A financial expert and Managing Director of Cyber1 Systems Network International, Mr Momoh Aliyu, has faulted the increment in Value Added Tax (VAT), saying it will negatively affect the cost of living in the country.
Aliyu said this in an interview with the News Agency of Nigeria (NAN) on Thursday in Abuja, while reacting to the increment of VAT from five per cent to 7.2 per cent by the Federal Government.
NAN reports that the Federal Executive Council (FEC) on Wednesday approved the increment.
VAT is a consumption tax placed on a product; and whenever value is added at each stage of the supply chain, from production to the point of sale, it could negatively affect the users who were made to pay more for such products.
Aliyu noted that such increase could also cause a drastic reduction in consumption, thus reducing investments and business expansions.
According to him, VAT is usually shared among three tiers of government, and if the federal government is increasing it to pay salary, then, that would be unfortunate and inimical to economic growth.
“Vat in general perspective in Nigeria is shared with four per cent net to FIRS, 50 per cent to states, 35 per cent to Local Governments and 15 per cent to the Federal Government.
“With this development, only few states like Lagos, Kano, Rivers and FCT will have the impact positively, as they will have huge chunk of the money because they contribute 85 per cent of the VAT revenue in the country.
“The question now becomes, what is the fate of the economic impact of other 32 states in Nigeria which, by virtue of increment of VAT, will be affected.
“The solution to tax and VAT in Nigeria is tax netting. All the country needed to do is to create a better administrative know how that will increase tax netting.
“We currently have serious problem with compliance at five per cent; what do you think will happen to an increment?” he queried.
Another financial expert, Mr Akinsanya Niyi, also faulted the increment, adding that its timing is wrong.
Niyi said the time for the increment was wrong, owing to the economic situation and the high rate of unemployment in the country.
“An increase in VAT means a reduction in specific goods, which may lead to an increase in consumption of food items that are exempted. Increase in VAT has significant influence on consumer’s lifestyle.
“Increase in VAT reduces the purchasing power of consumers, especially when the incomes remain the same.
“This may lead to a shift in goods consumed to a lesser quality,” Niyi said.