FBNQuest Capital asks FG to Hike Tax Rates Selectively
In the wake of renew interest shows by the Federal Inland Revenue Services to increase tax rates, FBNQuest capital, one of the leading investment banking firm is of the view that the authority should hike tax rates selectively.
The Federal Government is to increase Value Added Tax by 50 per cent to pay the new national minimum wage, Budget and National Planning Minister Udo Udoma said this week.
Udoma said the raise, first announced by the chairman of the Federal Inland Revenue Service, Babatunde Fowler, will create the required funds to meet the new wage obligation being approved by the National Assembly.
It would be recalled that the Senate on Tuesday passed for third reading a bill seeking to increase Nigeria’s minimum wage from N18, 000 to N30,000. The House of Representatives earlier passed the same bill.
Some pundits have expressed different view on the proposed tax rate hike. They said that raising VAT would further impoverish the poor as there may be price increase on staple consumption.
Also, some companies that are paying VAT input would experience increase in cost of production that they would be expected to recoup from sales tax.
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In its notes, FBNQuest said; “We have often noted that federally-collected revenue in aggregate still runs well behind budget.
For the 13 months through to November, total non-oil collection (gross) did not once reach the pro rata budget figure of N467 billion”.
To FBNQuest, there are several reasons for this underperformance, not forgetting the aggressive setting of budget targets.
The increase in the national minimum wage, which now has the approval of the Senate, adds to the challenge, so we are pleased to see suggestions in the local media of an appropriate response.
It reckoned that these reports of meetings of senior officials with a Senate commission cite plans to raise VAT by between 35% and 50%, as well as increases in both companies’ income tax and petroleum profit tax.
The firm however observed that they do not mention a hike in tax rates specifically. Rather, the executive chairman of the Federal Inland Revenue Service is quoted as anticipating the rise “by the end of the year” and, ominously, referring to “our enforcement activities”. The last quotation could well be a code for efficiency gains.
In the note, FBNQuest said; “The increases are intended to fund the higher minimum wage.
“We understand from other reliable sources that the differential payable to those earning above the minimum could be limited to N5,000 per month rather than the full N12,000 which implied by the planned hike in the wage from N18,000 to the ceiling of N30,000.
“A technical advisory committee on the minimum wage, appointed by the president, may well report its findings this week.
It is likely to recommend tax rises in some form. A more cumbersome and lengthy way of funding the wage increase, suggested by the Senate, is to revisit the revenue-sharing formula”, FBNQuest remarked.
“The bolder step in our view would be to hike tax rates selectively so as to cover the wage increase and some additional spending”, FBNQuest recommends.
FBNQuest Capital asks FG to hike tax rates selectively
