So Nigeria has just recently increased the VAT rate to 7.5% and initial sentiment from the citizenry was that the government was becoming more anti-business.
However, there were a lot more changes prescribed in the Finance Bill than just the change in VAT (which will be covered in further posts) That were in support of business activities, particularly focused on startups and new ventures.
Anyway back to my view on VAT rate increase. A finance and tech radio personality who is a personal friend was liking the RATE hike to Japan’s progressive rate. His argument is that the increased cost will drop consumption or Aggregate Demand which is a big driver of any economies GDP… and so a Nigeria that is just recovering from a recession should be careful how they ROCK the boat.
Now I respect this view point, and the argument that this may be a shock to the Nigeria but we all know that 7.5% is still close to the low side for VAT rates, internationally.
In addition, there is a lot to be said about a nation’s culture in regards to how they will react. Nigeria is a consuming nation not a nation of savers.
I feel there will be an initial adjustment period and then the effect of the increased VAT will normalize. Frankly I am more concerned about the sealed borders… but that will be examined in the next business & money piece.
In conclusion, the contribution of this policy to cost push inflation, in my opinion, will be negligible.
Thanks for reading, please share your thoughts on my own analysis… or the economic situation in your own country.