The 7.5 per cent Value Added Tax (VAT) increase will reduce sales and diminish profits, some big manufacturers and small business owners in the country have said.
Speaking exclusively to Daily Trust yesterday, the Vice President of the Abuja Chamber of Commerce and Industry (ACCI) in charge of commerce, Dr. Johnson Somadina Anene, expressed pessimism over the development, adding that the Federal Government may achieve the opposite of the aim of the policy.
Dr. Anene said a drop in the volume of sales and the additional slump in profit due to possible reduction in impulsive buying and consumption would also lead to a drop in the value of VAT collections.
“It will increase the cost of doing business and will also reduce profit margin. We know the laws of demand and supply, when cost is high, demand will be lower. That money they are trying to get by increasing VAT, they may eventually not get it because sales will be reduced,” he said.
The industrialist said the development may increase burden of the business owners and place more burden on customers.
He said what he expected was that the Federal Government would have expanded the tax net to include enterprises not paying tax and also ramp up monitoring to avoid tax evaders.
Industrialists and experts rejected the idea of a hike in the rate of Value Added Tax (VAT) when the Federal Government first hinted the idea.
Recently, a former Director General of the ACCI, Dr. Chijioke Ekechukwu, told Daily Trust that that the VAT increase would hurt SMEs.
Dr. Ekechukwu said Nigerians, particularly those in engaging in SMEs activities were already overburdened with tax and the VAT hike would further make doing business in Nigeria harsher with increased cost of production and services.
“They need to be more efficient in the collection. Many Nigerians with very high income or savings are not paying Quantum Meruit taxes. They pay far less than their income. Many Artisans don’t pay taxes. Vulcanisers, mechanics, plumbers, electricians, etc. have never paid taxes before,” the expert said.
Dr. Ekechukwu, who is an economist, said the increase in VAT would skyrocket the inflation rate.
“Disposable income of workers and business men and women will be eroded,” he said.
Also, the President of Lagos Chamber of Commerce and Industry (LCCI), Mrs. Toki Mabogunje expressed concern over the increase in VAT rate from 5 percent to 7.5percent.
The new tax regime according to the Chamber does not bode well for manufacturers and other stakeholders in the real economy as it will affect cost of production and profit margin, with consumers at the receiving end.
An Abuja-based entrepreneur, Mrs Ekaette Umoh, said government has no basis for increasing tax when it has not improved on infrastructure to create enabling environment for SMEs.
“Here in Nigeria, many of us have to spend so much on infrastructure. So, what is the basis for increasing VAT? What infrastructure has been improved on before increasing tax? All the previous VAT that have been paid, what has been done with it?
“We had to manage the road to my former office by ourselves. Electricity is epileptic. The government has not fixed the road to make it more accessible or improved on electricity so I have to use generator for 12 hours a day,” she said.
The CEO of Dolphin Restaurant and Catering Services, Chef Nneka Agbo, said the consumers were going to feel the impact of the tax more.
“Basically, the increment will directly be transferred to customers such that it will impact on their perceived earnings and savings. Sales may be affected and the purpose for which the VAT was increased may not be achieved and government generated revenue from this source might dwindle,” she said.
A Senior Economist with SPM Professionals, Mr Paul Alaje, said many SMEs will close-shop as a result of this increment.
“Many SMEs will go down the drain because they cannot compete in this environment. With 7.5% VAT, there is no consideration for SMEs and it might become very difficult for them to do business. Some of them will have to close shop, ” Alaje said.
The President and Chairman Nigerian Association of Small & Medium Enterprises (NASMs) Prince ‘Degun Agboade, said the increased VAT would definitely affect MSMEs.
“There is no gainsaying that the increase in VAT will affect MSMEs more than any other group because they buy across board and also they are with low disposable income. Now, out of this income they will be expected to pay additional 50% more as tax than they were paying, so it will affect MSMEs adversely.
“With the level of infrastructure that is worsening every day and the electricity that is still epileptic, if only the proceeds can be used judiciously we are hoping that things will get better.” Agboade said.
Speaking on the new Finance Bill, the Director-General of Nigeria Employers’ Consultative Association (NECA), Dr Tmothy Adewale said government should not see the Private Sector as a “cash cow” in its drive to raise revenue, as it will do more harm to the already burdened private sector and further impoverish citizens that President Buhari promised to take out of poverty.
He said: “The common man will definitely be at the receiving end of the increase in VAT. Even if businesses are taxed more through likely illegal levies and rates outside the provisions of the law, they will naturally pass the cost to the customers whose purchasing power is already at the lowest ebb.”
While proposing a way out for Nigeria, Olawale said “what needs to be done is an aggressive taxpayer enlightenment and expansion of the tax net to capture more citizens as it has been posited, arguably that less than 40% of Nigerians are tax compliant.
“The government should also put mechanisms in place to eliminate leakages as a large chunk of the IGR realised does not find its way into governments coffers.”