VAT hike: When govt no longer listens

When the federal government decided to increase Value Added Tax (VAT), many Nigerians cried out saying that it would add to the sufferings of Nigerians but the government seems not to care about its actions’ wider implications; BENJAMIN UMUTEME reports.

When the executive took the finance bill to the National Assembly towards the end of 2019, Nigerians from all walks of life condemned it saying it would further erode the financial strength of the average Nigerian who was already living on the precipice.

And when the bill was eventually signed into law by President Muhammadu Buhari in January this year, many knew it was only a matter of time before its effect would start to hit Nigerians hard.

With its implementation rolling off on the first day of February, the majority of Nigerians have not been finding it easy as they have been feeling the effects of the implementation in their pockets.

The Finance Act 2019

On January 13, President Buhari assented to the finance bill thus making it an Act. In assenting to the bill, he said it would shore up the country’s revenue which had continued to decline due to the twin factor of falling oil prices and oil theft.

This is the first time since 1999, that a federal budget is accompanied by the passage of a Finance Bill.”

Buhari said, “I am pleased to announce that this morning I signed into law the Finance Bill, 2019. We introduced the Bill alongside the 2020 Budget, to -Reform Nigeria’s tax laws to align with global best practices; -Support MSMEs in line with our Ease of Doing Business Reforms; -Incentivise investments in infrastructure and capital markets; – raise government revenues.”

The Act has the following objectives which is to: promote fiscal equity by mitigating instances of regressive taxation; Reforming domestic tax laws to align with global best practices; Introducing tax incentives for investments in infrastructure and capital markets; Supporting Micro, Small and Medium-sized businesses in line with the administration’s Ease of Doing Business Reforms, and Raising Revenues for federal, state and local governments.

The new Act raises VAT from five per cent to 7.5 per cent.

According to statistics, Nigeria’s increase of its VAT rate to 7.5 per cent is still the lowest in Africa, and one of the lowest anywhere in the world. Presently, South Africa’s VAT is 15 per cent; Ghana: 12.5 per cent; Kenya: 16 per cent; Egypt: 14 per cent; Rwanda: 18 per cent; Senegal: 18 per cent.

The new Act indicates that it was the first legislation created to accompany an Appropriation Act since the return of democracy in 1999. To allay the fears of Nigerians and also protect low-income persons and companies that will feel marginalised by the new law, the federal government reduced the burden of taxation on vulnerable segments, promoting equitable taxation.

To firmly address this, the government in the Finance Act 2019 came up with a list of goods and services exempted from VAT.

Some of the goods included in the lists of goods and services exempted from VAT payment are: Basic food items – additives (honey), bread, cereals, cooking oils, culinary herbs, fish, flour and starch, fruits (fresh or dried), live or raw meat and poultry, milk, nuts, pulses, roots, salt, vegetables, water (natural water and table water); Locally manufactured sanitary towels, pads or tampons, and Services rendered by microfinance banks; tuition relating to the nursery, primary, secondary and tertiary education.

Under Nigeria’s revenue sharing formula, 85 per cent of collected VAT goes to states and local governments while the federal government is left with 15 per cent.

This means that the bulk of additional VAT revenues accruing from the increase will go towards enabling states and local governments meet their obligations to citizens, including the new minimum wage as already noted by governors.

The Buhari administration had firmly resisted previous suggestions to raise VAT.

The new Finance Act exempts Businesses with turnover below 25 million from VAT payments.


The managing director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said the revised VAT would have a knock-on effect on consumer disposable income due to the additional 2.5 per cent VAT on most consumer goods, thereby worsening already weak consumer demand.

However, the former CBN boss, Obadiah Mailafia, said he was concerned with the timing of the assent. “At a time of very slow recovery, it is risky to actually increase taxes. You are likely going to strangle businesses that are just struggling to survive,” he said.

According to the managing director of Afrinvest, Ike Chioke, “The negative impact will include increase in prices leading to higher inflation, less disposable income for already poor households resulting in lower consumption and a decline in GDP growth rate.” Truly, the 2020 Fiscal Act comes with plenty of goodies but also some baggage. 

And one of such baggage is the tax on phone calls and data as it has been implemented since February 1, 2020. Since February 1, many callers have continues to complain over the rate at which their call credit is exhausted.

According to public affairs analyst, Abdullahi Musa, the rate at which the airtime runs is very worrying. According to him, a 1.5GB that last for one week now last for just for days.

“The first day when I saw the massage from Airtel adding inclusive VAT I was shocked. However, after a few days, the import of the message hit me in the face as the N200 I just loaded did not last for more than 5 minutes.

For communication consultant, Akon Godfrey, the government is trying to copy the advance countries that do not have mineral resources.

“Our government is trying to take a cue from developed countries. Most of the countries don’t have mineral resources but Nigeria mineral resources that is untapped that is why our re venue is low. By the time you continue to tax citizens you are becoming desperate. The leaders have to look at other means of revenue generation and not by taxing calls,” he said.

For Biodun Folarin, the rate at which call credits are exhausted is very alarming. According to him, formerly, when he loaded N200 used it for close to 10 minutes but he says all that has changed.

“Now, you buy a card of N200 and load it within five minutes they’ll be taken all your credit. It’s adding addition burden to the common man in the country. Government should look for another way of generating revenue rather than this VAT on calls.”

“Do Nigerians really think in line with government’s line of thought? Very correct, but we must hold the federal government accountable for the VAT increase because it will definitely increase tax revenue of the country. You must hold the federal government accountable if it does not translate to reasonable increase in the country’s GDP.”

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