The Organised Private Sector, OPS, slammed the International Monetary Fund, IMF, over its call on the Federal Government to increase taxes in order to reduce borrowing.
According to the OPS, prescription, which was described as toxic, if accepted by the government will lead to an overwhelming disaster for the country.
he OPS warned that such advice would decimate struggling businesses across the country and aggravate the level of poverty in Nigeria.
The OPS also reiterated that the $800 million loan to serve as palliatives, ahead of the planned removal of subsidy, was not necessary, but the government to give attention to fixing the nation’s refineries, with a view to making them operational before the removal of petrol subsidy.
OPS comprises the Manufacturers Association of Nigeria, MAN; Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, NACCIMA, Nigeria Employers’ Consultative Association, NECA, Nigeria Association of Small Scale Industries, NASSI, and Nigeria Association of Small and Medium Enterprises, NASME.
Recall that IMF had on the sideline of the just-concluded IMF/World Bank Spring meetings in Washington DC, on Thursday, restated its counsel to Nigeria to increase taxes and reduce the country’s debt burden, among other things.
It also stressed the need for Nigeria to remove the petrol subsidy and redirect such funding to targeted subsidies on critical development drivers, such as health and education.
The Division Chief, Fiscal Affairs Department, IMF, Paulo Medas, had said: “In general, what we are saying about Nigeria is the need for a medium-term plan to reduce debt vulnerabilities over time and it is because Nigeria has very low tax revenues. So, that makes it more vulnerable to these types of shocks and tightening global conditions.
“What we advocate is raising taxes, which is going to create space, not only to manage debt, but also to spend on other priorities. And the other part of what we are saying is that Nigeria has not benefited as much from the windfall of the oil prices in the past because a lot of it has been spent on these untargeted energy subsidies.
“So, by shifting to more targeted subsidies, you can reduce the fiscal deficit, and you can use the resources on other priorities that actually can promote higher growth in the future such as education, and health, and reduce the deficit. Having more targeted energy subsidies actually can be very beneficial both for fiscal, debt dynamics, and growth.
“Nigeria should broaden tax space, and improve tax compliance. Nigeria has one of the lowest tax revenues in the world as a share of GDP. So, there’s a lot of room for increasing the tax base and improving tax compliance.”
Countering the move in a statement issued by NECA on behalf of others in the group, the current OPS warned that for a private sector that was already overwhelmed by multiple taxes, the imposition of additional taxes on services would make the business community more vulnerable with a trade-off on growth and job creation.
The group argued that one of the problems the government at all levels in Nigeria had was the rising cost of governance, stressing that if the cost of governance could be addressed decisively, it had the tendency to reduce borrowing since recurrent expenditure would automatically decrease.
The OPS said, “The call by the IMF to the federal government to increase taxes in order to reduce borrowing spells nothing but disaster for an economy struggling to stay afloat.
‘’Yes, such an economic decision may appear to be in favour of the government, since it would drive up its revenues. However, any attempt to hike taxes would have a negative impact on households, individuals and businesses. This cannot be overstated.
“For a private sector already overwhelmed by multiple taxes, the imposition of additional taxes on services will make the business community more vulnerable with a trade-off on growth and job creation.
‘’In an environment where individuals and corporate entities provide services and infrastructure that should normally be provided by the government, the best the government can do is to support and ease their burdens, rather than considering any plans towards making them pay for its inefficiencies and fiscal indiscipline.
“Frankly, it is not every recommendation from development agencies that should be implemented without considering the peculiarity of the context in which such policies will be implemented.
“Many a time, the emphasis is always on revenue mobilisation when the conversation about tax increases is being canvassed but it is instructive to note that tax economics encompasses more than just public funds.
‘’For any discerning government, a higher tax in an environment with rising inflation is not the best decision. More taxes, of course, will weaken the purchasing power of individuals and stifle consumption, with attendant consequences for social cohesion.
“Countries tend to reduce taxes during economic lull but increase the same during a boom. Unfortunately, we are not in the latter position. Any attempt to consider tax hike would create more burdens on tax payers.
‘’It may defeat any attempt to widen the tax net as taxpayers would consider tax avoidance measures. There will be massive capital flight, and the drive for direct foreign investment could be defeated.
“Government should consider widening its tax net as we had posited on my many occasions and at various forums. We support the IMF’s recommendation to the federal government to consider widening its fiscal net.
‘’It is the way to go. In addition, one of the problems government at all levels in Nigeria has is the rising cost of governance. If the cost governance can be addressed decisively, it has the tendency to reduce borrowing since recurrent expenditure would automatically decrease.
“We want to reiterate that the $ 800 million loan to serve as palliatives, in view of the planned removal of subsidy, is not necessary. The government must give attention to fixing the refineries and making them operational in the coming months before the removal of the petrol subsidy.
‘’Already, experts and the polity at large have frowned on the loan facility and have proposed definitive approaches, including fixing the refineries and investigating without delay the subsidy regime, with a view to exposing the alleged corruption associated with it. This should not be a difficult thing for the government to do.”
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