The proposed increase of the Value-Added Tax (VAT) rate from 5 to 7.5 per cent by the federal government is subject to the review and approval of the National Assembly, the Minister of Finance, Budget and National Planning, Zainab Ahmed, has said.
Also, the minister clarified that the increment will be to 7.5 per cent and not 7.2 per cent she announced on Wednesday at the end of the meeting of the Executive Council of the Federation in Abuja.
The minister said in a statement on Friday by her spokesperson, Yunus Abdullahi, that the proposed increase followed the recommendation of the presidential technical advisory committee.
Mr Abdulahi said early this year the federal government constituted the committee comprising competent and leading economists from both the public and private sectors chaired by the Lagos-based Economist and Managing Director/ Chief Executive Officer of Financial Derivatives Company Limited, Bismack Rewane.
The committee, inaugurated on January 9 this year, was mandated to profer advice on ways to realise alternative sources of raising funds for the implementation of the new minimum wage by the government.
The committee submitted its report on March 21 with the increase in the VAT rate from 5 per cent to 7.5 per cent as one of its key recommendations to government to handle the issue.
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The committee based its recommendation on the observation that the prevailing VAT rate in Nigeria was still about half the African average and amongst the lowest in the world.
Also, the committee said the benefit of an increase in the VAT rate will be more beneficial to state governments and local government areas, many of which are already facing difficult fiscal conditions.
About 85 per cent of the revenue collections expected from the VAT rate increase will go to the subnational governments.
“The proposed increase is subject to legislative intervention by the National Assembly who will have to amend the Revenue Act to reflect the proposed increase,” the minister said.
“The existing VAT Act exempts the basic necessities such as food, medicines and education, which therefore minimises the impact on the poor and vulnerable segments of the Nigerian society from the burden thereof.
It is expected that the exemptions will be maintained in the amended Act.
“The VAT increase, if correctly implemented, could bring in huge revenues, which would actually reduce the fiscal deficit burden,” the minister added.
She said the government’s borrowing programme could then ease.
She said the policy will reduce the financial burden of the states and local governments, to allow them focus on issues like poverty reduction, healthcare and power generation and transmission.
On Tuesday, while announcing the draft 2020-2022 Medium Term Expenditure Framework, the minister said the proposed 2020 budget of about N9.79 trillion total projected expenditure includes fiscal deficit component of about N2.1 trillion.
The minister said the deficit will be covered with new borrowings by government from foreign and domestic loans as well as other sources.
On its part, the Centre for Social Justice (CSJ) on Thursday said it supports the proposed increase in the VAT.
The Lead Director of CENSOJ, Eze Onyekpere, said the increment will help increase resources available for budget implementation and other development purposes across the three tiers of government.
Nigeria’s tax to gross domestic product (GDP) ratio, Mr Onyekpere said, remained one of the lowest in the world, the county’s VAT rate is one of the lowest in the West African sub-region.
From the group’s 2018 and 2019 federal government budget analysis, the CENSOJ had recommended for an increase in VAT as one the ways to shore up government revenue.
“The way forward is to ensure that all persons liable to VAT, collect and remit the same to the appropriate authorities.
“While we take note of the arguments about the harsh economic conditions and how the increase will impose hardship on the poor, we note that all Nigerians ought to make sacrifices considering Nigeria’s parlous fiscal condition,” Mr Onyekpere said.
Regardless, there are groups urging caution in the implementation of the policy to avoid exacerbating poverty and increase inequality among the people.
The Tax Justice and Governance Platform (TJGP) Nigeria said the federal government must design and implement policies and programmes that will enhance the welfare of the poor, protect disadvantaged groups and address the inequalities in the society.
The group consists of Christian Aid
Action Aid Nigeria, Centre for Democracy and Development, Civil Society Legislative Advocacy Centre CISLAC), OXFAM Nigeria, and the
Imo State Tax Justice and Governance Platform.