As discussions on the new minimum wage payment in states gather steam, experts fear that any gains arising therefrom may be shortlived as price adjustments and taxes may erase the benefits to workers, TOBA AGBOOLA reports.
In September 11, the Finance, Budget and National Planning Minister Mrs. Zainab Ahmed, briefed State House Correspondents of government’s plan to raise the Value Added Tax (VAT) from five per cent to 7.5 per cent, about 50 per cent increase.
This is in addition to the proposed re-introduction of toll gates on highways, stamp duties on POS, and excise duties, among others.
Mrs. Ahmed, who announced the proposed increase after the Federal Executive Council (FEC) meeting, said it was to shore up revenue for federal and state governments to meet their obligations, saying the increase will take effect from January 2020, if the National Assembly approves same.
VAT is a consumption tax placed on a product and whenever value is added at each stage of the supply chain, from production to the point of sale. It could negatively affect consumers who will pay more for products.
However, the organised labour and some trade unions have rejected the proposed VAT increase, even as experts express divergent views. They said increasing VAT at this time was not welcome, as inflation has, oppressively, remained above 10 per cent for several years. This has eroded, at least, 50 per cent of the purchasing power of income earners in the last five years.
The Nigeria Labour Congress (NLC), while rejecting the increase, said it would put more hardships on workers.
The NLC General Secretary, Comrade Emmanuel Ugboaja, said VAT hike seeks to erode whatever purchasing power the minimum wage may bring. He said: “Labour sees it as a move not well thought through with the welfare of Nigerian wage earners in mind.”
He noted that what the government needs to do is to widen the tax net and get people to pay tax and not to overtax those in the net.
Similarly, the Nigeria Employers’ Consultative Association (NECA) faulted the timing of the increment. NECA’s Director General Mr. Timothy Olawale said the benefits of the recently-signed National Minimum Wage of N30,000 would be neutralised by the proposed increase in VAT.
Olawale said the increment would further reduce the purchasing power of the citizenry, lead to increase in prices of goods and services, raise inflation rate and contract the economy.
Also, the National President, Nigeria Union of Teachers (NUT), Dr. Muhammed Idris, said labour unions were opposed to the planned increment of VAT because of the negative effects it would have on workers and the citizenry.
Idris said: “We, as responsible leaders of the labour unions, are against the plans by the Federal Government to increase VAT to 7.5 per cent. Invariably, the issue of consequential adjustment of the new minimum wage has not been concluded.
“Even if it has been concluded, I do not see any reason why the same government will want to take back the money and leave the workers and the masses poorer.
“The issue of VAT and increment in other tariffs, which the Federal Government is planning to do, will not only affect the workers, it will affect the lives of Nigerians. The cost of goods and services have already been jerked up and by the time the adjustment of the new minimum wage starts to take effect, you will see every aspect of life is going to change.
“Definitely, it will leave Nigerians poorer and that is why we are against it and there is no way we can settle down and fold our hands and watch the government bring further hardship on Nigerians.
“So, we want the Federal Government to rethink its plan to increase VAT, introduce communications tax and tolling on roads,” Idris said.
Similarly, a professor of Economics from the Department of Economics at the Ekiti State University, Awe Ariyo, said the increment in salary through the new minimum wage would amount to an illusion. He explained that the new minimum wage would have been eaten up by inflation before the Federal Government would start its implementation.
His words: “The issue of minimum wage is a very sensitive one but truly speaking, the wages being paid to Nigerians rank among the lowest in the world, even among West African countries.
“Labour leaders are agitating for new wages to enhance the purchasing power of workers but the problem with the minimum wage is that it may not even serve the purpose for which it is intended. When you increase minimum wage without corresponding productivity, it will only be inflationary in nature.
“I think a better alternative to this will be to increase productivity so that the prices of goods and services can come down. There is something called ‘money illusion’ and it’s a situation whereby an average salary earner carries the nominal value of money without thinking about what the prices are saying.
“Before the minimum wage will be implemented, the prices of goods and services have skyrocketed and, in the next one year, the gain of the minimum wage would have been completely eroded. That is why I am not so enthusiastic about it. We should think about how we can enhance our productivity.
“For the minimum wage to be meaningful, the government must check its inflationary consequences.”
On the plan to re-introduce tolling on federal roads, Ariyo said it would be okay but advised the government to first fix the roads and make them passable so that motorists would enjoy the value of whatever they are asked to pay.
He also said it was for the government to generate more funds to run the nation but cautioned that taxpayers’money should not be diverted for personal use.
These taxes, according to analysts at the Bismarck Rewane-led Financial Derivatives Company (FDC), would stifle consumers who are already cash strapped.
In the latest report by FDC, the analysts explained that the taxes would stifle the real income of consumers and undermine the boost in purchasing power anticipated from the new minimum wage.
“In addition, an increase in consumer price inflation is imminent and this will make the proposed inflationary target of 10 per cent unattainable in 2020,” the analysts said.
They pointed out that the tax system was generating less than its potential, saying last year, the tax revenue from the Federal Board of Inland Revenue was N5.32 trillion ($17.39 billion), amounting to 4.12 per cent ratio for tax to the Gross Domestic Products (GDP).
This amount, they said, is substantially lower than the sub-Saharan African average of 14.6 per cent last year.
However, the analysts pointed out that the low tax revenue did not justify a VAT increase, saying that was not the root of the problem.
Rather, they want the government to focus on addressing its inefficient tax collection system, suggesting that proper training and equipping of tax officials would be a good first step, as it would help to reduce inefficiency and tax evasion.
“Improved transparency in expending the collected revenue would also help; there is the perception that government is corrupt and will not efficiently disburse the revenue for the good of the public,” the FDC analysts said.
‘Very sensitive one but truly speaking, the wages being paid to Nigerians rank among the lowest in the world, even among West African countries’