Proposed increase in value added tax
Nigerian government has now made it clear that the value added tax citizens are to pay is 7.5 percent and not 7.2 percent as we thought at the initial stage. This is happening at a time when some Nigerians don't even want to pay tax at all giving personal reasons for saying so.
On Morning Crossfire Wemimo Adewuni made it clear some countries are paying as high as 25 percent VAT! A brief rundown of the saga shows that three weeks ago there was a discussion on VAT to be imposed on online transactions. Last Monday, the FIRS affirmed it will start charging VAT on online transactions both domestic and international with effects from January 2020. Of course, it also added that the date of commencement is subject to approval by the federal government.
The Federal Executive Council (FEC) in September approved the movement of VAT payment from 5 percent to 7.2 percent. That was initial agreement. That approval was made during the approval of 2020 budget. For sure, government needs more revenue to be able to cover for minimum wage expenditure.
The Minister of Finance Budget & Planning later said that the proposal is not 7.2 percent but 7.5 percent. This got more people talking. Wemimo referred to the former 2017 trial by government to increase VAT to 10 percent and that was squashed because people resisted it fiercely. Government had to revert to the 5 percent following opposition by organized labour. Some people however think that government should take this medium seriously since Nigeria needs money.
Sheriff Quadri says it’s an important step if we must generate enough to fund the 2020 budget. The conversation starts with Gbolahan Olojede who says the issue is a really serious one. “It is not as simple as a lot of people think it is. We have a very horrible revenue situation. If we are able to realize the entire revenue for 2019 budget, it comes to 6.97 trillion naira. The National Assembly says it is paying too much salary but even if we don’t even pay anything, we will still be poor. That is how bad the situation is.
“The 6.97 trillion mentioned here should at least be having half of it realized in about six months into the year. 3.5 trillion naira should have been realized by half year. That is assuming income is consistent. But in this case, we have about 2 trillion. The target for oil production in the budget was 2.3 trillion. Here we have about 1.8 trillion. So, things are not good as far as cash flow is concerned.
“The question is; can VAT solve the problem? What are the other options that we have on table? Can we remove the subsidy? If we drop that we will be moving towards 1 trillion to improve the cash flow. We can increase VAT but there is a third option that we are not even looking at. For me, it is the lowest hanging fruit. It is the fact that the upper part of the citizenry today are not carrying their fare share of the burden as they should. A good picture of that is when a few months ago FIRS put a lien out that some people with money in their account are not paying taxes. I’m not sure whether that was a good approach, but what happened is that people paid up. When 9 percent of those people paid, we realized 98 billion naira.”
Do people understand what VAT is, and what is the difference between VAT and sales Tax? Tunji Andrews takes this one up.
“VAT is Value Added Tax and is supposed to be paid by the final consumer. In Nigeria what became VAT was a consumption tax. In Nigeria, VAT is paid at every value add, which is a proper sales tax. It usually doesn’t cross 10 percent across the world. VAT is now going to be paid at every level and this is where some Nigerians are having problems with it.
“I think government needs to properly split the tax so that it’s clear what consumption is and what VAT is. VAT is shared by the three tiers of government and so what government is going to get at the end of the day is probably an additional 100 billion naira. I think state government gets about 50 percent, I’m not sure. They will be excited of course but you want to ask what is the rationale behind this?
Follow the show below....
•Gbolahan Olojede – Chartered Accountant, Economic and Public Affairs Analyst
•Tunji Andrews - Financial, Economic & Policy Analyst
Morning Crossfire with Wemimo Adewuni (@wemimospot) & Sheriff Quadry (@SheriffQuadry)
- Gbolahan Olojede (Financia Analyst/Chartered Accountant)
- Tunji Andrews (Financial/Economic Policy Expert)
Written by Jude Chukwuemeka