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NECA cautions Nigeria against raising taxes in accordance with IMF recommendations

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The Nigeria Employers’ Consultative Association (NECA) has cautioned the federal government against adhering to the International Monetary Fund’s (IMF) recommendation for the country to raise taxes in a bid to cut public borrowing, noting that such action would spell disaster for the country’s economy.

A statement by the Director General of NECA, Adewale-Smatt Oyerinde,  noted that the nation’s economy is already struggling to stay afloat while implementing the IMF recommendation would make the private sector, which is already overwhelmed by multiple taxes, more vulnerable.

NECA, in the statement, warned that the imposition of additional taxes would further worsen Nigeria’s business environment, provoke massive capital flight, and defeat the country’s drive for foreign direct investment (FDI) in the economy.

He said any discerning government should know that increasing taxes in an environment with rising inflation was not the best decision, adding that not every counsel or recommendation by development institutions should be considered.

Oyerinde said while the call by the IMF might appear to be in favour of the government since it would drive up its revenues, he, however, said that any attempt to hike taxes would have a negative impact on households, individuals, and businesses, which cannot be overstated.

“The call by the IMF to the federal government to increase taxes in order to reduce borrowing spells nothing but disaster for an economy struggling to stay afloat.”

“For a private sector already overwhelmed by multiple taxes, the imposition of additional taxes on services will make the business community more vulnerable, with a trade-off on growth and job creation.

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“in an environment where individuals and corporate entities provide services and infrastructure that should normally be provided by the government, the best the government could do is to support and ease their burdens rather than considering any plans to make them pay for its inefficiencies and fiscal indiscipline,” the DG of the BMO said.

“Frankly, not every recommendation from development agencies should be implemented without considering the peculiarities of the context in which such policies will be implemented.”
“Many a time, the emphasis is always on revenue mobilization 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 an economic lull but increase them 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 tax payers would consider tax avoidance measures. There will be massive capital flight, and the drive for direct foreign investment could be defeated.”

NECA, therefore, advised that the 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 problem can be addressed decisively, it has the tendency to reduce borrowing since recurrent expenditure would automatically decrease.”

 (omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)

 

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