FSDH sees FG raise VAT revenue to N3.47trn in 2023
… as external reserves rise to $44.64bn
The Federal Government may raise its Value Added Tax (VAT) revenue from N1.09 trillion in 2018 to N3.47 trillion in 2023, if consumption grows and the ratio of VAT revenue to GDP increases to 2.5 percent from 2019 through 2023, according to FSDH Research.
Consequently, the research arm of the FSDH Merchant Bank Limited, on Wednesday suggested measure to increase VAT revenue, which include to leverage existing associations/ecosystems in the informal sector to encourage and aid in VAT collection and remittance to government; continue to work with the deferent operators in the financial industry to increase financial inclusion and reduce informal sector of the economy, and enforcement of appropriate sanctions on any agent who defaults in VAT collections and remittances.
Other measures are to organise sensitisation programmes for collections agents to educate them on their roles in VAT collections and remittances; deploy technology to capture VAT payers and give them incentives at the end of a fiscal year, deploy technology to capture the collection agents and to give them collection incentives at the end of the fiscal year; the efforts to increase VAT compliance and block leakages may increase VAT revenue by N8.25 trillion between 2019 and 2023 without increasing the VAT tax rate from 5 percent.
In addition, FSDH Research recommends the sale of government assets that are not currently profitable and are draining government’s meagre resources. This will generate income for the government in the short-term and save income for the government in the medium to long term.
The firm linked the low VAT revenue to the large informal sector in Nigeria whose VAT is difficult to capture. The National Bureau of Statistics puts the size of the informal Gross Domestic Product (GDP) at 41.43 percent as of 2015, while the International Monetary Fund (IMF) puts it at 65 percent in 2017.
The non-remittance of VAT collected by certain collection agents and weak consumption in Nigeria are also linked to low VAT revenue.
Speaking in Lagos at the monthly economic and financial markets outlook, on ‘Monetary Policy Easing: Fiscal Policy Choices’, Ayodele Akinwunmi, head of research, FSDH Merchant Bank, said there were a number of complementary fiscal measures that the Federal Government needed to implement to ensure that Nigeria achieved the desired goal of inclusive growth.
These measures, he said, relate to the provision of a more conducive business environment in order to attract investments, both domestic and Foreign Direct Investment (FDI).
It will also require government to spend money in some critical sectors of the economy to stimulate household consumption to drive economic growth.
FSDH Research expects the March 2019 inflation rate to drop marginally to 11.29 percent from 11.31 percent in February.
Nigeria’s external reserves maintained an upward trend in March 2019, rising to hit US$44.34 billion, the highest figure since September 2018. The reserves are now $44.64 billion as April 2, 2019. The rise in the external reserves was driven by the significant rise in Foreign Portfolio Investors (FPI) in March and increase in crude oil price. This also resulted in an appreciation in the value of the Naira and provides short-term stability for the foreign exchange rate.
According to Akinwunmi, the current external reserves are enough to cover over 13 months of imports above the 3 months global benchmark and 6 months West African Monetary Zone (WAMZ) benchmark.