NECA: IMF’s Call for Tax Increase Will Spell Disaster, Provoke Capital Flight

Dike Onwuamaeze

The Nigeria Employers’ Consultative Association (NECA) has cautioned the federal government that adhering to the International Monetary Fund’s (IMF) advice to increase taxes in order to reduce public borrowing would spell disaster for an economy already struggling to stay afloat and the private sector that is already overwhelmed by multiple taxes more vulnerable.
NECA warned that 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.

These views were expressed at the weekend by the Director General of NECA, Mr. Adewale-Smatt Oyerinde, in a statement made available to THISDAY.
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 advice from development institutions should be adhered to.

Oyerinde, said the call by the IMF might appear to be in favour of the government, since it would drive up its revenues. However, he stressed that any attempt to hike taxes would have a negative impact on households, individuals and businesses, which cannot be overstated.
He said: “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.”
He added that, “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 towards making them pay for its inefficiencies and fiscal indiscipline.

“Frankly, it is not every recommendation from development agencies that should be implemented without considering the peculiarity of the context in which such policies will be implemented.
“Many a time the emphasis is always on revenue mobilisation 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 economic lull but increase the same during a boom. Unfortunately, we are not in the latter position. Any attempt to consider tax hike would create more burdens on tax payers.

“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, “government should consider widening its tax net as we had posited on my 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 can be addressed decisively, it has the tendency to reduce borrowing since recurrent expenditure would automatically decrease.”