The IMF Managing Director, Christine Lagarde has asked that the National Assembly to consider increasing the Value Added Tax from 5% according to reports from Bloomberg. Lagarde made this statement in a speech to the National Assembly on Wednesday according to Bloomberg. Here is how Bloomberg reported it;
“Hard decisions will need to be taken on revenue, expenditure, debt and investment going forward,” she said in a speech to lawmakers in the capital, Abuja, on Wednesday. The government must “act with resolve by stepping up revenue mobilization,” she said, and possibly raise the VAT rate from 5 percent, which is among the lowest in the world.
The slide in oil prices means the government of Africa’s largest crude producer needs a “fundamental change” in the way it operates and can’t rely on its oil wealth to deliver services, she said. President Muhammadu Buhari’s administration will need to focus on managing debt, curbing recurrent costs and eliminating fuel subsidies, she said.
Increasing VAT may have its negative effects on the economy as price of goods and services will likely increase in the same vein increasing inflation and further deepening the economic crisis. The IMF’s advice that we increase VAT will on the flip side increase government revenues and may add another N300 billion in tax revenues in 2016. The last government mulled increasing tax revenues, particularly VAT but did not have the courage to push it through as the election drew closer. It however imposed luxury taxes and other smaller taxes that analysts believed will not add significantly to government revenues. Rather than increase any component of out taxes, analysts believe the Buhari led Government is more inclined towards widening the tax net ensuring that more people pay tax. Non-oil taxes currently makes up less than 3% of GDP and Nigeria is said to rank 181 of 189 countries in a World Bank and PricewaterhouseCoopers 2016 survey on paying taxes.
Nigeria is relying heavily on non-oil revenues to fund the 2016 budget of N6 trillion with about N1.45 trillion coming from taxes, duties and levies. Nigeria collected about N2.2 trillion in non-oil taxes in 2014 . As at the third quarter of 2015 it had collected about N1.3 trillion compared to N1.8 trillion same period 2014. VAT revenue for the first 3 months of 2015 stood at N314.7 billion.