Minimum Wage: Nigerians should brace up for more taxes

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NLC
NLC

The apparent gain from the resolution of the crisis over the new minimum wage is the fact that the nation has been saved from another nationwide strike that would have further crippled the struggling economy. For the workers, it is yet another season of high inflation rate, more taxes and high food prices that will soon lead to another cycle of agitations for salary review

By Anayo Ezugwu

TO avert a nationwide industrial action in the country, the federal government and the organised labour have reached an agreement on the consequential adjustments of the implementation of the new minimum wage. Both parties agreed that the new wage was a national law and must be obeyed by all tiers of government.

The federal government and labour in a communiqué issued at the end of the negotiations and signed by all the parties after the marathon meeting which began on Tuesday, October 15, agreed that workers on the COMESS wage structure Grade level 7 will get 23 percent, salary grade level 8 gets 20 percent, salary grade level 9 gets 19 percent, salary grade level 10-14 gets 16 percent while salary grade level 15-17 gets 14 percent.

For those on the second category of wages structure, CONHES, CONRRISE, CONTISS etc, Level 7 gets 22.2 percent, Level 8-14 gets 16 percent, Level 15-17 gets 10.5 percent. Confirming the agreement, Chris Ngige, minister of labour and employment, said the essence of that law was for the president to lift the vulnerable working force both in the private and public service.

“This is a national law and it must be obeyed by all; state government, local government and all persons concerned that employ more than 25 persons in their organisation. We have decided to fast tract discussions. We are fast tracking it because we need to put an end to the issue of minimum wage till the next five years, when it will arise again.

Ngige
Ngige

“We need to finalise this today, the suspense is too much for the people. Even your constituency- workers, if we don’t conclude today, they will be thinking otherwise. They will start thinking that you have been compromised, even the government side, if we don’t conclude today, they will start saying you people are influencing us.

“This negotiation should be, in the spirit of give and take, in the spirit of one nation, end this thing. If we decide to empty the purse so that the nation will go broke, it will affect all of us. If we do give and take, look at government purse and know that this purse has been badly depleted, make some concession, it will be in the interest of Nigeria,” he said.

On his part, Ayuba Wabba, president, Nigeria Labour Congress, NLC, said the organised labour would continue to be open minded and would keep up with the principles of collective bargaining. “We on this side of the table are ready to ensure that we bring the entire process to a conclusion.

“In the normal practice of Collective Bargaining, you look at issues from both sides, you look at the situation with workers, vis a viz their pockets and what will make the workers happy and very productive. If wishes were horses, we would have wished that this entire negotiation was concluded yesterday.”

Disagreement over how the new minimum wage law signed by President Muhammadu Buhari in April would be implemented had lingered for months, with the organised labour threatening to go on strike. The disagreement had centred on the consequential adjustments in salaries that must be implemented across board in line with the new minimum wage law.

Labour was demanding a 29 percent salary increase for officers on salary level 07 to 14, and 24 percent adjustment for officers on salary grade level 15 to 17. But the federal government offered 11 percent salary increase for officers on grade level 07 to 14, and 6.5 percent adjustment for workers on grade level 15 to 17.

Now that the federal government and labour have reached an agreement on the new wage, it is pertinent to note that the workers and indeed all Nigerians would now have to face the enormous taxes ahead. Since the signing of the new minimum wage law in April, the government has kept proposing one form of taxation or the other and the list is gradually becoming endless.

From January 1, 2020, civil servants and Nigerians in general are expected to pay new electricity tariff to be decided by the government. The Value Added Tax, VAT, has been jerked up from five percent to 7.5 percent, while the Senate is considering a communication services tax that will lead to additional charges on calls, SMS, data and cable TV services. The bill has already passed first reading in the Senate.

The federal government may likely generate about N261 billion a year from the proposed Communications Service Tax when it is passed into law. The bill, which is sponsored by Senator Ali Ndume from Borno South, aims to charge nine percent on communication services and pay-per-view TV services.

Wabba
Wabba

Ndume, while defending the bill, said it was a way of getting more from the rich to use same for the development of the country. He stated that the bill, which had passed the first reading in the Senate, would impose levies on electronic communication services like voice calls, SMS, data usage – both from telecommunication services providers and internet service providers and pay-per-view TV services.

Likewise, Babatunde Fashola minister of works and housing recently hinted that tollgates could soon return to some federal roads across the country. And the National Identity Management Commission, NIMC, is proposing that Nigerians would pay to renew their National Identity Card. NIMC said the renewal of the National Identity Card will cost N3,000 payable through remita as well as N5,000 for card replacement.

But that is not all. The federal government is considering introducing excise duties on carbonated drinks. Zainab Ahmed, minister of finance, budget and national planning, said the idea was one of other areas, besides the proposed increase in VAT, that the government was looking at to broaden its revenue base.

In this case, the minister is proposing that Nigerians would have to pay excise duty that would be decided by the government for drinking carbonated drinks such as Coca Cola, Sprite, Fanta, Pepesi, 7Up, Big Cola among others.

As Nigerians celebrate with the workers on their new minimum wage consequential adjustments victory, analysts are of the opinion that the new sources of revenue generation being proposed by the federal government will certainly drain the already overtaxed Nigerians. They are also worried that with all the proposed means of taxing Nigerians, the new minimum wage may not have any positive impact on the workers.

The federal government has also alluded to the fact that the new wage would increase the government’s wage bill by N500 billion. Data from the Central Bank of Nigeria, CBN, revealed that the federal government’s personnel cost rose by 18.5 percent to N1.85 trillion as the minimum wage was increased from N7,500 to N18,000 in 2011, thus accounting for 52 percent of government’s retained revenue.

By 2016 personnel spending had gulped about 59 percent of federal government’s N3.2 trillion revenue and is now projected to enlarge to N2.29 trillion in 2019. While the federal government is faced with this stern burden of incorporating the new wage bill into its already strained finances, states face a more severe test given the recurring struggles to pay salaries.

The increased burden may leave the governments with no choice than to increase borrowing to settle personnel costs, causing a devastating swing on the country’s high debt profile. As the government strategises on how to meet its obligations, experts have advised them to increase productivity in order to finance the new wage.

Ahmed Zainab
Ahmed Zainab

Johnson Chukwu, managing director, Cowry Asset Management Limited, said unless government increases productivity, they will struggle to pay the new minimum wage. “Both the federal government and the states will struggle to pay the new minimum wage giving that most of them are finding it difficult to pay salary regularly and meet their wage bills.

“So any increase in the current wage bills could impose additional higher burden on the government. So with this minimum wage, we will see more unpaid arrears of salaries lead to workers dissatisfaction and possibly industrial actions. It is not enough to pass the bill, but the government must make provisions on the payments,” he said.

Also, Chukwu believes that the new minimum wage will also lead to increase in currency in circulations. He said that if the new wage would lead to increase in demand and consumption that would spur the economy. “On the positive side, the new minimum wage will inject more liquidity into the hands of consumers, which will lead to increase in aggregate demand and consumption. It is also expected to spur higher level of economic activities.”

On his part, Osaze Omoragbon, an economist, is concerned that many states will find it difficult to pay the wage. He also alluded to the fact that new wage will definitely lead to inflation, noting that the wage will increase the cost of living in the country and possibly push more people into poverty.

“The problem is that if you pay minimum wage today, many states would not be able to pay the wage. And for those like the federal government that can pay, you will see that cost of living will increase because the market women will tell you that they have increased your salary. Likewise the landlords and transporters will do the same and at the end of the day, we are back to square one.

“Although your money has increased nominally, but the effect of it has not improved. It might increase inflation and of course the Central Bank of Nigeria, CBN, will come down on us with stiffer measures to control it. So at the end of the day we are back to square one,” he said.

Uche Uwaleke, professor of Finance and Capital Market, said the planned hike in the VAT to fund the new minimum wage would end up being counterproductive, raising concern that it would lead to higher cost of goods in the country. He said in 2011, when the minimum wage was increased from N7,500 to N18,000, average inflation rate actually dropped from 13.7 percent the previous year  to 10.8 percent.

Uwaleke argued that “if a new minimum wage can only be implemented by increasing taxes, then it simply amounts to digging a hole to fill another one as the associated hike in the cost of goods and services will erode the purchasing power of any increase in wages.

“In theory, businesses are forced to raise prices when there is an increase in minimum wage, and this ultimately places cost-push inflationary pressures on the economy. Real business practices conform to this theory. A strategic attempt to absorb increasing labour costs tend to cause producers to transfer the cost of wage increase to product prices, which are eventually borne by consumers in form of higher prices.

“For instance, in 2003 when the government reviewed the wage upward, prices of goods and services rose, and inflation rate spiked from about 10.5 percent to as high as 24 percent. A similar wage increase in 2011 saw the inflation rate remaining at double digit for two years thereafter, according to data from the CBN.

“In the same manner, the 2019 wage increase has the potential of causing inflation rate to extensively exceed the CBN’s 12 percent projection and gradually eroding purchasing power and value of the new minimum wage in the long run. By then, the cycle of agitations for another wage raise may come into effect, yet again,” he said.

– Oct 18, 2019 @ 18:55 GMT |

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