For many individuals and business owners, it is less than a year they grappled with adjusting to the current 7.5 percent VAT especially from the telecommunications sector. The 7.5 percent VAT increment from 5 percent was promoted on the rationale for the government of the day to generate more Internally Generated Revenue to fund its 2021 budget.
On the flip side of development, just yesterday, Monday 8th, February 2021, The International Monetary Fund, IMF proposed that VAT should yet again be increased and this time to 10 percent by 2022 and 15 percent by 2025.
According to the international body, this is because the Nigerian economy is at a critical juncture, having been weakened by falling per capita income, double-digit inflation, limited buffers, significant governance vulnerabilities, and the global pandemic. IMF said plunging oil prices and sharp capital outflows in the first quarter of 2020 significantly increased balance of payments pressures which caused output contraction, thus, exposing the economy to risks.
More Solutions to Economic Woes
Also, in its report which follows consultation with authorities in Nigeria, the IMF emphasised the need for urgent policy adjustment and more fundamental reforms to sustain macroeconomic stability and lift growth and employment.
With the consolidated government revenue-to-GDP ratio at 8 per cent in 2019, said to be among the lowest in the world, the IMF said there is limited policy space to respond to the crisis in the economy.
In light of high poverty, the IMF recommended revenue measures that are progressive and efficiency-enhancing, drawing on previous IMF technical assistance recommendations.
“A significant increase in non-oil revenue is critical to balance the negative revenue impact of the global decline of demand for oil in the long run,”.IMF
Recall that the Nigerian economy slipped into its second recession in five years last November, as the gross domestic product contracted for the second consecutive quarter.
Also, the National Bureau of Statistics said the nation’s GDP recorded negative growth of 3.62 percent in the third quarter of 2020, having recorded a 6.10 percent contraction in the second quarter.
It is the nation’s second recession since 2016, and the worst economic decline in almost four decades.
Headline inflation rose to 14.9 percent in the same month, a 33-month high, reflecting core and food inflation increases emanating from supply shortages due to the lockdown effected to curb infections.
All of these were complicated by the land-border closure and continued import restrictions, which were partially lifted in December 2020.
Earlier in the second quarter of 2020, unemployment rate reached 27 percent, with youth unemployment at 41 percent.
IMF said on Monday that the Nigerian authorities “acted swiftly to adopt a pandemic-related support package equivalent to 0.3 percent of GDP in the 2020 revised federal budget despite limited fiscal space.”
However, external vulnerabilities due to lower oil prices and weak global demand increased, with the current account remaining in deficit in the first half of 2021.
The IMF said socio-economic conditions have deteriorated, with rising food inflation, elevated youth unemployment, mass protests in October 2020, and surveys show worsening food insecurity with a significant impact on the vulnerable. It added that risks are tilted to the downside and include the resurgence of the pandemic, security situation, and unfavorable external environment.
The international body finally opened that amid the uncertainty, recovering oil prices and completion of the Dangote oil refinery could catalyze more domestic crude oil production and boost growth.
It is uncertain what way the Federal Government will go from this IMF’s proposal to reviving the economy but one thing is sure that the government must create a positive perception amongst its citizen for any increment to see the light of the day considering the current economic hardship posed especially by the Covid-19 pandemic.