NECA rejects tax hike, warns FG against IMF demand

The Nigeria Employers’ Consultative Association says the International Monetary Fund’s call on the Federal Government to increase taxes in order to reduce borrowing will affect economic growth and worse the country’s plight.

The Director General of NECA, Mr Wale Oyerinde, in a statement on Sunday said such an economic decision might appear to be in favour of the government since it would drive up its revenues.

He, however, stressed that hiking taxes would have negative effects on households, businesses, and the economy in general.

“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.”

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During the ongoing IMF/World Bank Spring Meetings in the United States, the Washington-based lender reiterated its advice to Nigeria to step up efforts to bring more people into the tax net, increase taxes, and reduce the country’s debt burden.

But Oyerinde said imposing additional taxes on an overwhelmed private sector could make the business community more vulnerable with a trade-off on growth and job creation.

“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.”

According to the NECA boss, a higher tax regime in an environment with rising inflation is not the best decision adding that tax economics encompasses more than just public funds.

He said imposing more taxes would weaken the purchasing power of individuals and stifle consumption.

Oyerinde said, “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.”

He added, “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.”