The Federal Government of Nigeria has proposed to increase the Value-Added Tax (VAT) from 5% to 7.5%. This is sequel to the recommendation of the Presidential technical advisory committee.
Early this year, the Federal Government of Nigeria 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, inaugurated on the 9th of January 2019, was to advise on the implementation of the new minimum wage. It submitted its report on 21st March 2019 in which one key recommendations to government was the VAT increase from 5% to 7.5%. Nigeria VAT rate will still be at about half the African average and amongst the lowest in the world, thus subnational governments get 85%.
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.
The proposed increase is however subject to legislative intervention by the National Assembly who will have to amend the revenue Act to reflect the proposed increase.
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.