By Tony Obiechina, Abuja
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has endorsed the planned increase of Value Added Tax (VAT) rate from 5 to 7.5% announced recently by the Federal Government.
Answering reporters’ questions shortly after the MPC meeting in Abuja on Friday, CBN Governor, Godwin Emefiele explained that government took the decision in the interest of the people.
In the words of the governor: “Yes, the MPC endorsed the increase in the VAT rate from 5 to 7.5%. The government has the responsibility to fend for everybody.
“In fending for everybody means that it has to spend money to provide infrastructure – roads, airports, different things that will improve the lives of its people.
“There are two ways through which government can fund these expenditure. It’s either it raises revenue or goes for debt. You all know that the government has been criticized that the debt stock is too high. You all know that government the debt service ratios are too high. What that means is that your revenue is small because if your revenue is large, then your debt service ratios will be lower.
“If we say government should not borrow, then, government must raise revenue. If government must raise revenue and we think this is one way government can raise revenue to meet its obligation, it calls for a rationale that what we are saying is that it is the right decision that government has to increase VAT from 5 to 7.5%.
“Sometimes, we agree that this maybe painful. But it is important that we understand that government also has an obligation that it must meet. And so, it must raise revenue.
“Compare the VAT rate in Nigeria to VAT rate in any part of the world. Nigeria’s VAT rate even at 7.5%, stands as one-off if not the lowest in the world.
‘I will just have to appeals to Nigerians to please try to show understanding. It may seem painful. But again, it’s important for us to know that when government spends (because you are looking at the advance consequencies it will have on the purchasing power of the person who will spend).
“You should also look at the positive implication on the fact that government raises revenue, debt services ratio is lower, government can meet its obligation to improve roads or provide money for electricity, it will also have positive implication on the GDP and average growth of the country. so, which will be better then? I would rather choose (as MPC decided) that VAT will be a better option to raise revenue”.
On the Cashless Policy, Emefiele said: “I truly sympathise with the banking public and regret the inconvenience that this is causing bank customers. But let me put it this way: cashless policy in Nigeria is not new.
“It was first launched in 2012. And several engagements were held with multiple stakeholders before we started this policy in 2012. Charges have always been on deposits and withdrawals.
“And this started since 2012. Withdrawal charges have been in place. Only deposit charges are new today. It was only suspended in 2014 that it was too early to begin to charge who wanted to deposit money in the banks because we agreed that there were a lot of cash outside the banking industry.
“And that there was no need to penalize people who wanted to bring out money into the banking industry. We expect that over five years: 2014-2019, all the cash that would have been kept in peoples houses, we should have been able to bring them into the banking industry. That’s why we are saying at this time that we need to return back to that. what you are seeing today is not new.
“Today, SMEs have various options and channels available to them for collecting legitimate payment for goods and services like bank transfers, using the POS or mobile cash, USSD codes and QR codes. Indeed, it is in the public interest to promote an efficient payment system via the cashless policy which helps to reduce the punitive cost of cash processing often passed on to bank customers by our Deposit Money Banks.
“Fees on excess cash withdrawal are not new. They have been there since 2012. We need to actually embrace best practices by actually saying that we should go cashless in Nigeria.
“Since the policy was first launched, currency management cost have continued to increase year-on-year at an average annual growth rate of 33%. Notwithstanding, electronic transactions have increased within the economy. We have provided alternative channels and people have embraced it.
“This is a strategic timing of these actions because on Monday, September 23rd, the mutual envaluation by GIABA on the country’s anti-money laundry and CFT regime will begin. Passing the mutual evaluation positions, Nigerian as a state, as a safe and credible destination for financial transaction across the world.
“GIABA will be in Nigeria to access the rate at which Nigeria has embraced anti-money laundry and CFT regime. It is important that we display and show to them that Nigeria is indeed in conformity with their practices as enshrined in their anti-money laundry and CFA laws.
“If do not do what we are doing today, where if they pass us negative, even your so-called cards that you carry abroad, you will not be able to use them. It is in our own best interest that we are seen to be working in line with best global practices so that we can have a comfortable and convenient life in future.
The benefits include:
“Reduction in cash processing cost which are punitive and often passed on bank customers. And total evidence of proliferation of e-channels for life styles”.
