FG Proposes Increase In VAT Rate

The Presidential Committee on Fiscal Policy and Tax Reforms has proposed raising the 7.5% value-added tax rate.

According to Punch, the committee’s chairman, Taiwo Oyedele, made the idea during a stakeholder exposure and effect assessment workshop in Abuja to review some of the major provisions in the National Tax Policy.

According to Oyedele, the committee has proposed increasing state and local governments’ share of VAT revenue to 90% from the existing 85%.

According to Section 40 of the VAT Act, the federal government receives 15% of the tax revenue, the states 50%, and local governments the remaining 35%.

However, Oyedele stated that the group recommends cutting the federal government’s stake from 15% to 10%.

“We are proposing that the federal government’s portion should be reduced from 15 percent to 10 percent. States’ portion will be increased but they would share 90 percent with local governments,” he said.

Oyedele said the committee proposed adjusting the sharing formula for VAT because it is a tax of the states. “In 1986, we had sales tax collected by states. The military came up with VAT in 1993 and stopped sales tax so they said it would collect VAT and return 15 per cent as cost of collection and that is the 15 per cent charged today came about. But we think it is too much,” he said.

The tax expert also stated that the burden of VAT should fall on the final consumer.

“The burden of Value Added Tax should be with the ultimate consumer. So we must make it transparent and neutral and this is what over 100 countries where they have VAT are doing. Nigeria’s economy is more than 50 per cent in services and if I just stop at this, many states will be broke because VAT collection will go down by more than 50 per cent and it won’t even fly.

“So we therefore need to adjust the VAT rate upward. We would ensure that it doesn’t affect businesses. The only thing is to look at basic consumption from food, education, medical services and accommodation will carry zero per cent VAT. So for the poor and small businesses, no VAT.

“Then for the rest of us, we will pay a little bit more. We have spoken to businesses about it and they won’t increase the product price. We want to make sure when we do VAT reform, no one will increase the price of commodities. We will work the Mathematic with the private sector.” he said.

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Nnamdi Okoli