Former Vice President Atiku Abubakar has strongly criticized the federal government’s plan to increase Value Added Tax (VAT), warning that it will have a devastating effect on the lives of Nigerians. In a statement on Sunday, Atiku said the proposed VAT hike, from 7.5% to 10%, along with recent fuel price increases, will worsen the cost-of-living crisis and further cripple the economy.
Atiku accused President Bola Tinubu of pursuing regressive policies that burden the poor while ignoring lavish spending on personal luxuries. He condemned Tinubu’s administration for being out of touch with the struggles of ordinary Nigerians, citing excessive tax and interest rate increases, which have hurt businesses and led to job losses.
The former vice president also highlighted the decline of the manufacturing sector under Tinubu’s leadership, pointing to a reported 20% reduction in its contribution to GDP since December 2023. Additionally, Atiku criticized the government’s recent agricultural policies, particularly the decision to allow duty-free imports of key commodities, warning that it threatens Nigeria’s food security by undermining local farmers.
Atiku urged Tinubu to focus on sustainable economic solutions rather than policies that will increase hardship for Nigerians, stating that these actions are “destined to ignite further turmoil.”
IMPACT OF VAT HIKE
The proposed Value Added Tax (VAT) hike in Nigeria, from 7.5% to 10%, will likely have significant impacts on various aspects of the economy and citizens’ lives. Here’s a breakdown of its potential effects:
1. Increased Cost of Goods and Services
- Direct Price Hikes: A VAT increase will directly lead to higher prices for goods and services, as businesses pass on the additional tax burden to consumers. This will worsen inflation, further driving up the cost of living.
- Essential Goods Impacted: While some essential items like basic foodstuffs may be exempt, many everyday goods will become more expensive, putting additional pressure on household budgets, especially for low-income earners.
2. Exacerbation of Cost-of-Living Crisis
- Higher Living Expenses: With the VAT increase coming on top of recent fuel price hikes, Nigerians will face rising costs across the board, including for transportation, utilities, and other essential services.
- Reduced Purchasing Power: As expenses rise, people’s disposable income will shrink, making it harder for households to afford basic needs.
3. Negative Impact on Businesses
- Increased Operating Costs: Businesses will face higher costs for supplies and services, which may reduce profit margins or force them to raise prices further.
- Smaller Businesses Hit Harder: Small and medium-sized enterprises (SMEs), already struggling due to high inflation and challenging economic conditions, could find it harder to cope with the additional burden, leading to closures or downsizing.
- Reduced Investment: With reduced profitability, businesses may scale back investments in expansion and job creation, slowing economic growth.
4. Job Losses and Economic Slowdown
- Strain on Job Creation: Rising costs could discourage businesses from hiring new workers, potentially leading to job cuts, especially in sectors like manufacturing and retail, where margins are tight.
- Slowdown in Growth: The VAT hike could stifle economic growth by reducing both consumer spending and business investment, worsening an already fragile economy.
5. Worsening Poverty and Inequality
- Disproportionate Impact on the Poor: Lower-income households will be hit hardest, as they spend a higher proportion of their income on consumables that will now be more expensive due to the VAT increase.
- Widening Inequality: Wealthier Nigerians may be better able to absorb the additional costs, but the poor will suffer the most, worsening existing economic inequalities.
6. Reduced Consumption
- Decline in Consumer Spending: As people tighten their belts in response to higher prices, overall consumption levels may drop, reducing demand for goods and services. This could have a ripple effect throughout the economy, leading to slower growth.
7. Impact on Inflation
- Upward Pressure on Inflation: The VAT hike is likely to drive inflation even higher, as businesses adjust their prices upwards. This will add to existing inflationary pressures caused by the rising cost of fuel and imported goods.
8. Government Revenue Boost
- Increased Tax Revenue: On the positive side, the VAT hike will increase government revenue, providing more funds for public projects and services. However, the benefits of this extra revenue may be offset by the negative effects on consumers and businesses.
9. Potential Social Unrest
- Public Backlash: The VAT hike could lead to widespread dissatisfaction and protests, particularly among those already struggling with rising living costs. There could be increased pressure on the government to address the worsening economic conditions.
- The VAT hike will likely put significant strain on Nigerians, particularly low-income earners and small businesses, and could contribute to an overall slowdown in economic activity. While it may boost government revenue, the broader negative impacts on inflation, job creation, and inequality are substantial.
