* Backs Nigeria On Subsidy Removal
* Increasing VAT’ll Be Considered Based On Nigeria’s Situation — Senator Enoh
Teddy Nwanunobi, Abuja
Managing Director of the International Monetary Fund (IMF), Christine Lagarde, yesterday in Abuja urged the Federal Government to step up Nigeria’s revenue mobilisation by increasing the value added tax (VAT) rate.
But Chairman, Senate Committee on Finance, Senator John Enoh, however, feels that Nigeria’s situation would be taken into consideration, if any increase needs to be made in the VAT.
Lagarde, who spoke during a meeting with the Senate President, Senator Abubakar Bukola Saraki, observed that Nigeria’s current VAT rate is not only among the lowest in the world, but well below the rates in other Economic Community of West African States (ECOWAS) members.
Warning that the new reality of low oil prices and low oil revenues means that the fiscal challenge facing government is no longer about how to divide the proceeds of Nigeria’s oil wealth, she explained that hard decisions would need to be taken on revenue, expenditure, debt and investment going forward.
“I see an immediate priority — a fundamental change in the way government operates. What do I mean by that? The new reality of low oil prices and low oil revenues means that the fiscal challenge facing government is no longer about how to divide the proceeds of Nigeria’s oil wealth, but what needs to be done so that Nigeria can deliver to its people the public services they deserve — be it in education, health or infrastructure.
“This means that hard decisions will need to be taken on revenue, expenditure, debt, and investment going forward. My policy refrain is this:
“Act with resolve by stepping up revenue mobilisation. The first step is to broaden the tax base and reduce leakages by improving compliance, and enhancing collection efficiency.
“At the same time, public finances can be bolstered further to meet the huge expenditure needs. For example, the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS members; so, some increase should be considered.
“Build resilience by making careful decisions on borrowing. Nigeria’s debt is relatively low at about 12 percent of GDP (gross domestic product). But it weighs heavily on the public purse. Already, about 35 Kobo of every Naira collected by the Federal Government is used to service outstanding public debt.
“Exercise restraint by focusing on the quality and efficiency of every Naira spent. This is critically important. As more people pay taxes, there will, rightly, be increasing pressure to demonstrate that those tax payments are producing improvements in public service delivery,” Lagarde said.
She threw more light on what she meant.
“On capital expenditure, the focus must be on high-impact and high value-added projects. This is why the government is focusing on power, integrated transport (roads, rail, air, and ports) and housing. These can help connect centers of activity across the country and drive growth prospects.
“On recurrent expenditure, efforts should be made to streamline the cost of government and improve efficiency of public service delivery across the federal and sub-national governments. Transfers and tax expenditures should also be addressed. For example, continuing the move already begun by the government in the 2016 Budget to eliminate resources allocated to fuel subsidies would allow more targeted spending, including on innovative social programs for the most needy,” she added.
On the need to remove fuel subsidy, Lagarde, who posited that the poor suffer more on the account of fuel subsidy, hinted that oil prices would remain low and low for a long time.
“The move by the government to remove the fuel subsidy is good. Those people, who need the subsidy, can receive cash transfer.
“Fuel subsidies are hard to defend. Subsidies are no longer good. But I hear that it will hurt the poor. IMF research shows that more than 40 percent of fuel price subsidies in developing countries accrue to the richest 20 percent of households, while only 7 percent of the benefits go to the poorest 20 percent.
“The people do not really need the subsidy. Look at the number of Nigerians, who spend hours in queues (at filling stations), trying to get gas so that they can go about their everyday business.
“There is a small acceleration expected in 2016. Growth in the last 10 years has slowed down in Sub-Saharan African countries.
“Oil prices will remain low and low for a long time. Oil producing countries must factor this in, and model their economic policies towards this direction.
“Nigeria is facing mounting pressure. There will continue to be abundant supply of oil, but low demands. It is very unlikely that we will see any rise anytime soon,” she posited.
Speaking, after the meeting on Lagarde’s suggestion to increase the VAT, Enoh maintained that Nigeria’s situation must be considered, if the IMF boss’ proposal to increase the VAT would be taken.
“The (2016) Budget proposals are already with the National Assembly. The instant case about the VAT, the Budget has come without any inclusion of VAT.
“The rates are still 5 percent. I also know that because it remains an estimate, we still need to engage with the executive.
“But I think that while not outright saying so, I believe that whatever proposals she has come with are going to be considered in their own merit, and whatever is applicable in terms of our own local situation, that is what is going to be done. But don’t forget, she also said, IMF didn’t come with any real recommendation for Nigeria. And she said that whatever we are doing, we are doing right,” Enoh said.
On Naira devaluation, Enoh added that: “Devaluation of the Naira didn’t come up at the meeting”.