An Economist, Prof. Hassan Oaikhenan, has cautioned the Federal Government against increasing the Value Added Tax as a means of funding the proposed new minimum wage for workers in the country.
Oaikhenan, a lecturer in the Department of Economics and Statistics, University of Benin, said the policy would result in increase in general price level.
He told the News Agency of Nigeria in Awka on Tuesday that it would also reduce the competitiveness of locally manufactured products in the international market.
The expert said the Federal Government should look away from the attractions of VAT increase and be more creative in ways of generating revenue to fund the wage increase.
He said the additional value of the increase in workers’ income would become marginal or totally eroded by inflation if the policy was implemented.
He said: “It is common Economics that when VAT is increased, those VATable products will become more expensive, we can no longer export those we used to and consumer here will prefer their foreign alternatives which is now cheaper.
“Smuggling will become more prevalent because of demand for these cheaper foreign goods; the current five per cent VAT rate is significantly impacting on general price level already.”
The combination of reduced exports and increased exports which I call ‘toxic factors’ will manifest in an unfavourable Balance of Payment for any country.
He said: “It will be like when former President Olusegun Obasanjo increased wages and imposed tax on the consolidated income of workers, that took away bulk of the increase and left workers marginally better off.
“Again the 50 per cent increase of VAT they are talking about is more than the percentage increase they are proposing for wages, in other words, they would not only have succeeded in taking back what they gave, they would also leave the worker worse off.”
Oaikhenan said the envisaged increase in revenue from VAT adjustment may not be realised because poverty, adding that the percentage of Nigerian population consuming VATable goods was low.
He said: “How many people really patronise goods and services upon which VAT is imposed compared with the population of the country they are quite insignificant.
“Most Nigerians consume primary products because of low income, the effect of VAT on vast majority of Nigerians may not be very significant because those going to shopping malls to buy these VATable items are quite few.
“As a way around the VAT option, government has to be more creative, improve efficiency in the management of the economy, cut down cost of governance significantly, sincerely fight and stop corruption in the public sector.”
The Economist called on the Federal Government to focus on a Supply-side Economics through encouraging higher productivity in the industrial sector to create employment and curb inflation.