WHAT YOU NEED TO KNOW ABOUT THE PROPOSED INCREASE IN VALUE-ADDED TAX (VAT)

What is Value-added Tax (VAT)? 
VAT is sometimes called a goods and services tax. It is a consumption tax which is placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. Simply put, it is a tax that is paid on a good or service as you purchase it due to the value that has been added to it.

Current VAT Rates in Africa
Nigeria's current 5% VAT rate is one of the lowest in Africa and the world.
According to a report by Pricewaterhouse Coopers (PwC), VAT rates in some other African countries are as follows: Benin Republic 18%, Botswana 12%, Cameroon 19.25%, Chad 18%, Cote d'Ivoire 18%, Ghana 15%, Kenya 16%, Madagascar 20%, Morocco 20%, Rwanda 18%, Senegal 18%, South Africa 14%, Tanzania 18%, Togo 18%, Tunisia 18%, Uganda 18%, Zimbabwe 15%, etc.
In December, 2018, Russia increased VAT from 18% to 20%. Average VAT rate in Europe is 21.3%.
The USA does not charge VAT, but there is a sales tax which varies from state to state.
In Australia, it is called a goods and services tax, and the rate is 10%.
Average VAT rate is South America is 15%.
In Asia, the VAT rates in India, China, and Cambodia are 12.5%, 17% and 10% respectively.

Proposed Increase in VAT in Nigeria
Last week, the Federal Executive Council (FEC) meeting chaired by President Muhammadu Buhari approved a proposed increase in the country's VAT rate from 5% to 7.5%. Earlier reports had given the new proposed rate as 7.2%, but, a later statement from Yunus Abdullahi, spokesperson for the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, clarified the new proposed rate as 7.5%. The proposal is subject to a review and approval by the National Assembly before it can take effect.

Nigeria's Finance Minister, Mrs. Zainab Ahmed

In the statement by her spokesperson, the minister said that the proposed increase followed the recommendation of the presidential technical advisory committee.

According to reports by Premium Times, Mr Abdulahi said that 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.

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.

PDP, Others kick, Urge caution
In a statement to Daily Post, spokesman for the country's main opposition party, PDP, Mr Kola Ologbondiyan condemned the proposal as being anti-people, exploitative and inconsiderate.

He said, “The PDP insists that the decision to increase VAT on already impoverished citizens is in bad faith and cannot be justified under any
guise. Indeed, only an administration that does not have the mandate of the people can seek to adopt such oppressive stance against its citizens.

“President Buhari ought to be aware that an increase in VAT will worsen our decrepit economy and put more pressure on families and business as it will result in increase in costs of goods and services that have direct bearing on the welfare of the people.

“Our party charges the Buhari Presidency not to further punish Nigerians by imposing harsh tax regime to make up for its crass incompetence and lack of capacity to effectively harness and manage our resources to create wealth for the benefit of the people.

“Instead of foisting more tax burden on Nigerians, the PDP charges President Buhari to account for and recover the over N14 trillion oil money established to have been stolen under his watch in the last four years”.

PDP, therefore, urged the National Assembly to protect Nigerians and save the nation from collapse by rejecting the decision to increase VAT by the Buhari Presidency.

Similarly, the Nigeria Labour Congress (NLC) and the Nigeria Employers’ Consultative Association (NECA) said that the decision by President Muhammadu Buhari’s administration to increase VAT from 5 per cent to 7.2 per cent would make nonsense of the new minimum wage increment.

NLC general secretary, Comrade Emma Ugboaja, told LEADERSHIP Friday in an interview that the VAT increment was not well thought-out as it would affect the job creation drive of the federal government.

He said: “We reject the increase as it clearly seeks to erode whatever purchasing power the new minimum wage may bring. We see it as a move not well thought through with the welfare of Nigeria wage earners in mind. Its impact on Nigerian manufacturers and job creation and retention will be nightmarish. It is clearly insensitive to the plight of the ordinary Nigerians. What the government needs to do is to widen the tax net and get people to pay tax and not to over taxv those that are at present in the net.

In his reaction, NECA’s director-general, Mr Timothy Olawale, faulted the timing of the announced increment of VAT. He argued that the benefits of the recently signed national minimum wage of N30,000 would be neutralised by the proposed increase in the consumer or sales tax.

Senate summons Finance Minister and FIRS boss over the proposal
Meanwhile, Senate Committee on Finance says it will invite the Minister of Finance and the Chairman, Federal Inland Revenue Service, (FIRS) to give details on reasons for the proposed increase in Value Added Tax (VAT).

Mr Solomon Adeola

According to reports, the Chairman of the Committee, Solomon Adeola, made the disclosure in a statement issued by his Media Adviser, Kayode Odunaro, in Abuja on Thursday.

Mr Adeola said the invitation was hinged on the proposed plan to increase VAT from 5 per cent to 7.2 per cent.

“We are glad that the minister of finance indicated that the VAT act will have to be amended for the increase to take effect.

The chairman said the interaction with the two key officials of federal government would form part of the basis for possible amendments of the VAT Act.