IMF Warns Nigeria on Aggressive Tax Measures, Seeks Supportive Policy

value added tax VAT

By Modupe Gbadeyanka

Fiscal authorities in Nigeria have been advised to slow down its aggressive hunger for generating huge revenue from taxes this year.

Nigeria, an oil-dependent nation, has struggled to raise funds for its 2020 budgets as a result of the crash in the prices of the commodity at the global market.

The decline in the price of crude oil was caused by the global health pandemic, Coronavirus disease (COVID-19).

The federal government, in order to increase its revenue, has raised pump price of petrol, increased the Value Added Tax (VAT) from 5 percent to 7.5 percent, while the Central Bank of Nigeria (CBN) has been aggressive with the N50 stamp duty on financial transactions.

Last week, the Federal Inland Revenue Service (FIRS) said residents of the country will start to pay stamp duty on house rent agreement, C of O and others.

But at a press briefing held recently, the International Monetary Fund (IMF) warned the Nigerian government to be careful with the way it goes about its tax drive because it might backfire.

The global lender, which projected a 5.4 percent decline in the country’s economy in 2020, said the COVID-19 crisis has put a deep hole in the pockets of citizens, noting that subjecting them to unnecessary taxes could further compound their woes.

While addressing journalists at the virtual online press conference, the Director of IMF African Department, Mr Abebe Aemro Selassie, stressed that, “This is not the time, of course, to be aggressively introducing new tax measures.”

However, he acknowledged that “there’s the long-standing challenge in Nigeria fiscal side of needing to have sufficient resources generated by the government from non-oil sources to provide investment in health and education and infrastructure.”

He said the local authorities can make this better for the people by coming up with a supportive fiscal policy, especially on the monetary exchange rate front.

The IMF has continually called for a unified foreign exchange rate regime in Nigeria, but the local authorities have been adamant, sticking with its multiple exchange rate system.

But the international financial institution said having a single exchange rate in Nigeria will help in adjusting the economy to external shocks.

“Our projection of 5.4 percent is contingent on a nimble policy response and avoiding some of the challenges that we saw when oil prices declined in 2016, causing GDP to be depressed for an extensive period of time.

“Subject to flexible and nimble policy response, we feel there will be some recovery in Nigeria, but this year will be clearly a difficult one for the country,” Mr Selassie said.

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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