How Federal Government plans to increase VAT to 7.2% affects you

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How Federal Government plans to increase VAT to 7.2% affects you

Should the Federal Government Plan to Increase VAT  be approved by the National Assembly, how does it affect you?

Why does the federal government want to increase VAT?  

With dwindling Government Revenues, the FEDERAL EXECUTIVE COUNCIL has approved Plans to increase Value Added Tax (VAT) from the current 5% to 7.2%. This means a 44% increase, since January 1, 1994, When it became functional.

Tolu Ogunlesi, the president’s Special Assistant on Digital and New Media made this known in a series of tweets on the 12th Of September 2019.

According to the Presidential Spokes Person, the decision was arrived at during the last Federal Executive Meeting FEC, held on Wednesday 11th September 2019, at the Presidential Villa Aso Rock Abuja. In 2018, a total of N1 TRILLION was collected as VAT in 2018. An increase of 44% would generate over N400 Billion in additional revenue for the government if everything remains constant.

In a series of tweets by Tolu, he  reported the following;  

  • The government wants to increase VAT from 5% to 7.2% 

  • The announcement kickstarts the commencement of the process for increasing VAT. This does not mean VAT will be automatically increased.  

  • For VAT to be increased, the National Assembly will have to approve it and pass an amendment to the current VAT ACT following which the president will append his signature. 

  • The process could take months if not years. 

  • Tolu also confirmed that part of the process will involve “extensive” nationwide consultations  

  • Consultations will mostly be with the organised private sector, Nigeria Labour Congress and other labour unions, foreign investors and multilateral organisations, media, state governors and members of the National Assembly. 

GOVERNMENT REVENUE: The oil price drop of 2014, has put Nigeria in revenue crisis. Since the government of Buhari came to power, the over N12 Trillion Naira revenue height set by the Goodluck Jonathan’s administration has not been reached.

2018, saw Nigeria’s revenue accruing to about N7.1Trillion, with a revenue of N10.4 Trillion. In 2017, it Nosedived to aboutN4.9 Trillion. VAT revenues are also a significant portion of government revenues. The total VAT revenue accruing to the Federation account was N1.04 trillion, which is about 14% revenues.

How VAT affects you:

As we all wait to see how the VAT increase consultation pans out in the next few months, the federal government will try to convince various stakeholders, then an action seeking the amendment will be passed. The implementation could be on January 1st,2020. Just like it was done in 1994.

 Nigerians will have to wait to see how the consultations pan out over the next few months. If the FG is able to convince various stakeholders, then it could likely sign the act amending the increase. Implementation could be January 1st, 2020 just like it was in 1994.

  • There will be major push backs from Unions who have also just secured increases in the minimum wage.

  • Unions could call for a lesser increase reducing it from 7.2% to anything else above 5%.

  • Nigeria has one of the lowest VAT rates in Africa.

  • VAT is a consumption tax and it is borne by the final consumer who is mostly an ordinary citizen of Nigeria.

  • In addition to VAT Nigerians also pay personal income tax, withholding taxes and sales taxes as collected by some state government (Lagos especially).

  • They will be most hit by a raise as their disposable income will be dented further.  

  • The Executive Chairman of the Federal Inland Revenue Service (FIRS), Babatunde Fowler, also recently reiterated that the payment of VAT on VATable online transactions is required by the law.

  • If this increase is passed by law there will likely be an increase in online transaction cost.

  • Nigerians will see an increase in nearly all items except the 11 items that are currently exempted (see page 14).

  • Corporations are merely collecting agents for the government and only incur a VAT cost when they are final consumers or fail to net off their VAT from purchases from VAT on sales 

 

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