Economists tackle IMF on call for further VAT increase

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A Professor of Economics and Public Policy at the University of Uyo, Akwa  Ibom State, Akpan Ekpo, has said a further increase in the Value Added Tax (VAT) rate is unnecessary, as it would add to the hardship of Nigerians.

Ekpo spoke with journalists on Wednesday in Lagos, against the backdrop of recommendations made by the International Monetary Fund (IMF) for a further increase in VAT rate in Nigeria.

The Executive Board of the IMF, at the conclusion of the Article IV consultation [1] with Nigeria, emphasised the need for major reforms in the fiscal, exchange rate, trade, and governance areas to lift long-term, inclusive growth.

The Directors highlighted the urgency of fiscal consolidation to create policy space and reduce debt sustainability risks.

In this regard, they called for significant domestic revenue mobilisation, including by further increasing the value-added tax rate, improving tax compliance, and rationalizing tax incentives.

Ekpo, disagreeing with the call for increase in VAT rate, said that part of the tax would be passed to consumers and cause more hardship.

“To minimize the risk, the tax base should be widened to bring those eligible into the tax net,” he said.

The professor said rather than increase VAT rate, the government should consider cutting the cost of governance.

“The cost of governance is too high. In addition, legislators should cut down and/or forgo some of their allowances.

“Government and policy makers should scrutinize their expenditures and enhance domestic resource mobilization such as taxing conspicuous consumption,” he said.

Besides, Ekpo urged government to stop listening to the IMF and similar multilateral institutions in addressing her economic problems.

Ndubisi Nwokoma, Professor of Financial Economics and Director of the Centre for Economic Policy Analysis and Research of the University of Lagos, Akoka, spoke in the same vein.

“The main problem with fiscal sustainability in Nigeria is the huge cost of governance.

“Government needs to drastically reduce the cost of governance to enable it enhance overall economic development.

“Increasing taxes (VAT, etc) may not be immediate reaction. So also is the resort to more borrowing,” he said.

According to him, presently, the debt service payments to revenue ratio is about 90 per cent and this is very unhealthy for debt sustainability.

He said that incomes are static for most Nigerians and more borrowing or more taxes might not be way out presently.

Nwokoma said, “Taxes may be increased when the economy is stimulated and median incomes begin to rise.

“The average Nigerian has already sacrificed a lot for the inefficiencies of the government.”

Sheriffdeen Tella, Professor of Economics at the Olabisi Onabanjo University, Ago-Iwoye, Ogun State, also urged government to cut expenditures to enable it to develop the economy.

“The government should think out of the box on ways of generating revenue beyond tax, cutting expenditures by arranging projects and programmes on scale of preference, making sure current increased revenue from oil is not wasted and looted but properly used for budget implementation.

“Recover outstanding debt from private sector. Stop borrowing and apply for moratorium on existing debt, but use the funds from there for sustainable projects,” he said.