VAT: States need the money, but can we trust the government? – Seye Olaniyonu

VAT: States need the money, but can we trust the government? – Seye Olaniyonu



There is a generally accepted principle of tax or Value Added Tax (VAT). Non quid pro quo, that is, no direct benefit expected when you pay tax. And the essence aside, revenue generation is the income redistribution.


First and foremost, it is important to establish that fact. Indeed, the recent announcement by the Federal Government to increase Value Added Tax (VAT) has thrown up all sorts of analysts, both on social media and conventional medium, both arguing for and against.


The analysts are as expected along party lines. This is so because the issue of taxation is relegated or avoided during election period despite its importance.


The Minister of Finance, Zainab Ahmed while announcing the proposed increment noted that the decision had become imperative. She noted that, following the approval of the National Minimum wage, the sharing formula for VAT between the three arms of government is as follows: Federal Government takes 15% while States and local governments get 50% and 35% respectively.



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VAT: States need the money, but can we trust the government? - Seye Olaniyonu



As always, the argument on the surface sounds logical. However, the issue of trust in government is vital. That said, there is a need to thoroughly discuss the merits and demerits of the policy.


Of course, people opposing the policy are of the view that it will further bring hardship on the people by causing inflation, thereby undermining the new minimum wage. Some pro-subsidy removal are even against the increase of VAT, which is quite contradictory.


While the empirical evidence to substantiate this claim is not yet available, it’s better to focus on the known fundamentals.



VAT: States need the money, but can we trust the government? - Seye Olaniyonu


The fundamental is that the country needs the money. It must be noted that the states are owing the Federal Government. In fact, all the states, excluding Lagos State, are indebted to the tune of N614 billion.


But the irony is that the political elites are not living like the country is in dire financial strain.


Not too long, a report circulated that the Senate is making moves to spend N5.5 billion on purchasing vehicles. Certainly, it does not add up.


Hence, public office holders must lead by example. As a matter of fact, they must cut down the allowances. In addition, they must do away with the luxurious SUVs and order cheaper substitutes from other brands. That would be leading by example.


Nonetheless, the bitter truth must be told. The states cannot support the existing welfare programmes, low tuition universities, cheap healthcare and subsidy on petroleum, among others.


The oil resources in the Niger Delta cannot sustain the expenditure of 193 million Nigerians. The entire OPEC members’ combined population as at 2017 is 495 million. According to the same data as published by OPEC, Nigeria’s population was pegged at 197 million people.



VAT: States need the money, but can we trust the government? - Seye Olaniyonu



The United Arab Emirate is just 9.9 million in population. Further, it has a daily oil production of 2.9 million barrel per day compared to Nigeria with its 1.7 million production capacity per day. Our population growth is the highest among the members. Indeed, Nigeria has a 5.5% population growth with the lowest per capita income.


The point is, even with oil, Nigeria is a poor country. This is as far as the oil economy is concerned even by future projections. The UAE has oil reserves of 97,800 million while Nigeria is about 35,244 million.


Certainly, the project remains invalidated if the quest for alternative energy should yield fruit.


The only alternative is that the country needs to look for means of paying for its subsidies. As a matter of fact, the new minimum wage has to be paid for. Even as rich as the United States of America is, during the last Democratic Debate, the front runner, Jeo Biden had to asked one of his opponents, Elizabeth Warren who is advocating for debt free university system and universal health care coverage how she is going to pay for it.


This is the richest country in the world.


That Nigeria has one of the lowest VAT in the world is a statement of fact. Indeed, 5% and even the proposed 7.2% VAT is still very low. But either way, the money has to come from somewhere.


The conversation has to move to the National Assembly, because only the National Assembly can give approval.


Chairman of the Committee, Solomon Adeola, in a statement issued by his Media Adviser, Kayode Odunaro, in Abuja on Thursday said: “We are glad that the minister of finance indicated that the VAT act will have to be amended for the increase to take effect.


“But we are concerned about the current economic situation of the country as it affects the generality of the people.”


What normally should be happening is for each lawmaker to use the remaining part of the break to hold town hall meetings with their constituents on the way forward. First, by educating the members and getting their opinions to form the basis of the debate on the subject.


Either passed or not, this will not be the last time the country will hear about tax. Next could be Corporate tax, PAYE or Housing tax. There will always be conversations around taxes. However, as earlier stated, the government needs the money and tax is the new alternative.



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The argument that hiking VAT will cause disincentive is valid. Nevertheless, the variables are adjustable. Scandinavian countries have proven it that that high taxation and efficiency may not produce super growth m. However, they can still ensure competitiveness and equality.


First, Nigeria has a problem of inequality. Second, the Federal Inland Revenue Services must imbibe the canon of economy in the collection of taxes to sooth the concerns of people who are skeptical.


In conclusion, the argument on “are we getting services for the ones we have paid? ” will not stand. This is because tax is non quid pro quo and neither will the issue of timing stand. No matter the timing, no one is glad giving government extra money.


Also, the argument that poor people will suffer is also wrong. This is simply because if we are to go by 89million Nigerians living under extreme poverty, which means several of them will not be affected by VAT, the added money from VAT could be redistributed through social welfare and investment into education.


Furthermore, the new minimum wage will increase demand for goods which will spur the local economy. The only problem here is how to demand accountability from the government.


Can the government be trusted to put the dividends of the new VAT to equitable use?

About The Author

Osigweh Lilian Oluchi is a graduate of the University of Lagos where she obtained a B.A (Hons) in English, Masters in Public and International affairs (MPIA). Currently works with 1stnews as a Database Manager / Writer. [email protected]

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