The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu has faulted calls in some quarters for the Federal Government to increase taxes payable in the country as a way of funding the 2016 budget proposal.
Chukwu who was not particularly happy with the call from the National Assembly for all international calls to be taxed as a way of financing the budget said this difficult situation the Nigerian economy had found itself did not call for imposition of more taxes rather government should do more to encourage consumption among the citizens, that way the economy would rebound.
He said,” One thing I know is that in economic downturn, what countries do is to minimize the taxes they impose on consumption so that citizens will consume more and the economy will come out of recession.
“If you impose more taxes on citizens that has lower rate of income, that are suffering from the inflation impact, then you are going to stifle the economy further. So, if you look at how countries like US come out of their recession, one of the things they did was that they even gave handouts so that people will have the liquidity to continue to consume. They gave tax rebates, they gave tax holidays, they gave physical cash to people so that they could improve consumption and then trade and stimulate production.
“So, in a situation where the government is saying we are going to spend more so as to trade out of recession, it is not the time to impose taxes on consumption because that will stifle consumption and kill production”.
He however called on the Federal Government to expand its tax dragnet so as to have more taxable adults and companies into the tax dragnets and compel them to meet up their tax obligations and not to impose additional taxes on the few who were paying.
On calls for further devaluation of the naira, the Cowry Asset Management boss observed that people should rather call for the liberalization of exchange control so that there will be free entry and free exit of foreign exchange without which the exchange would continue to suffer since foreign investor would no longer patronize Nigerian market.
According to him,” It is a different thing from saying unless you devalue. If you devalue without liberalizing the foreign exchange market, you are going to have a runaway inflation because you won’t still have those foreign portfolio investors coming.
“I think that what those people are saying in effect is that the FX market should be liberalized; it should be deregulated to allow those who want to take out their money take out their money. Of course, when you do that, you are going to see a shift in the exchange rate which will lead to devaluation.
“But I think it is not devaluation that is the principle of what they are saying, the principle behind it is that you have to liberalize the FX market but liberalizing it will go with devaluation because still our exchange earnings cannot sustain the current exchange rate. But that liberalizing is the key factor that foreign direct investors need to bring money into the country”.
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