VAT increase will diminish Nigeria's global competitiveness -Economist.
An Economist, Prof. Hassan Oaikhenan, has cautioned the Federal Government against increasing the Value Added Tax as a means of funding the proposed new minimum wage for workers in the country.
Oaikhenan, a lecturer in the Department of Economics and Statistics, University of Benin, said the policy would result in increase in general price level.
He told the News Agency of Nigeria (NAN) in Awka on Tuesday that it would also reduce the competitiveness of locally manufactured products in the international market.
The expert said the Federal Government should look away from the attractions of VAT increase and be more creative in ways of generating revenue to fund the wage increase.
He said the additional value of the increase in workers' income would become marginal or totally eroded by inflation if the policy was implemented.
'It is common Economics that when VAT is increased, those VATable products will become more expensive, we can no longer export those we used to and consumer here will prefer their foreign alternatives which is now cheaper.
'Smuggling will become more prevalent because of demand for these cheaper foreign goods; the current five per cent VAT rate is significantly impacting on general price level already.
'The combination of reduced exports and increased exports which I call 'toxic factors' will manifest in an unfavourable Balance of Payment for any country.
'It will be like when former President Olusegun Obasanjo increased wages and imposed tax on the consolidated income of workers, which took away bulk of the increase and left workers marginally better off'.