.

Policies like that usually make some people (farmers) better off at the expense of other citizens, but in the long long-run, it could be good for the economy and for everyone.

Policies like that require some amount of sacrifice from the public. A leader needs to inspire confidence in the citizenry to enable them make those sacrifices. Above all, a leader needs to fulfill his own side of the bargain side by side that of the citizenry.

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If Nigerians are required to cut down their consumption of foreign rice and other foreign goods in favor of local substitutes or pay higher VAT, then the government also needs to cut down some of its luxuries.

Nigerians have always made those sacrifices. Whether it is in the form of fuel subsidy removal, hike in electricity tariff or tax increases.

Since 1999, every anti-poor decision is made with the promise that the pains are temporary and lasting gains will soon surface. Yet, those promised economic gains continue to remain elusive as each successive administration leaves power with more problems than it inherited.

In a country where the presidency still maintains a fleet of private jets, where lawmakers budget billions of naira to buy luxury cars and where tales of official profligacy travel far and wide, it is difficult to convince Nigerians that this new VAT increase and other austerity measures are not merely attempts by the government to force poor Nigerians to service the luxuries of public officials.

By Ahmed Musa Hussaini

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