Increase in VAT Rate is Justified -Yemi Osinbajo

In News 2020-01-28 11:47:31
Increase in VAT Rate is Justified -Yemi Osinbajo
Increase in VAT Rate is Justified -Yemi Osinbajo

By Hillary Nnoruka

 

Nigeria’s Vice President is assuring the country that the Finance Act signed into law this year will stimulate the country’s economy.

 

Yemi Osinbajo was the guest speaker at the Inspiration Conference organised by a parish of the Redeemed Christian Church of God in Lagos. He said Nigeria’s tax-to-GDP ratio is low and “a serious drawback” for the economy.

 

“Tax to GDP is a very important index for the health of the economy,” he said.

 

One of the provisions of the act is the inclusion of more Nigerians into the tax net. 

 

The government plans to raise additional revenue to fund the 2020 budget targets. The act contains sweeping changes to domestic tax laws including reforms to:

 

  • The Corporate Income Tax (CIT).
  • Personal Income Tax (PIT)
  • Petroleum Profit Tax (PPT)
  • Withholding Tax
  • Capital Gains Tax (CGT)
  • Value Added Tax (VAT)
  • And Customs Duties and Stamp Duties.

 

One of the changes that is generating the most reactions from Nigerians is the increase in Value Added Tax (VAT) from five per cent to 7.5 per cent.

Vice President Yemi Osinbajo says it is justified since Nigeria still has the lowest VAT rate in Africa.

 

The average VAT rate on the continent is 15.5 per cent, with Madagascar having the highest rate of 20 per cent.

 

Changes to tax laws

 

Other changes are the exemption of businesses with a turnover of less than 25 million Naira from VAT payments. Such companies will also not pay Corporate Income Tax.

 

The new Act includes a provision that grants an initial tax-free period of five years to all companies engaged in agricultural production. This is renewable for an additional three years.

 

Contributions to Pension and Retirement Funds, Societies and Schemes are now unconditionally tax-deductible.

 

The law was presented by President Muhammadu Buhari as the Finance Bill 2019 on the 8th of October.

 

It was passed by the Senate on November 21, and by the House of Representatives a week later (November 28).

 

President Buhari signed it into law on January 13, 2020.

 

It is the first legislation created to accompany an Appropriation   Act since the return of democracy in 1999.

 

FACTS

 

  • CIT for companies with revenues below N25 million is now 0%, that for companies with annual turnover between N25 and N100 million has been reduced from 30% to 20%.

 

  • Basic food items like bread, cereals, cooking oils, milk, poultry, fruits and vegetables are exempted from VAT.

 

  • Nursery, primary, secondary and tertiary education tuition are also exempted.

 

HIGHEST VAT RATES IN AFRICA

 

Madagascar – 20%

Cameroon – 19.25%

Algeria – 19%

Central African Republic – 19%

Niger – 19%

Tunisia – 19%

 

LOWEST VATE RATES IN AFRICA

 

Nigeria – 7.5%

Comoros – 10%

Djibouti – 10%

Liberia – 10%

Eritrea – 5 to 12%

Botswana – 12%