The Nigeria Employers’ Consultative Association (NECA) has warned the Federal Government not to listen to the advice of the International Monetary Fund (IMF) to increase taxes in order to reduce borrowing.
Recall that the IMF, at the ongoing IMF/World Bank Spring Meetings in the United States, advised Nigeria last Friday, to step up efforts to bring more people into the tax net, increase taxes, and reduce the country’s debt burden.
In a statement on Sunday, the Director General of NECA, Wale Oyerinde, said such an economic decision would worsen the country’s plight and affect economic growth.
He stated that the advice if taken would drive up revenues which might appear to be in favor of the government, adding that hiking taxes would have negative effects on households, and businesses.
Ajayi added that imposing additional taxes on an overwhelmed private sector could make the business community more vulnerable with a trade-off on growth and job creation.
The statement reads: “The call by the IMF on 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.
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.”
Oyerinde asserts that imposing more taxes would weaken the purchasing power of individuals and stifle consumption.
He added, “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 lulls but increase the same during a boom. Unfortunately, we are not in the latter position. Any attempt to consider a tax hike would create more burdens on taxpayers. 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 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.”