Why FG’s planned VAT rate increase will do more harm than good

As part of the Federal Government’s revenue generation plan, the Minister of Finance, Budget and National Planning, Zainab Shamsuna Ahmed, announced the intention to increase the rate of Value Added Tax (VAT).

One of the claims of the Federal Government is that Nigeria still has one of the lowest VAT rates in the world. A claim which is valid but not reasonable, because comparing VAT rates to justify an increment is a false equivalence. The Federal Government was quick to pull out the same claim when they recently increased fuel prices too.

The experiences of Nigerians and the circumstances that Nigerians live under are different from those of other countries so to compare taxes would not be proper.

Historically, Nigerians feel that they do not get commensurate returns on their taxes and other civic duties. Taxes are often embezzled, and tax compliance is still low in Nigeria even as the government is trying to do a tax drive and encourage citizens to pay taxes. A sizable portion of the Nigerian labour force comprises informal workers, many of whom are undocumented, do not pay tax or even declare tax returns. Until Nigeria has a proper social security system, tax compliance would continue as a problem.

Instead of increasing taxes at this time when people are just recovering from the COVID-19 pandemic and its attendant challenges, government should work hard to build a solid social security system and build trust in their administration.

Nigeria already has databases that can be integrated to build a proper social security system where everyone is accounted for. Also, trust must be built and the people must know that their money would work for them. Many Nigerians still do not believe that their taxes are needed as they daily hear cases of corruption that go without consequences. If people know that no politician or government official can steal their money and go scot-free, they would comply with tax payments.

If the government proceeds with the VAT rate increase at this time when the economy is already struggling and people are reeling from a pandemic, citizens would only find ways to evade payment. I believe that one pointer to the fact that the increment is ill-timed is the recent need for government to share palliatives to citizens.

Palliatives are not for citizens who are thriving, so why tax people who are already economically battered? No matter the threat, poor citizens won’t pay exorbitant taxes, they would simply evade it and this would lead to even low trust in government and a culture of evading taxes.

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