“As plausible as the recommendation to increase VAT may look, implementing it at this time would boomerang because the timing is inappropriate, especially at a time when the minimum wage of N30,000 was just agreed upon.”
This cautionary statement was made the Manufacturers Association of Nigeria (MAN) against the recent recommendation of the Federal Ministry of Finance to the effect that the Value Added Tax (VAT) rate is increased by 50 percent.
This recommendation was ventilated through pronouncement and commentary made on the floor of the Senate by key officials of the Government while defending the Medium-Term Expenditure Framework (MTEF).
MAN, in its position paper signed by Segun Ajayi-Kadir (Director – General), said: “Although, this commentary has been denied in a signed statement by Wahab Gbadamosi Director Communication and Servicom as published in some National dallies.
The Association still wishes to warn that if such commentary is anything to go by, it should be on record that such policy is not manufacturing friendly as the proposed VAT increase appears not to have taken into cognizance the prevailing times and the ongoing government efforts to reinvigorate the economy.”
He said that MAN believes that this could send a wrong signal that the government is not sensitive to the plight of the low – and middle – income earners, who are clearly in the majority.
“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 50% increase in VAT, ” he said.
Economic Realities of the Proposed Increase in VAT
In terms of misery index rating, low per capita income, heavily lopsided income distribution pattern, the Nigerian economy will be in a more vulnerable state if VAT is increased.
No controversy, the burden of the tax would be shifted to the Nigerian consumers that are already struggling, the economy would certainly experience demand crunch, inventory of unsold items would soar, the profitability of manufacturing concerns would be negatively impacted, many factories will witness serious downturn or wind down operations.
This would also worsen the already high unemployment position of the country which is above 23% as Nigerians currently employed by manufacturing concerns and other businesses may join the reserve army of unemployed and further bloat the unemployment rate in the country.