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7.5% VAT: Economists, others assess impact on goods, services

Published by on February 9th, 2020.

7.5% VAT: Economists, sectoral leaders assess inflationary impact on goods, services
Nigerian Market

By Victor ‘Tunde Oso

The implementation of the new 7.5% VAT rate commenced on 1 February 2020. Economists and sectoral leaders assess the inflationary impact on goods, services. Excerpts:

Goods presently being sold are past inventory — Proshare

Mr. Teslim K. Shitta-Bey, Managing Editor, Proshare NG said a week of implementation of the new VAT rate of 7.5% is too short. The impact would appear in the rise in VAT income by the month ending 28 February 2020 and as reported in March 2020. FAAC is reported monthly but IGR is quarterly.

Last FAAC available is for November 2019. Last IGR available is for Q3 2019. The delay in reporting means that measurement of the assessment of the impact of VAT on fiscal positions of the FGN and sub-nationals will be delayed.

Perception can be worse than reality. Individuals deal within margins rather than absolute values, so if marginal costs are not perceived as significant by market participants upward price adjustments may be seen as benign without worsening the recent 11.98% national average inflation rate through suppliers and vendors increasing their sales prices leading to what economists have called “cost push inflation”.

ALSO READ: VAT: Anxiety over inflation as firms reflect 7.5% hike

It should be noted that goods being sold presently were the result of sell-offs of past inventory, replacement cost may, therefore, be reflected in new inventory and increase prices over the next few months as suppliers gradually face rising replacement prices.

VAT rate hike taking toll on businesses, citizens —LCCI D-G

Dr. Muda Yusuf, Director-General, Lagos Chamber of Commerce and Industry LCCI, said the recent review of the VAT rate from 5% to 7.5% is surely taking a toll on businesses and citizens.

There are already marginal increases in costs and prices on many products and services. Its perhaps to early to determine the full extent of impact.

However, the review remains worrisome because many businesses are currently grappling with high production and operating costs, which has made sustainability difficult for many enterprises.

There is also pressure of costs driven by high interest rate, huge logistics cost, high energy cost, and high regulatory compliance costs.

Businesses often have difficulties in passing these additional costs to customers because of the weak purchasing power by many of the citizens. We had advocated that rather than increase tax rates, the government should broaden the tax base by bringing into the tax net numerous persons and enterprises that are not tax compliant.

READ ALSO: New VAT rate triggers rise in stock market transaction cost

Meanwhile, for an economy contending with high unemployment, we should be talking about economic and fiscal stimulus at this time, not an additional burden of tax.

In order to ensure fiscal sustainability of the government, it is important to address issues of the cost of governance. The recurrent expenditure of government is too high.

There is need to prune both overheads and personnel costs. The reform of the oil and gas sector would also boost revenue through the attraction of new investments.

Additionally, the government should muster the political will to compel all state-owned enterprises to remit to the federation what is due to the government. This would have a significant impact on government revenue.

Marginal price increase expected in one to two months — CPJ

Mr. Eze Onyekpere, Lead Director, Centre for Social Justice CPJ, maintained that the new VAT regime is yet to reflect in the price of vatable goods and services. It is too early to expect changes in the price of goods and services.

But I expect that there will be marginal price increase in the next one to two months when the new rate finally kicks in.

One major issue, that is outstanding is the fact that stamp duty collection and remittance by financial institutions have been sub-optimal and there is the need to increase accountability and transparency in collection and remittance.

The Central Bank of Nigeria and financial institutions should come clean and truthfully declare all collections.

4Nigerians News Nigeria.

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