Emefiele Defends Proposed VAT Increase

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele has defended the proposed move of the federal government to raise the Value Added Tax (VAT) from the current 5% to 7.5%.

Emefiele who spoke to journalists in Abuja on Friday after the two-day meeting of Monetary Policy Committee (MPC) said Nigeria’s current 5% rate is one of the lowest in the world adding that the new rate will help government raise revenue to fund infrastructural projects rather than resort to borrowing.

“My response here is that the government has a responsibility to fend for everybody. In fending for everybody means it has to spend money to provide infrastructure, roads, airport and different things that will improve the lives of our people.

“But there are two ways through which the government can fund this expenditure: It is either it raises revenue or it goes for debt.  

You all know that the government has been criticised that the debt stock is too high. You all know that government has been criticised that its debt service ratios are too high” the CBN boss stated.

“When you say the debt service ratio is too high, it means that your interest rate is too high to revenue and what that also means is that your revenue is small because if your revenue is large, then your debt service ratio should be lower.

“Government unfortunately will not have any options if we say government should not borrow- then government must raise revenue. If government must raise revenue and we think that this should be one way through which the government can raise revenue to meet its obligations, I think it calls to a rationale that what we are saying is that it is the right decision to say that government has to increase VAT from 5 per cent to 7.5 per cent.”

“Yes, we agree that this may be painful but it is important that we understand that government also has an obligation that it must meet and so it must raise revenue.

“And what is this VAT rate? 7.5 per cent: compare the VAT rate in Nigeria to VAT rate in any part of the world. Nigeria’s VAT rate even at 7.5 per cent stands at one-off if not the lowest in the world.

“I think I will just have to appeal to Nigerians to please try to show understanding. It may seem painful but again, it’s important for us to know that when government spends because you are looking at the adverse consequences it has on the purchasing power of the person who will spend” he said.