The Manufacturers Association of Nigeria, MAN, has said the proposed VAT rate increment was unfriendly to the manufacturing sector.
The Director-General of the association, Mr Segun Ajayi-Kadir, made the remarks in Lagos, in spite of the rebuttal from the Federal Inland Revenue Service, FIRS, on the issue.
Ajayi-Kadir also said the proposed VAT increment did not take into cognisance the prevailing times and ongoing government efforts to re-invigorate the economy.
The director-general said that as plausible as the recommendation to increase VAT looked, implementing it at this time would boomerang.
According to him, the timing is inappropriate, especially at a time when the minimum wage of N30, 000 was just agreed upon.
“This can send the wrong signals that the government is insensitive to the plights of the low- and middle-income earners, who are clearly in the majority.
“MAN still wishes to state the implication of carrying out such policy, if the alleged proposed increase in VAT is anything to go by. It will be seen as a typical case of government simply taking back what was given with the right hand through the National Minimum Wage with the left hand, through increase in VAT,” he said.
Ajayi-Kadir urged the Federal Government not to increase VAT at this point in time, but to consider the implementation of the other tax specific recommendations.
He also advised the government to continue to ramp-up support for the manufacturing sector in the best interest of the over 200 million Nigerians.
The director-general said that Nigerian economy would be in a more vulnerable state, if VAT should be increased now.
He said that the burden of the tax would be shifted to the Nigerian consumers that were already struggling.
In addition, Ajayi-Kadir said the economy would certainly experience demand crunch, inventory of unsold items would soar, profitability of manufacturing concerns would be negatively impacted, many factories would witness serious downturn or wound down operations.
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This would also worsen the already high unemployment position in the country.
“MAN as a strategic stakeholder in the nation’s development agenda, appreciates the need for government to generate more revenue to fund its developmental initiatives amidst declining revenue from oil.
“However, government should thread with caution in the drive for improved revenue for the following reasons.
“The economy just recently exited recession with the fragile growth rate of less than two per cent recorded in 2018 and should be delicately managed.
“The prevailing high lending rate, double digit inflation, low per capita income, high unemployment rate and a low 1.91 per cent growth rate, amidst 2.6 per cent population growth rate that are already cumulatively limiting competitiveness, can be further worsened.
“An increased VAT will spur spontaneous increase in inflation rate occasioned by increased prices of goods and services,” he said.
Ajayi-Kadir decried the unfair comparison of VAT rate in Nigeria with other countries in Africa, stating that the macroeconomic dynamics and the level of competitiveness in these countries were not the same with the country.
“There is no doubt that VAT is an important revenue source to the government for running the affairs of the country.
“However, the principle of a good tax system is predicated on payment convenience, otherwise it could boomerang, leading to crowding out of businesses; more misery to the citizens and even lesser revenue to the government,” he said.
Ajayi-Kadir proposed that an ideal tax policy should be such that took into cognisance, the status of the economy.
“In MAN’s previous position and recommendations, the association had advised government to widen the tax net rather than increasing the rate to meet the growing need for more revenue to address the development objective of the country.
“There is also the need to harmonise taxes/levies/fees payable by businesses, so as to attract more investments that will translate to higher productivity, and more tax revenue for the government in the medium and long term,” he said.
NAN
