The Federal Government has proposed to increase the Value-Added Tax (VAT) from 5 per cent to 7.5 per cent.
According to SA Media and Communication to the minister, Yunusa Tanko Abdullahi in a statement on Friday in Abuja, it is sequel to the recommendation of the Presidential technical advisory committee.
Early this year, the federal government set up a technical advisory committee comprising competent and leading economists from both the public and private sectors chaired by a renowned Economist, Mr. Bismack Rewane.
The committee submitted its report on 21st March 2019 in which one key recommendations to government was VAT increase from 5 to 7.5 per cent.
When it is eventually increased, Nigeria’s VAT rate will still be at about half African average and amongst the lowest in the world, thus sub-national governments get 85 per cent.
The benefit of an increase in VAT is therefore more beneficial to state governments and Local Government Areas (LGAs) in the country, many of which are already facing difficult conditions.
The proposed increase in VAT is therefore expected to create additional fiscal space when it is eventually amended by the National Assembly.
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.
“It is gladdening that the VAT increase, if correctly implemented, could bring in huge revenues, which would actually reduce the fiscal deficit burden.
“The government’s borrowing programme could then ease and certainly the financially affected states and local governments could later focus on issues like poverty reduction, healthcare and power generation and transmission.
“According to the industry experts, the VAT increase, if enforced properly, forms part of the fiscal consolidation strategy for the country. It could, in fact, help address the fiscal deficit problem and the revenues estimated to be collected could actually mean lowering of the fiscal deficit burden for the government across board,” the statement said.
Meanwhile, analysts and financial experts say the government is not been sensitive as the proposed increase is coming at a very wrong time.
Public policy analyst, Dr. Joe Abah believes the government is putting the cart before the horse.
According to him, widening the tax net would have been done before the proposal increase.
“At 5%, Nigeria has one of the lowest VAT rates in Africa. However, I am not sure that the timing of this proposed increase is the best. People are struggling. For now, it would have been better to widen the tax net and target luxury goods, so that the poor doesn’t suffer more,” he added.
Reacting to the proposal on his twitter handle @BBoason, financial analyst, Boason Omofaye said ultimately, the middle class and the poor will fund the lifestyle of the rich.
He said: “The government has found it nearly impossible or difficult to implement the Luxury Goods Tax otherwise known as the The Wealthy Tax which was floated during GEJ and adopted by current administration in its 1st-Term.
“The last that was reported was a few billions of Naira gotten from private aircraft parking tickets or so…now the man-on-the-street will have to bail out the big boys via VAT at 7.2%.”