Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, on Friday appealed to Nigerians to show understanding on the proposal by the government to increase Value Added Tax (VAT) rate from 5% to 7.5% in view of the fiscal necessity to boost the nation’s non-oil revenue earnings to finance critical programmes of the government.
Emefiele made the appeal while briefing the media on the key decisions taken at the bank’s Monetary Policy Committee’s (MPC’s) meeting in Abuja.
He explained that the committee decided to support the proposed VAT rate hike because it felt that doing so was one of the best fiscal options open to government to increase tax collections in the face of sustained headwinds in the international oil market, growing demands for budget efficiency and for governments to fulfil their obligations to the people..
The Governor explained: “The government has a responsibility to fend for the people, by spending money to provide infrastructure – roads, airports, railways and different things that will improve the lives of its people,”
Recalling that government has continued to be criticised for borrowing to fund yearly budgets in recent years, Emefiele said that the MPC agreed with the proposed VAT rate hike as an alternative to borrowing in view of the multi-dimensional implications for public finance in the country.
He said: “What that means is that the government’s revenue is small. If the government’s revenue is large, then its debt service ratios should be lower. Government will not have any option. If we, Nigerians, say the government should not borrow, then the government must be allowed to raise revenue.
“If the government must raise revenue to meet its obligation, it calls for a rationale that what we (MPC) are saying is that it is the right decision that the government has taken to increase VAT from 5 to 7.5 per cent.
Emefiele said further that the committee noted that the fiscal option may not be totally come without some pains, pointing out despite this, the MPC believes Nigerians must understand that all tiers of government also have pressing obligations to must meet in terms of socio-economic needs of the citizenry.
The banker expatiated: “I will just have to appeal to Nigerians to please try to show understanding. It may seem painful.
“But if we look at the positive implications on the government’s revenue, debt service ratio is lower, government can meet its obligation to improve roads or provide money for electricity, it will also have a positive implication on the GDP and average growth of the country”, Emefiele stressed.