Out of dozens of replies this article has received via email, social media and personal conversations, I must admit and appreciate the fact that Dr. Yahaya Yakubu’s (of Economics Department, Bauchi State University) reply is the most scientific. And I am happy beyond words, that one of the objectives of this write up has been achieved; to ignite an intellectual conversation of this nature, not a politically inclined sycophantic comments, driven by hatred of certain people. I shouldn’t have respond because of this excitement, but just to add fuel to the already ignited intellectual conversation.
There are divergent views, as well as empirically conflicting findings even from similar contexts. There are also other contingent and intervening variables that also leads to desired outcome (DO), although they may not necessarily be theoretically or logically rigorous on their face validity. Sounds deviating? Well, let me digress a bit more. For example, in Islam, the goal of every Muslim is to please The Almighty Allah and ultimately make it to heaven (DO). Therefore, people engage in acts that will eventually please Him, including pleasing one’s parents! But one may ask “isn’t pleasing parents alongside The Almighty an act of Shirk”? A good response to such concerns is that pleasing one’s parents is commanded in the scriptures and it eventually leads one to paradise.
Agreed, the rationale for imposing tax is “beyond mere revenue generation”, however, to an ordinary layman like myself, revenue is what often pop up. The first question is “is it in safe hands? Then, where would the money go to? The first answer is indisputably YES, while the second question was _rightly answered at the same time the 2.5% increase was proposed. Money generated will be used to provide infrastructure among other capital and recurrent expenditure. It is up to the learned scientists to investigate whether infrastructural development has impact on economic growth (DO).
As you rightly posited that tax, (as much as people detest it on the basis of its face validity), is a fiscal policy instrument used in stabilizing economy (DO). This is in line with literature (scriptures of scientists) as Miki (2011) had argued that consumption taxes such as VAT are better for economic growth. He further argued that “consumption taxes can encourage savings, leading to increased investment (intervening variable) and subsequently have a positive effect on economic growth (DO)”. The above position is tandem with Barro (1991)’s stands, as he offered variety of determinant of the economic growth including investment. Similarly, early literary works had demonstrated that aggregate consumption is not only determine by the rate of tax, but other variables such as income, wealth, interest rates, the age distribution of the population are also responsible (Hamburger, 1954). Miki (2011) concluded that “the effect of the change of the VAT rate on aggregate consumption and economic growth is easily understood theoretically, but it is difficult to grasp the significance of this effect in practice. Sometimes the ‘science’ isn’t good for us.
Therefore, much as increase in VAT rate is seen as a taboo (Shirk of a kind), there are scientifically driven justifications (scriptures) for its implementation. However, the problem with those who read too much book is that they tend to forget (or deliberately ignore) the other side of an argument. Let me confess the fact that I also don’t want to pay high price for goods and services. Of course because of the meager pay teachers receive and our misplacement of priority. Instead of pursuing pay rise, we asked for the so-called revitalization. Anyway, that’s topic for another day.
Dr. Yahaya Yakubu wrote:
I am one of them (wailers; emphasis mine). But I think as academics that shouldn’t surprise us. What should be most surprising is the failure to appreciate the rationale and the economic theory behind the critism. What comes to people’s minds whenever tax is mentioned is revenue generation. But tax has evolved beyond a mere revenue generation to a powerful instrument of fiscal policy, use in stabilising the economy towards achieving the macroeconomic objectives. Hence, revenue target shouldn’t be the only concern when imposing or increasing tax, but the state of the economy. State of economy is not the same across countries. Thus, it is surprising to think that since they are being imposed or increased in other countries, it is desirable Nigeria should do.
Given the current state of our economy, not only that tax increment is not desirable, the citizens need tax reduction. Statistics available at the NBS show that inflation is slowly declining, however is still at double digits. If the inflation is a demand pull inflation, the propose VAT increase could have been reasonable because it shows that income has pulled demand beyond supply. But what we have is a cost push inflation. Demand is not in excess because the current administration has never allowed much liquidity in circulation. Similarly, real income has never increase, it rather decreases by day. The supply side of the economy in terms of manufacturing depends heavily on imported inputs. Hence, the unprecedented increase in exchange rate has skyrocketed the cost of manufacturing. With the current increase in VAT, which is solely on manufacturing goods, cost push inflation is expected to increase unimaginably. In all, the consumers (whose purchasing powers have already been drained) are at the receiving end. This won’t say well about the economy because it will drastically affect standard of living and other indices of Human Development.
Dr. Faruq Muhammad Abubakar who lectures at Bauchi State University can be reached via [email protected]
