The Federal Government, yesterday, defended its decision to increase Value Added Tax, VAT, rate to 7.5 per cent from five per cent, stating that the review should have been done nine years ago.
Addressing newsmen after the conclusion of the 25th Nigerian Economic Summit in Abuja, Director-General of the Budget Office, Mr. Ben Akabueze, disclosed that prior to 2010, the plan was to effect an increase in VAT rate and a reduction in Personal Income Tax, while he noted that personal income tax was increased by the government in office at that time, while it failed to effect an increase in VAT.
He maintained that Nigeria’s VAT rate was one of the lowest in the world, while he noted that the poor would not be affected by the increase, as most of them normally have minimal engagements with goods, services and platforms where VAT are charged. He further explained that the Federal Government had expanded the VAT exemption list and is ensuring that only businesses with a turnover of N25 million and above charge VAT, thereby, exempting majority of the micro and small businesses.
Akabueze also declared that the planned increased would not be favourable to the Federal Government but to the states, as the VAT Act mandates that 85 per cent of VAT collected should be disbursed to sub-national governments, which according to him, are presently struggling. He said, “The issue of increasing the VAT rate is a matter that has been long settled, about the necessity to increase it and about the necessity to improve on taxation and to do so through consumption. About nine years ago, that was supposed to happen. There were two things that were supposed to happen simultaneously — an increase in the VAT rate from five to ten per cent and a reduction in personal income tax.
One happened, while the person who was supposed to make the other one happen chickened out. “We now face down the road, taking into account the prevailing circumstances, the increase has not gone as far as 10 per cent. The Economic Recovery and Growth Plan, ERGP, stated very clearly that the VAT rate would be raised. At 7.5 per cent, Nigeria’s VAT is still one of the lowest.
“Another important thing to note is VAT is a consumption tax. The truth is the generality of the poor and vulnerable Nigerians that people have been shouting about that the increase would impact adversely, really have very minimal engagement with VAT. Because they hardly consume things or engage with the platforms where VAT is chargeable.
“In proposing the increase, two things had happened, the proposal includes an expansion of the exemption list. The VAT Act has an Exemption list, the one that exempts certain basic commodities, food, medicine and education, but we have expanded that even to cover as much as possible, the things that the poor consume. “The other thing that has changed, the existing VAT Act has no threshold for applicability, which means technically speaking, even the woman on the roadside is supposed to charge VAT. “This new proposal actually establishes a threshold that says it would apply to only businesses with a turnover of N25 million and above. It is these businesses that would charge VAT, exempting small businesses.” He added that “In the VAT Act, 85 per cent of the VAT collected actually goes to the sub-national governments. The Federal Government is not pushing the VAT rate to address its own need, but it is one economy and the reality is that the sub-national governments are struggling physically and this would help.”