FG’S proposed VAT increase to worsen lean consumer wallet

The proposed increase in the consumption tax , placed on the value added to goods and services, will force companies to increase the prices of goods and services which would further worsen the living conditions of consumers, whose real income have been stifled over recent years.

In order to shore up revenue to meet budgetary expenses and cater for the new N30, 000 minimum wages, the federal government through the Minister of finance, Zainab Ahmed, last week, approved a 44 percent increase in Value Added Taxes from 5 percent to 7.2 percent, a move that has attracted various criticisms from all round stakeholders.

“In our view, the plan by the Federal Government to finance the increment in the wage burden through tax increment would force companies to raise prices significantly, ultimately placing the incidence of the tax increment on the consumers,” analysts at Lagos-based Stockbroking firm, CSL said in a note.

Manufacturers of goods and services in Nigeria have struggled to stay afloat in a harsh operating environment coupled with declining consumer’s income that has been eroded by double digit inflation.

Data from the National Bureau of Statistics on Gross Domestic Product (GDP) by Income and Expenditure approach at 2010 purchaser’s values show that consumption expenditure of households has been declining at varying rates since it rose by 1.5 per cent in 2015. This has added more woes to the revenues of Consumer Goods Companies, as they jostle for lean consumer’s cash. The consumers, on their part, are looking for the highest quality products at the lowest possible prices.

Dwindling federal government revenue ,owing to lower crude oil prices is forcing Africa’s largest economy to search for measures that would help in shoring up non-oil revenue.

Babatunde Fowler, executive chairman, Federal Inland Revenue (FIRS), hinted earlier that come next year, the tax agency would impose taxes on all online purchases. The proposed VAT hike is part of a broader drive to increase tax revenue.

“We expect the increase in VAT to generate additional N479.7bn in revenues, based on the N1.1tn collected in 2018,” analysts at Lagos-based Afrinvest, a securities and investment firm said.

Zainab while announcing the new increase said the hike was important because the Federal Government only retains 15 per cent of the VAT while 85 per cent is actually for the states and local governments. “The states need additional revenue to be able to meet the obligations of the minimum wage,” she said.

Afrivest said in a note that based on the sharing formula, the FG would receive additional N72.0bn (15.0 percent), states would get N239.8bn ( 50.0 percent), while local governments would get N167.9bn (35.0 percent) upon the implementation of the planned increase.