Amidst call for caution, Accountant General of the Federation (AGF) Ahmed Idris Wednesday said the new Value Added Tax (VAT) rate of 7.5 per cent had taken effect Monday, the time the new Finance Act 2019 was signed into law by President Muhammadu Buhari.
Idris, who spoke with journalists in his office in Abuja, said with the coming into effect of the new law, all payments from government treasury, whether approved before the assent of the bill into law or not, will attract the new tax rate.
“In government, you don’t take an action unless there is an approval or legal instrument. No one can jump the gun. There must be a policy in place to back all actions. The budget cannot be implemented unless the National Assembly passes the Appropriation Bill and the president signs it into law.
“For instance, there was a decision (in the 2020 Budget) to increase VAT rate (from 5 to 7.5 per cent). The National Assembly debated on it. Members of the public were sensitised and informed about it. But, nobody could start deducting the 7.5 per cent until the National Assembly approved it and the President signed the Bill into law.
“On Monday, the president signed the Finance Bill into law. And just yesterday (Tuesday), I saw a payment, which was prepared in December last year. When I checked the payment was on the VAT rate of 5 per cent. I said no.
“If I am to finalise the payment now, then the VAT rate must be 7.5 per cent. I stopped the payment and asked them to go and recharge the new VAT rate of 7.5 per cent. The payment for 5 per cent VAT has now been overtaken by event.
“That is that person’s luck. The law has to be obeyed. Otherwise, I can be queried for disobeying the law,” the accountant-general said.
When told that the payment was prepared last year and should be based on 5 per cent VAT rate, the AGF differed, vowing the actual payment is this year.
“Every payment, which for one reason or another could not be made before the coming into effect of the Finance Act, will now suffer 7.5 per cent charge for VAT, because that is the law as at today,” Idris further clarified.
In a related development, the federal government said it was projecting N18.155 trillion as target from non-oil revenue through the new tax regime.
In a statement issued in Abuja, Minister of Finance and Budget Planning Zainab Ahmed said the sum would shore up the 2020 budget.
She said: “A large sum of money realised from taxation would rather go to the people; the states and the Local Government Areas (LGAs) are to get 50 per cent and 35 per cent respectively while only 15 per cent will go to the Federal Government.”
“The law allows the expansion of VAT exemption list which includes: basic food items (agro and aqua based staple foods) such as additives, cereals, cooking oils, culinary herbs, fish of all kinds (other than ornamented), flour and starch, fruits, live or raw meat and poultry, milk, nuts, pulses, roots, salt, vegetables, and water; locally manufactured sanitary towels, tuition (primary, secondary and tertiary education); and services rendered by microfinance banks.
“Future finance bills will also provide us with additional opportunities to incrementally improve the fiscal policy and regulatory/legal environment in order to further strengthen our domestic capital market and ultimately ensure sustained and inclusive growth and development,” the minister said.
She further said the new tax law had taken care of essential palliatives to support Micro-Small and Medium Enterprises (MSMEs) and mitigate the impact of the VAT rate increase on the most vulnerable businesses, communities and citizens in the economy.
She listed some of the palliative measures to include; expansion of the list of VAT-exempt items (e.g. basic food items, educational materials and medical supplies) as well as introduction of a VAT registration threshold for MSMEs with a turnover of less than N25 million per annum.
Others include the reduction of the corporate tax rate for MSMEs from 30 per cent to 20 per cent for Small firms (with turnover of between N25million and N100million per annum) and exemption of micro-firms (with turnover of less than N25million per annum).
Meanwhile, Nigerians from all walks of life have continued to express divergent views over the planned electricity tariff increase and the new tax regime.
While the electricity tariff increase is billed to take off April, the new tax regime, contained in the finance bill recently signed into law by President Muhammadu Buhari, had since taken effect.
The new electricity tariff
Under the new tariff regime as announced by the National Electricity Regulatory Commission (NERC), residential customers of the Abuja Electricity Distribution Company (AEDC) currently paying N27.20 per unit will now pay N47.09.
Ikeja Electricity Distribution Company’s residential customers, the R3 category paying N26.50 per unit will now pay N36.92 per unit.
“The commercial customers C3 that paid N24.63 per unit in 2015 are to now pay N38.14 per unit.
“The industrial customers of the IKEDC D3 that paid N25.82 per unit are now to pay N35.85 per unit. The difference is now the additional 10.03 per unit, representing an increase of 357.42 percent”.
NERC said that Enugu Electricity Distribution Company residential (R3) customers paying N27.11 per unit in 2015 are to now pay N48.12 per unit.
NERC said the order had taken into consideration, other actual changes in relevant macroeconomic variables and available generation capacity as at October 31 2019
But a cross-section of Nigerians who spoke to Blueprint expressed divergent views over the development.
While some are of the view that it was wrong and needless, others are of the view that it would afford government to finance critical infrastructure and also stop the country from borrowing.
A former tax officer, Malam Suleiman Shehu, believed that the new tariff in electricity bill would even make the operations of the Kano Electricity Distribution Company (KEDCO) difficult as it would bring about dwindling revenue base, saying “tens of thousands of consumers would find it impossible to settle their bills on monthly basis.
“It will be counterproductive for the federal government to effect the hike at the dismal pace with which the economic situation was taking a disastrous toll on the nation. The introduction of a new tax regime would only end up making the common man the hardest hit.
Shehu said the price of essential commodities would go beyond the reach of the common man, saying “increasing electricity tariff the face of epileptic power supply is like killing a snake without beheading the head.”
Also, a staff of the Kano state Board of Internal revenue who spoke to our correspondent under anonymity said those who advised the president to approve the bill were myopic in their calculations.
And from Asaba, Delta state, a public affairs analyst, Mr. Victor Lazarus, said the new tax regime policy and hike in electricity tariffs were anti-masses.
He said: “The spending power of an average citizen was dependent on the economy even when and the economy is yet to be buoyant and Nigeria citizens are not yet in the economic stead to absorb the effect and consequences of the hike in taxes by the federal government.
“The VAT will have adverse and telling effect on the consumers. Although the tax relief for companies with turnover of less than 25 million may be seen as catalytic for economic growth, especially for teething industries and manufacturing industries, but the burden of government revenue generation should not be transferred to a pauperised and impoverished citizenry which is robbing Peter to pay Paul.”
For Comrade Jude Ojiugo-Onochie, the policies were ill-timed as they were coming “at this critical time that the masses are suffering. To raise electricity tariff and VAT at this time shows government’s failure.
Expressing similar sentiment, another resident, Mr. Godwin Udoh said: “The hike in both the electricity tariffs and VAT are uncalled for. Recently, federal government constituted a new economic team to fight poverty, but to our greatest surprise, they came up with this negative policy that would cause more hardship for Nigeria citizens. “
Also speaking to Blueprint in Bauchi, Bauchi state capital, Zulaihat U.S Danjuma said: “Increasing electricity tariffs where there is epileptic power supply is unjust and unfair.”
Furthermore, she said VAT increase was out of it, saying, “instead of the increment, government should slash the colossal amount of money being paid to political office holders as salaries and allowances.
“The running cost of governance in Nigeria is too high and needs to be reduced to the barest minimum.”
In his view, a civil servant, Aliyu Samba said: “The increase of VAT from 5% to 7.5% is another way to aggravate the rate of abject destitution Nigerian masses are facing.
“The government couldn’t meet up with the minimum wage salary for civil servants and still wants to deduct 7.5% out of it? This will not only affect the wellbeing of the masses, but will also affect the economy of the country which is recently facing an abrupt attack due to the confused fiscal federation of the country.”
While also condemning the hike in electricity tariffs, he said: “In a nutshell, the increment of the duo is nothing more than efforts to continue stealing and forcing the masses into a multi dimensional poverty and destitution. The government is really not helping matters at all.”
But another respondent, Abubakar Ahmed, supported the increase in taxes, saying instead of the government to resorting to unnecessary borrowing; it should rather increase the taxes.
Abubakar said although he supports increment in VAT, he does not support electricity tariff increase because electricity needs to be provided free of charge to citizens.
Speaking to one of our correspondents in Akure, Ondo state, President, Movement for the Survival of the Underprivileged (MOSUP), Dappa Maharajah said, while government should be applauded for its initiatives at fixing power, such burden should not be placed on the masses.
He said, as a first measure, government ought to have compelled all the DisCos to stabilise power supply across the country before jerking up the tariffs.
On VAT, he described it as “a completely bad policy intended at impoverishing the masses.”
Also, a trader, Madam Abigail Mebinuola, berated the two policies, saying they are not masses-friendly.
She said: “What is there to pay for in our power supply if I may ask? Why the increase in VAT too? All these are like adding more burden for already overburdened Nigerians.”
The reaction took a different dimension in Awka, Anambra state, as residents Monday took to the streets of Onitsha, a commercial hub in the South-east, while some others also carried their protests to the Enugu Electricity Distribution Company (EEDC) office in Awka.
Speaking to our correspondent, an activist, Comrade Osita Obi, said the increment in electricity tariff was obnoxious if the government goes on to implement it without consulting the consumers and other stakeholders.
Obi, however, reserved comment on the new finance law, saying he would speak in due time.
But a public affairs analyst and veteran journalist, Mr. Polycarp Onwunbiko, said the deeds had already been done since the president had signed the bill into law, as such the masses would bear the brunt.
Onwubinko further said, although the increment in electricity tariffs and taxes would swell the federal government’s revenue, “there is however fear that it could not still be utilised adequately in developing the country.
“What we need is restructuring of Nigeria. There will be no meaningful development of the country no matter how the taxes and electricity tariff are increased if the country is not restructured to empower every region or federating units to develop themselves.”
Similar views were expressed by the Oyo state Chairman of the Nigeria Labour Congress (NLC), Comrade Bayo Titilola Sodo and former presidential candidate of the National Action Council(NAC), Dr. Olapade Agoro.
The duo spoke Tuesday in Ibadan in separate interviews with Blueprint.
Sodo said: “Both policies will have terrible implications for the ordinary Nigerians, particularly workers. It has taken this government so long, foot-dragging before approving minimum wage for workers. Only shortly, few weeks after, to come up with policies that will take even more than they have given to the workers”.
“How can we increase tariffs on electricity at this time and the taxes, especially the Value Added Tax? Our tax system should be progressive. The government ought to be taxing the rich and not the masses. You cannot be using the poor Nigerians.”
In his view, Dr. Agoro said these are “two hikes capable of junketing the happy New Year mood of almost all Nigerians.”
“Take it or leave it, any of the two aforementioned hikes would somehow have exerting effects on the economic situations of Nigerians. The two coming out simultaneously together at a period of economic turpitude and evidential depravity means nothing than added pains and sorrows to the people.
“ The hike in VAT no doubt carries with it some added beneficial strength to the income generation to the government purse, which means value enablement and gains offer able of the quality service to the people. However, with the past experience in prudent governmental financial management, the fears are always there.”
In a similar view, the Kwara state Chairman of NLC, Alhaji Aliyu Issa said the ‘double hikes’ won’t do Nigerian workers any good.
The labour leader likened the two measures “to someone who doled out with his right hand and retrieved it with his left hand,” saying “it’s just a way of getting back what they have given out.”
“Only eight to ten states have signed agreement for negotiation. So many states, including Kwara, have not even signed any agreement not to talk of payment. So, if the federal government had known that this is what they wanted to do, they should have waited for like four months to this time when the minimum wage would have been fully effective. That is my opinion.”
MAN wants wider consultations
In his reaction, Chairman, Manufacturers Association of Nigeria (MAN), Kwara/Kogi chapter, Dr. Kamorouden Yusuf, urged the federal government to endeavour to make wider consultations with major stakeholders in the nation’s economy to arrive at workable template which would best suit the populace.
“Now that the House of Representatives has stopped the federal government in the process, I think more can still be done towards arriving at equilibrium where everyone will be part of the process.
“As we all know, electricity is one of the major determinants of the price of goods and services. Once there is tremendous increase in the supply of electricity to consumers, especially manufacturers, definitely, it will affect the unit price of every commodities putting cognisance attention to the cost of production.”
Expert justifies measures
But an economic expert, Yusha’au Aliyu and a public affairs analyst, Emmanuel James, believe the measures would be beneficial to the nation.
In a telephone chat with one of our correspondents, Aliyu said: “The increment of Value Added Tax VAT from 5% to 7.5% is periodic reform which is undertaken by different administration at different intervals. There is no way a country can shy away from modern financial management. That is drawing more revenues directly from the economy instead of going to borrow to finance the critical infrastructure.
“However, the impact has to do with the beneficiary, because any time a tax is been imposed there is a beneficiary. But a good principle about taxation is return benefit. Any time a tax is fixed, it is expected that the benefit of the tax to payers is going back to them. So if you want to access the impact of tax, it depends on the administration and the management of the tax. And also tax implementation to the fullest.
“If it is the plan of the government to realise additional revenue, yes of course, government will realise additional revenue to inject into the economy to finance medium terms frameworks. Two issues are important, one, we have to check the income, we have to check the tax imposed, we also have to understand that even if the taxes are imposed on special goods, it ends with the consumer. So if it ends with the consumer, there is no theory in the whole world that will not say if income and taxes change, it means that people’s purchasing power is not eroded. If the purchasing power is eroded, what they have, to keep their live moving will be reduced because of additional taxes.
“However, if it is carefully utilised for critical infrastructure that are needed to improve lives, then it will improve the living standard of the people. It will bring more businesses into the economy and bring better opportunities for citizens.
“There must be opinion on any economic issues. But the truth is that those who are good citizens are citizens that are paying taxes. However, for someone to conclude that the president will not make good use of it, is a different issue. Probably, we have to give time. Any policy requires time, there is time to test. If tested and there discovered any mismanagement on the part of federal government, then the issue can be reviewed.”
On his part, Mr James, a public affairs analyst also said the increment in electricity tariff would help the federal government get the needed funding to address Nigeria power problem.
“Since the government announced its proposed increase in electricity tariff, many Nigerians have been speaking about it. The question is; are we happy with the condition of our power supply? To me, if the increase in electricity tariff will help solve the power problem we are facing as a nation and bring about more employment opportunity for our youths, I think we should all be patient with the federal government and see how it will all play out,” the analyst said.