NECA disagrees with IMF on tax increase

The Nigeria Employers’ Consultative Association (NECA) has faulted the call by the International Monetary Fund (IMF) on the Nigerian government to increase taxes in order to reduce borrowing. NECA warned that any tax increase at this time would spell disaster for an economy struggling to stay afloat.

“Yes, such an economic decision may appear to be in favour of the government, since it would drive up its revenues. However, any attempt to hike taxes would have a negative impact on households, individuals and businesses. This cannot be overstated,” NECA said in a statement on Sunday.

According to the employers’ body in the statement signed by Wale Oyerinde, its director-general, the private sector is already overwhelmed by multiple taxes, and an imposition of additional taxes on services will make the business community more vulnerable. This, NECA warned, would stall growth and result in job losses.

“In an environment where individuals and corporate entities provide services and infrastructure that should normally be provided by the government, the best the government can do is to support and ease their burdens rather than considering any plans towards making them pay for its inefficiencies and fiscal indiscipline.

“Frankly, it is not every recommendation from development agencies that should be implemented without considering the peculiarity of the context in which such policies will be implemented.”

It added: “Many a time the emphasis is always on revenue mobilisation when the conversation about tax increases is being canvassed but it is instructive to note that tax economics encompasses more than just public funds.

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“For any discerning government, a higher tax in an environment with rising inflation is not the best decision. More taxes, of course, will weaken the purchasing power of individuals and stifle consumption, with attendant consequences for social cohesion. Countries tend to reduce taxes during economic lull but increase the same during a boom.”

It further pointed out that a tax hike would create more burdens on taxpayers and defeat efforts to widen the tax net as taxpayers would consider tax avoidance measures.

“There will be massive capital flight, and the drive for direct foreign investment could be defeated,” it stressed.

NECA said that the government should rather consider widening the tax net as it (NECA) canvassed in the past at various forums.

It said: “We would rather support the IMF’s recommendation to the Federal Government to consider widening its fiscal net. It is the way to go. In addition, one of the problems government at all levels in Nigeria has is the rising cost of governance. If cost governance can be addressed decisively, it has the tendency to reduce borrowing since recurrent expenditure would automatically decrease.

“We want to reiterate that the $800m loan to serve as palliatives in view of the planned removal of subsidy is not necessary. The government must give attention to fixing the refineries and make them operational in the coming months before the removal of petrol subsidy. Already, experts and the polity at large have frowned against the loan facility and have proposed definitive approaches, including fixing the refineries and investigating without delay the subsidy regime with a view to exposing the alleged corruption associated with it. This should not be a difficult thing for the government to do,” NECA said.